Watt We Say vs. What We Do: Evidence from Conjoint Experiment in Retail Energy Markets

• In Event: Electricity Markets, Pricing, and Utility Structure

Abstract

Retail choice electricity markets place decision-making responsibility on consumers, but variation in information and engagement may lead to unequal capacity to evaluate complex offer structures. This paper estimates willingness to pay (WTP) for a full range of residential product attributes in the deregulated retail electricity markets of Ohio and Pennsylvania. Retail choice markets allow consumers to shop for electricity among competing suppliers, and we design a comprehensive study of household consumers that includes in-depth interviews, utility bill reviews, and a controlled conjoint experiment combining rating and choice-based approaches. We explore how preferences for attributes such as monthly fees, price per kilowatt-hour, and contract type vary by income, consumption, and market engagement, the latter of which is quantified by a novel composite measure of behavioral engagement constructed from multiple interview responses. The results show that individuals are most hesitant toward monthly fees (WTP: $-2.04 cents per kilowatt-hour) and variable rates (WTP: $-1.33 cents) while being willing to pay extra for renewable energy (WTP: $0.98 cents). Assuming that market literacy drives these differences in preferences, we use factor analysis to construct an individual-level measure of market literacy. We find that individuals with above-median market literacy are more willing to pay to avoid variable pricing (WTP: $-1.60 cents) than those with below-median market literacy (WTP: $-1.14 cents), a difference that is statistically significant. Through latent class analysis, we identify three underlying consumer types. Preliminary results suggest that individuals who actively shop but lack knowledge of generation costs are the most hesitant toward variable rate contracts (WTP: $-1.81 cents). To further examine tradeoffs between price and key non-price attributes, we estimate three-way interaction models to capture heterogeneity across customer types and income groups. Contract type exhibits a significant average interaction with price and additional heterogeneous effects across customer types and income groups. While individuals on the default utility service and higher-income individuals are less likely to choose variable-rate options even when prices are favorable, they exhibit greater price sensitivity. These findings suggest that individuals who are more engaged in the market and have greater knowledge exhibit a stronger aversion to variable-rate contracts, and this aversion ultimately dominates the price effect.

Author

• Yiseon Choi, The Ohio State University
  Presenting Author