Information management in retail market design in the electricity supply industry

The retail electricity market is no different from any other market in the need to know how much of a good is bought and by whom and when. However what sets the electricity market apart is the time definition of the “when” and therein lies the problem. It is not enough to know how much a customer uses; it is when that use takes place that is important.; In an ideal world all customers would have their consumption measured accurately and in real time. Costs however are a problem in the real world and other less costly approaches are needed. Market designers then have to decide which measurement approach to apply to which group of customers. Affordability has been the main criterion used. If the costs of measurement are a small percentage annual outlay on electricity (usually based on a fixed rate) then that measurement approach is deemed appropriate.; This dissertation presents a method for determining a solution that is optimal for customer and retailer. Retailers are assumed to maximize profit in providing a fixed rate and a market-based pricing option. The latter has a measurement cost attached. Customers choose the pricing option that minimizes their costs and reflects their ability to respond to market prices. The threshold level determined from this optimization depends not only on the cost of measurement but also on the level and variability of electricity prices, but most importantly it depends on the ability of an individual customer to change the pattern of electricity use across the day.; The optimization method does more than replace affordability in the determination of appropriate threshold levels between measurement options. The method: (1) underscores the need to look at threshold levels not on a consumption basis but on an individual customer's ability to modify usage patterns in response to market prices, in other words ability to substitute across time periods; (2) highlights the need for a flexible approach to measurement; there must be a choice of options for customers.