Price-Responsive Electric Demand

Abstract

California’s electricity crisis has ignited a national debate over electricity deregulation and national energy policy. Thousands of words have been written on the role of transmission limitations, load growth, generation ownership, abnormal weather, poor market design, insufficient supply, and shortage of gas, and all of these factors are important. But one of the most important lessons emerging from this calamity clearly is a long-overdue realization that policymakers can no longer ignore the need to make electricity demand responsive to price. Without this critical ingredient, electricity markets will never function properly, electricity costs will be billions of dollars more than necessary, and a new generation of energy-saving technologies will sit on the shelf. Moreover, price-responsive demand can provide relief from the worst electricity price spikes at least as quickly as new plants can be built, with lower costs and environmental impacts.¹

Associate and Chairman, respectively, The Brattle Group, Cambridge, Massachusetts (www.brattle.com) [email — Romkaew_Broehm@brattle.com]. The opinions expressed herein are the authors’ and not necessarily those of The brattle Group or its clients, which include utilitis, ganerating companies, electricity retailers, and independent system operators worldwide. The authors thank Greg Basheda, Severin Borenstein, Darrell Chodorow, Joel Gilbert, Eric Hirst, Art Rosenfeld, Gary Swofford, Joe Wharton, and jim Wolf. All errors and omissions are the authors.’