Posted by Jonathan Adler:
Kiesling on Electricity Metering and Pricing:
http://volokh.com/archives/archive_2007_01_07-2007_01_13.shtml#1168489273
At The Knowledge Problem, economist [1]Lynne Kiesling discusses the
[2]NYT article on variable-rate electricity pricing I [3]highlighted
Monday. As she sees it, there is a problem of asymmetric information.
n the case of electricity, retail customers do not see price
changes until after those changes have taken effect, because under
existing regulation they pay averaged rates and only receive
information about the prices they face at the end of the month when
they receive their bill. However, underlying costs of serving those
customers can change hourly, so with customers paying averaged
prices there is a mismatch between the prices they pay and the
costs of serving them.
We could improve efficiency (and thus enable conservation and lower
costs) if we had pricing that allowed for a better match of the
price the customer pays with the cost, but unless the customer has
some way of gaining information about prices in advance, but if we
don't do that, then we have the aforementioned asymmetric
information problem.
As Kiesling explains, the solution is not purely technological. Having
gizmos that provide information about price changes is important, but
so is rate reform.
The technology can't create all of these benefits on its own: rate
redesign to allow dynamic pricing is imperative. What good is
having technology to enable responsive demand if the meter just
gets the same old, same old averaged price signal? Not much.
Digital technology and dynamic pricing are symbiotic. Furthermore,
the most significant benefits of digital technology and dynamic
pricing are largely unseen by us in advance, which is why it's so
bloody hard to get them enacted in regulation!
The most substantial benefits of the retail competition that
technology + pricing enable come from product differentiation and
innovation in the products and services available to customers.
Think about telecom: we got some benefit from the reduction in
prices for long-distance service, but the real value proposition
has been in the proliferation of new products and services that
have transformed our lives. There are entrepreneurs out there
thinking about ways to do that in electric power retail service,
and the potential exists, if we will but let it happen.
In other words, to truly take advantage of technological innovation
and price information, there must be regulatory reforms that allow for
retail electricity competition. The cost savings from time shifting
would be only a portion of the resulting economic benefits.
References
1. http://www.knowledgeproblem.com/archives/001874.html
2.
http://www.nytimes.com/2007/01/08/business/08power.html?ex=157680000&en=ce5fbf661c20579d&ei=5124&partner=permalink&exprod=permalink
3. http://volokh.com/archives/archive_2007_01_07-2007_01_13.shtml#1168263562
_______________________________________________
Volokh mailing list
[email protected]
http://lists.powerblogs.com/cgi-bin/mailman/listinfo/volokh
