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Welfare Impacts of Single-Provider Residential-Electricity-Service Price Discrimination

Welfare Impacts of Single-Provider Residential-Electricity-Service Price Discrimination. Heuristic Design for Testing a Topology-Based Monte Carlo Simulation of Household Electricity Service in a Midwestern U.S. Market Dan Hamblin President, Dan Hamblin & Associates, Inc.

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Welfare Impacts of Single-Provider Residential-Electricity-Service Price Discrimination

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  1. Welfare Impacts of Single-Provider Residential-Electricity-Service Price Discrimination Heuristic Design for Testing a Topology-Based Monte Carlo Simulation of Household Electricity Service in a Midwestern U.S. Market Dan Hamblin President, Dan Hamblin & Associates, Inc.

  2. What are the heuristic scenario dimensions? • The UDC customer contract – Standard Offer (IO1) or More Than a Standard Offer (IO2) • UDC retail price behavior – never below cost (IP1) or below cost at will (IP2) • The live player problem – Strong with 2-yr. flat rate (P1), Weak player with 2-yr. flat rate service contract (P2), Strong player without flat rate (P3) What else changes? DH&A Inc.

  3. Base load wholesale power can be natural gas + nuclear (HIGH) or else coal + nuclear (LOW) What is the purpose of the experiment? DH&A Inc.

  4. Do customers want Energy Star technology and service bundles promoted by the UDC? • Beefed-up conservation assistance easy to implement • Helical fluorescent bulbs • Energy-efficient refrigerator/freezer • 2-way customer/utility datacom that switches appliances from peak- to base-load rates • Photovoltaic roof panels with net metering • Energy-efficient, water-conserving, clothes’ washing machine Let’s look at the two LOW base-load price examples.

  5. Price discrimination profit per customer per month is high while entire-year consumer surplus is small and producer’s surplus is always negative. and suppose we let coalition partners start and maintain price wars? DH&A Inc.

  6. Price wars lessen the good news for customers and increase the bad news for the producer. We have seen the LOW-priced half of 12 heuristic scenarios. DH&A Inc.

  7. What were the stars among non-player coalition-partner technology service bundles & were they Energy Star’s? • Improved customer service (129.2%) • Bundled electricity, water, & natural gas service with consolidated billing (125%) • Net-metered photovoltaic panels randomly sized at 1.575 or 3.15 kW DC (120.8%) Overnight costs were $16,537.50 or $33,075 for use under Kansas City, MO sunlight. DH&A Inc.

  8. What is the bad news and the good news? • Intransigent customers prefer the current contract. • Energy Star promotion costs little, while gaining customer acceptance. Shadow prices produced these results. DH&A Inc.

  9. Are there some messy details we might like to know? • Random choice of what to do in coalition partner portfolios as per Gary Becker • Derived consumer surplus estimates reflect Hicksian income compensation DH&A Inc. What about Paul Joskow’s Basic Electricity Service mandated for a new customer’s first year?

  10. Default service attracted existing customers as well! DH&A Inc. Nash coalition or Von Neumann-Morgenstern solution from Heuristic Scenario P2, IO1, IP1?

  11. No Nash coalition beats the UDC Standard Offer but the Cartel coalition with side payments is the Von Neumann-Morgenstern solution DH&A Inc. Without side payments to coalition partner slots 3 & 7, the VN-M total would be -$8.30.

  12. Welfare Impacts of Single-Provider Residential-Electricity-Service Price Discrimination Heuristic Design for Testing a Topology-Based Monte Carlo Simulation of Household Electricity Service in a Midwestern U.S. MarketA presentation by Dan Hamblin, President of t: 260.436.8577 f: 260.436.8611e:danhamblin@shadowprice.comw:www.shadowprice.com Thanks for the opportunity to give these concepts the red face test.

  13. Bonus slide tells what happens if player relies on price alone DH&A Inc. Do-nothing player gives same result

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