Thank you for this comment. The disingenuous invocation of "market rate" is the first thing that hit me about this article too. From most everyone's perspective, "market rate" implies a competitive market. But to a monopolist, it means the maximum amount of wealth they can extract from captive customers. eg the peak of the Laffer curve. Or in the world we're headed towards, surveillance driven fine grained price discrimination.

See how eg the electric grid manages to have multiple suppliers for end users in many places around the world, despite there being only a single grid.

And, even with a single supplier only, you can still set market clearing rates. Those are not necessarily marginal rates.

(If you are worried about poor people: give them money.)

> The average person gets a low rate for what they need to consumer and the huge mansion pays a huge rate and appropriately so.

That's only 'appropriate' by fiat.

See how this system manages to be a fiction to support higher rates.

Utilities celebrate when they can service an address for less than a grand in their public filings. For coaxial TV service the cable company is often required to cover the first $4200 in build out costs to a given address here in the USA.

Running parallel infrastructure of the same type is very expensive and damages the cost model of both providers, as they are forever fighting for market share.

Open access to shared infrastructure can work for some types of infrastructure like internet, but water, sewer, gas and electric where real time need needs to always be met with quality supply otherwise the infrastructure is damaged permanently makes it impractical to have multiple operators pushing water, gas, or electrons into a shared grid.

Reseller models like what Texas has developed disintermediate the customer from their actual electric provider. It's just a legal fiction effectively.

Yes, and they should be treated as such - regulated according good policies.

Reseller models like what Texas has developed disintermediate the customer from their actual electric provider. It's just a legal fiction effectively.

Indeed, moreover, the Texas system got "interesting" in a not-good way during the huge blackout a couple years ago when charges jumped to a $1000+/hour for retail customers gambling on the raw market rate systems, (in my memory of the events).

I don't think the legal fiction helps anyone here but well connected scammers (remember Enron?).

Playing the lottery - small downside, huge (albeit improbable) upside. Buying wholesale power unhedged - small upside, huge downside, and not all that unlikely - in the last few years here, we’ve had several hundred year storms.

I joke, but only somewhat. This whole model is pretty clearly at least a bit broken. I don’t believe for a second that electricity cost $1k/kWh in any way that truly makes sense. Perhaps marginal electricity cost that much, but that’s a very different statement.

I wonder whether there is good research on market design for goods like electricity that are:

- Generated at a rate that is only weakly dependent on demand. (But may have expensive sources that will only operate when it’s economical to do so.)

- Are generated by very capital-intensive plants.

- Are mostly not storable. Taking delivery of electricity now and reselling later is expensive.

- Are needed by users in a mostly inelastic manner.

Cloud computing resources are similar. The “spot” electricity and cloud compute markets are a bit odd. They don’t work at all like spot commodities, many of which can be put in warehouses.

Plenty.

E.g. a well argued defense of the current energy-only marginal pricing model: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4087528

Or something different?: https://doi.org/10.1016/j.tej.2019.02.010

Marginal electricity is what people use at the margin.

There's a futures market for that. As a retail customer, you probably wouldn't want to use it directly. But companies can offer that as a service for you, and give you a long running contract that they hedge via the futures market.

To the retail customer that looks pretty much like a regular old contract, but with lighter regulation on prices on the backend.

Btw, my comment was meant in the sense that from the point of view of the market, one individual household's electricity consumption wouldn't move prices too much. Thus it's at the margin.

Water is limited. And water use above basic needs has clear economic value. Besides water is a commodity. Water should be one of the easiest things to price.

There is a base level of water each person needs. That is inelastic demand, and an abomination to price gouge. But most water usage isn't these basic needs. That makes it decently easy to protect these basic needs.

Individual citizen consumption has nothing to do with prices, and their average usage is meaningless.

States and large water rights ventures fight over all these, and farmers are extremely incentivized to keep growing anything year round to consume at or above but never below their water allocation and right.

Is the same "market rate" restaurants charge for fish sometime. Inside their restaurant they are the monopoly provider of fish to you and hence there's no market -- they're not competing with other restaurants in this moment. They are directly passing on cost of fish to you.

Actually, it's not. That would be the average costs. The marginal cost of a good is essentially the cost to add one more final user, which can be higher or lower that the average costs provider pays to supply all their customers.

The author mentions the marginal cost in particular because by some theories, that's the price that would develop in a competitive market. But it's just a fiction. There's no reason for municipalities to charge either of these prices. There might be a beautiful lake that could be cheaply drained to everyone's water but that may well be undesirable in many other ways.

In this case, the government should choose the supply such that it's ecologically sustainable. So the price is the price at which that sustainable level of water usage is demanded by the market.

That would not count as monopoly pricing, which would instead set the price to maximize revenue