A nonlinear bilevel model for analysis of electric utility demand-side planning issues

An application of bilevel programming in the electric utility industry is presented. The model is nonlinear and is used to analyze various economic issues that affect electric utility planning. The electric utility at the upper level of the model seeks to minimize costs or maximize benefits while controlling electric rates and subsidizing energy conservation programs. Customers at the lower level attempt to maximize their net benefit by consuming electricity and investing in conservation. This model considers factors such as free riders and the rebound effect which affect the net benefits of utility resource plans but are ignored by most planning models. The model’s solutions shed light on utility issues including whether there can be a practical difference between various objectives, including minimizing cost (‘least cost’ planning) and maximizing net social welfare (‘value base’ planning).