Most utilities are natural monopolies, running water, sewer, gas, electric, telephone, cable and internet to a premise are expensive, generally thousands to tens of thousands per home passed.
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?).
The people who were paying $1000/hr were people who had selected an energy plan where they paid the wholesale rate. Normally that rate was a small fraction of the typical retail rate, but the risks should have been obvious to anyone of moderate intelligence.
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.
Clearly the solution is to get two electric meters, sign one up for normal rates, and sign the other one up for spot rates. And switch between them to use whichever is cheaper.
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.
Which means what, exactly? Operating your refrigerator is not marginal usage. Heating your house is only marginal usage to the extent that it’s somewhat optional and its cost depends on the weather. It’s certainly not marginal in the sense that people are looking at the price tag for one hour of heater operating and deciding accordingly.
If you know ahead of time that you are going to use your refrigerator throughout the next 12 months _and_ you want peace of mind, perhaps you shouldn't buy spot electricity for that?
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.
The high consumer rates in Texas were only with a few specific electricity providers that passed on spot prices (combined with Texas's lack of a capacity market (an implicit subsidy for wind) that caused spot prices to spike so much). I've no doubt that many people signed up for those plans not fully knowing what they were getting into. But I can also look at such a pricing structure and see how I could embrace it, assuming a reasonable time quantum and automatable ahead of time price notifications.
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.