  We study the problem of optimal incentive design for voluntary participation
of electricity customers in a Direct Load Scheduling (DLS) program, a new form
of Direct Load Control (DLC) based on a three way communication protocol
between customers, embedded controls in flexible appliances, and the central
entity in charge of the program. Participation decisions are made in real-time
on an event-based basis, with every customer that needs to use a flexible
appliance considering whether to join the program given current incentives.
Customers have different interpretations of the level of risk associated with
committing to pass over the control over the consumption schedule of their
devices to an operator, and these risk levels are only privately known. The
operator maximizes his expected profit of operating the DLS program by posting
the right participation incentives for different appliance types, in a publicly
available and dynamically updated table. Customers are then faced with the
dynamic decision making problem of whether to take the incentives and
participate or not. We define an optimization framework to determine the
profit-maximizing incentives for the operator. In doing so, we also investigate
the utility that the operator expects to gain from recruiting different types
of devices. These utilities also provide an upper-bound on the benefits that
can be attained from any type of demand response program.
