Another Los Angeles Times story, State Energy Plan Offers Conservation Incentives, says that the California Power Authority will pay large industrial users to cut back their electricity use. According to the article,

The program will rely on satellite technology and real-time electric meters to dim air conditioners or lights automatically when the state’s power buyers call on the companies.

My question is this: if they have this spiffy technology and can do the real-time metering, why not just free up regulation to allow utilities to offer a real-time pricing alternative to large industrial customers? Industrial consumers would face price incentives to conserve, and taxpayer money wouldn’t have to fund it. We’d still get the benefits of reduced consumption and reduced construction of new power plants.

Severin Borenstein of the University of California Energy Institute has written extensively on this issue, including this article and this op-ed from the Los Angeles Times. He’s right. Enabling consumer demand to respond to prices in real time would mean that prices would reflect the actual cost of providing us with power in that hour (yes, power costs fluctuate that frequently). More on real-time pricing later, but now I’m off to do some other work.

This story (registration required) does a good job of illustrating how being so close to refinery capacity can contribute to gasoline price spikes. Although prices this summer are not high either historically or adjusted for inflation, they are exhibiting some of the usual “increase before driving holidays” pattern. The fact that refinery production is so close to total refining capacity means that any refinery outage could disrupt supply and lead to an unanticipated price spike. The article also does a nice job of pointing out that reformulated gasoline, as mandated by the EPA in areas with air quality problems, limits the extent of the market by making non-California gasoline less substitutable for California’s reformulated gasoline. In the midwest we have enough different reformulations that we call this the “boutique fuels” problem, which contributed to the price spikes we saw in 2000 and 2001, but not this year (touch wood) because we have not had any refinery outages.