  The demand response provides an opportunity for load serving entities (LSEs)
that operate retail electricity markets (REMs) to strategically purchase energy
and provide reserves in wholesale electricity markets (WEMs). This paper
concerns with the problem of simultaneously determining the optimal energy bids
and reserve offers an LSE submits to the WEM as well as the optimal energy and
reserve prices it sets in the REM so as to maximize its profit. To this end, we
explicitly model the tri-layer market structure that consists of a WEM, a REM,
and a set of end user customers, so as to capture the coupling between the
bidding problem and the pricing problem. Based on the tri-layer market model,
we then formulate the joint bidding and pricing problem as a bi-level
programming problem and further transform it into a single-level mixed integer
linear programming problem, which can be solved efficiently. Numerical studies
using the IEEE test cases are presented to illustrate the application of the
proposed methodology as well as to reveal several interesting characteristics
of the LSE's profit-seeking behavior.
