Privatization Watch Electricity Issue

The October 2003 issue of Reason’s Privatization Watch was a special electricity issue, featuring articles on demand response, the August blackout, and how technological change affects regulation. In particular, I’d like to draw your attention to two feature articles.

The first, by Vernon Smith, Stephen Rassenti, and Bart Wilson of the Interdisciplinary Center for Economic Science at George Mason University, analyzes demand response and market-based retail pricing of electricity as a crucial feature that must be integrated into restructuring in order for restructuring to succeed at delivering value to customers and energy companies alike. Using price to prioritize use, particularly during peak periods, reduces costs:

The fluctuation of consumption levels increases generation, transmission, and distribution costs. The capacity of all electrical facilities and their investment cost depends on peak, not average, consumption.

The second, by Ahmad Faruqui and Stephen George of Charles River Associates, describes the demand response initiatives being considered in California, under the auspices of the California Public Utility Commission and the California Energy Commission. They explore the range of initiatives and discuss some issues that the state will have to consider as they move toward the goal of meeting 5 percent of peak demand with dynamic pricing by 2007.