Why Electricity Markets Are Just Like Any Other Market

body-0-1376425473419Lots of people complain that the odd workings of electricity rates in the world of regulated monopolies would never happen in a real market.  But UC Berkeley colleague Severin Borenstein makes the case that you see features of electricity pricing in all sorts of competitive markets, from Amazon to cell phones to the local plumber.

But one electricity rate program stumped him for a real-world analogy, and it just so happens to be the most important distributed renewable policy in the state:

Net metering – (a customer delivering electricity to the grid is credited at the same rate they are charged when they take electricity from the grid):  

OK, on this one, I’m pretty stumped. Some colleagues and I spent part of a long car ride last week trying to think of a market in which a seller of a good buys units of that same good from small retail customers and pays them the retail price.  The closest we could come up with is a customer buying items from store A and then returning them to store B for full retail price by claiming they were bought at store B.   Hmmm…not a great model.

The best I could come up with is a quasi-barter system, like if (hypothetically) I grew some tomatoes at home and then went to my local farmers market to give them to a vendor. Then that vendor in turn let me pick out other fruits or vegetables she was selling that day for an equivalent amount of what I had given her.

In other words, I made or grew something at home and then exchanged it for in-store credit somewhere.  Just like I generate energy on my roof, use some on-site and then exchange the rest with the utility for free electricity at another time.

Either way, it’s an interesting intellectual exercise and potentially an indication of why that particular policy is so controversial.


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