One of the biggest problems with the California power situation is the
fact that the prices AREN'T being passed through to the customers.
I'm getting billed $0.11/kWh, equivalent to $110/MWh, even when the
utilities are paying many times this much. In such a system I have
no incentive to conserve.
This is what the economists mean by inelastic demand - price changes
cause little change in demand levels. Because of how power billing is
structured, demand is almost totally inelastic on an hour by hour or day
by day basis. The utilities can cut demand a little by asking certain
business customers to reduce their usage (a deal which the businesses
agree to in order to get lower rates). Beyond that the only way to reduce
demand is rolling blackouts, which may happen in the next couple of hours.
If I had to pay fifty cents or a dollar per kiloWatt-hour when
the utilities are paying that much, you bet I'd cut back.
The shape of the demand curve would change and we wouldn't
have so many price spikes. Look at figures 1-3 at the end of
http://www.ucei.berkeley.edu/ucei/PDF/pwp081.pdf and you can see how
the present system worsens price variability.
See the chart at http://www.caiso.com/SystemStatus.html. If the red
line goes up much higher, blackouts will happen.
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