Joint Design of Time-of-Use Schedules and Price Levels: a Bilevel Model with Client Participation and Load Flexibility
We study the joint design of a time-of-use (ToU) tariff (the partition of the day into pricing blocks and the price level attached to each block) by a profit-maximizing electricity retailer facing flexible clients who may refuse the offer in favour of an outside option. The problem is modeled as a bilevel program in which each client, at the lower level, reshapes its consumption under pointwise bounds and a fixed daily energy total, and simultaneously chooses a participation level penalized by a quadratic regularizer. We prove the client's best response is computable in loglinear time. We derive two equivalent single-level reformulations: a closed-form continuous one tackled via stochastic gradient ascent (using a continuous reparametrization of block start times and durations) and a mixed-integer nonlinear program solved via dedicated solvers. The stochastic ascent scheme provides Clarke-critical accumulation points almost surely, in a scalable way. On a case study from the French retail electricity market with $5000$ simulated households, the gradient method matches a commercial mixed-integer solver on the pointwise problem to within $0.3\%$ of the optimal profit while running two to eight times faster on $100$ representative clients. Restricting unconstrained pointwise prices to admissible ToU schedules yields an estimated profit loss of $1.3\%$- $13.8\%$ for two-period tariffs and $0.6\%$-$6.6\%$ for three-period tariffs on the instances considered.