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Residential electricity pricing in Texas's competitive retail market

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  • Brown, D.P.
  • Tsai, C.H.
  • Woo, C.K.
  • Zarnikau, J.
  • Zhu, S.

Abstract

Using a large sample of residential retail electricity plans advertised on the Public Utility Commission of Texas's Power-to-Choose website between January 2014 to December 2018, we analyse how a retail price quote varies with its per MWh procurement cost forecast based on wholesale prices and other product attributes. Our panel regression analysis finds that a retail price quote partially passes through 43% to 47% of a wholesale price forecast changes and embodies a risk premium that increases with wholesale price forecast volatility. Prepayment and time-of-use plans contain price premia. The price premia associated with higher-than-average renewable energy contents in the early years of our sample have largely vanished by 2018. Longer contract terms come at a higher price. Finally, increased one-month lagged customer switching tends to be associated with reduced retail price quotes.

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  • Brown, D.P. & Tsai, C.H. & Woo, C.K. & Zarnikau, J. & Zhu, S., 2020. "Residential electricity pricing in Texas's competitive retail market," Energy Economics, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320302930
    DOI: 10.1016/j.eneco.2020.104953
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    3. Chi-Keung Woo & Jay Zarnikau & Asher Tishler & Kang Hua Cao, 2022. "Insuring a Small Retail Electric Provider’s Procurement Cost Risk in Texas," Energies, MDPI, vol. 16(1), pages 1-12, December.
    4. Massimo Dragotto & Marco Magnani & Paola Valbonesi, 2021. "Consumer inertia and firm incumbency in liberalised retail electricity markets: an empirical investigation," "Marco Fanno" Working Papers 0277, Dipartimento di Scienze Economiche "Marco Fanno".
    5. Li, Raymond & Woo, Chi-Keung & Cox, Kevin, 2021. "How price-responsive is residential retail electricity demand in the US?," Energy, Elsevier, vol. 232(C).
    6. Wang, Li & Zhang, Xin-Hua & Zhang, Yue-Jun, 2023. "Designing the pricing mechanism of residents’ self-selection sales electricity based on household size," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 860-878.
    7. Simeone, Christina E. & Lange, Ian & Gilbert, Ben, 2023. "Pass-through in residential retail electricity competition: Evidence from Pennsylvania," Utilities Policy, Elsevier, vol. 80(C).
    8. Zhou, Wenhao & Li, Hailin & Zhang, Zhiwei, 2022. "A novel seasonal fractional grey model for predicting electricity demand: A case study of Zhejiang in China," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 200(C), pages 128-147.
    9. Cao, K.H. & Qi, H.S. & Tsai, C.H. & Woo, C.K. & Zarnikau, J., 2021. "Energy trading efficiency in the US Midcontinent electricity markets," Applied Energy, Elsevier, vol. 302(C).
    10. Guo, Bowei & Weeks, Melvyn, 2022. "Dynamic tariffs, demand response, and regulation in retail electricity markets," Energy Economics, Elsevier, vol. 106(C).
    11. Zarnikau, J. & Cao, K.H. & Qi, H.S. & Woo, C.K., 2023. "Has retail competition reduced residential electricity prices in Texas?," Utilities Policy, Elsevier, vol. 84(C).

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    More about this item

    Keywords

    Retail electricity pricing; Procurement cost pass-through; Risk premium; Renewable premium; ERCOT;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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