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Ohio State Faculty Receive Grant to Study Economic Efficiency, Equity Impacts of Electric Choice Markets

News Type College News

Most people living in Ohio have been contacted by a salesperson trying to sell them electricity and convince them to switch their energy provider. This practice, known as retail choice, was enabled in the late-1990s and early-2000s by state legislatures in Ohio and over a dozen other states through regulatory reform legislation known as deregulation — and it raises social and economic concerns.  

Two Ohio State University faculty, Professor Noah Dormady at the John Glenn College of Public Affairs and Professor Abdollah Shafieezadeh in the Department of Civil, Environmental and Geodetic Engineering, received a multi-year, $500,000 research grant from the Alfred P. Sloan Foundation to study these consumer electricity markets in Ohio and in Pennsylvania.  

Very little is understood about what types of plans are offered to and adopted by different types of households, especially low-income, elderly and minority households, Dormady said. At the same time, very little is known about the economic impacts of these deregulated markets. Are people better off “switching,” or do they end up worse off over time? Are certain groups targeted or taken advantage of?  

“These are really important and really timely questions,” said Noah Dormady, the project’s principal investigator. “Many customers in Ohio who switched to a competitive retailer months or years ago have since rolled over onto a variable rate or an above-market rate, and they are unaware that they are overpaying for electricity. The issues faced here in Ohio, and in Pennsylvania, are not isolated. Other states such as New York and Massachusetts are making significant changes to their retail choice markets to address adverse customer impacts.” 

In partnership with Professor Alberto Lamadrid at Lehigh University, the multidisciplinary team is building a detailed database, conducting field interviews and survey research, and utilizing machine learning and artificial intelligence to study the economic impacts and equity issues taking place in these deregulated markets.  

The retailers who attempt to sell customers these energy contracts can often use promos or “teaser” offers such as fuel points or gift cards to entice customers to switch. In some cases, they promote “savings.”  

We want to know which types of retail energy offers entice people to switch to rates that often end up costing them more than other alternatives.

Noah Dormady
Professor, John Glenn College of Public Affairs

“We will be diving deep into how people have been affected and quantifying the economic and social impacts of these complicated and often confusing markets,” Dormady said.  

The team will use state-of-the-art machine learning methods to analyze the very large volume of diverse data.

“We are going to develop a reasoning model to help us capture the highly complex relationships among the data and to detect trends and patterns that may be very difficult,” said Abdollah Shafieezadeh, the project’s co-principal investigator. “Using machine learning, we are going to gain new understandings of the dynamics and identify correlations between the retail and wholesale market, daily retail choice offers and market behavior of consumers.”

The team has partnered with several community groups, organizations and external partners to support its research across Ohio and Pennsylvania. They have also partnered with the Ohio State Office of Diversity and Inclusion because of the importance of evaluating the market impacts on disadvantaged communities.

“The people who pay for some of these programs, like electrification or grid modernization efforts, are not always the same people who benefit from them. We want to know how real consumers in the real world are affected by these regulatory decisions,” Dormady said.

“Energy markets can be incredibly complex, so it’s not surprising that the process of switching energy suppliers is fraught with peril,” said Matt Hoyt, Master of Public Administration ’16, a former graduate student of Dormady who is now a managing consultant at Exeter Associates Inc., an energy, economics and regulatory consulting firm. Exeter Associates is supporting the research as a collaborating company.

"Households across the country are living through turbulent energy markets for a variety of reasons, including inflation, supply chain bottlenecks and changes to the grid,” added Hoyt. “Add to that state and federal policies promoting home electrification and rooftop solar, and there are really challenging policy and regulatory questions about how states should structure retail energy markets.”

The research team will also provide training and mentorship for students from undergraduates to the post-doctoral level in public policy, energy economics and engineering and systems modeling.

The Alfred P. Sloan Foundation, founded in 1934 by industrialist Alfred P. Sloan Jr., funds research and education in science, technology, engineering, mathematics and economics to support high quality, impartial scientific research; foster a robust, diverse scientific workforce; strengthen public understanding and engagement with science; and promote the health of the institutions of scientific endeavor.

Story image used under license from lovelyday12, stock.adobe.com.