Kyle Kettler presented a new collaboration with Prof. Matthew Harding of UCI and Prof. Jerry Hausman of MIT. The paper, titled “A Structural Approach to Dynamic Electricity Pricing and Consumer Welfare,” investigates time-dependent prices for electricity. The authors find that customers are better off under a price system where electricity is cheap in the morning and evening but much more expensive during the afternoon.
Utilities often charge higher rates during the afternoon and offer reduced prices during off-peak hours in an attempt to control how much power is required by the grid. A utility can charge a higher afternoon cost on hot days where electricity demand is likely to be high, or leave the price low on days where consumers don’t need to conserve. Using a machine learning algorithm to predict how consumers would have responded to changes in temperature under a more conventional flat rate, the authors model how different households responded to the changes in prices.