Texas utilities should have had more dynamic pricing

Source: Marginal Revolution.

Generally speaking I’m in favor of exposing people to the risks the natural world inevitably presents to them, or at least not protecting them too much from experiencing those risks personally. That way, risk mitigation remains decentralized so that effective mitigation strategies emerge organically, producing anti-fragile outcomes.

Dynamic electricity pricing could serve that purpose by giving unpredictable weather the power to break household budgets. Consumers’ lives would be closer to the ideal of living in caves, left to their own devices to make themselves as comfortable as they could, first armed with some degree of foreknowledge then accumulating experience to guide them in the future.

But the ideal can’t happen in isolation. Dynamic electricity pricing would be a lot like paying for healthcare without insurance. It might be the right way to go, but there would be loud complaints. Some would say it is unfair that the poor are hardest hit when bad weather drives electricity prices vastly higher. Others would say that a disproportionate number of those hardest hit are of a particular race; therefore dynamic electricity pricing is racist. Still others would argue that harming large numbers of persons via sky-high electricity bills violates the social contract in which the general welfare supposedly derives from the contrived welfare of every individual.

The complaints would motivate politicians to _do something_, and they would, just as they approved Blue Cross/Blue Shield as a way to pay for hospitals (essentially quarantine facilities at the time) that the patient population alone wouldn’t buy or couldn’t afford. The key effect of that one intervention has been, arguably, to drive decades worth of incremental price increases in healthcare. The same would be the result of any intervention that tried to protect electricity consumers from wild swings in dynamic pricing.

Tyler Cowen believes that dynamic pricing for electricity would curb demand during peak usage periods. This in turn would make technical management of the electrical grid easier, improving reliability. But note that having consumers reduce demand is the same in technical terms as having grid managers cancel supply using blackouts. The only material difference lies in who makes the decision to use less electricity. But placing that choice in consumer hands makes the best technical solution somewhat less certain, since consumers might choose to continue using electricity under circumstances where grid managers would not.

All these considerations reflect classic conundrums in economic analysis. Most economists believe (strongly!) that free markets produce optimal solutions. In reality people sometimes suffer under free-market conditions. It is probably the case that economists can’t solve the problem of human suffering, but there are always utopians who believe the problem of human suffering _can_ be solved. Given the choice, it is the utopians who should be disbelieved.

26 thoughts on “Texas utilities should have had more dynamic pricing

  1. There already is dynamic pricing in electrical service. It is voluntary and it relates to the cost of using electricity at peak v. non-peak times of the day and week.

    What Texans experienced with multi-thousand dollar bills is well beyond that. Especially if the power is sporadic.

    Electrical power is not an option in a modern industrial society. It is critical. People die when power shuts down for any length of time. Urban dwellers cannot run out to the woodshed and stoke the wood stove or even a fireplace. And, of course hospitals, nursing homes, people on various kinds of electrical health equipment at home are vulnerable.

    And to make things worse, thousands, if not millions, of homes and businesses have massive water damage which will take months, even years, to rectify. Add in massive financial losses and the picture is very murky.

    For free market benefits we can still have the massive consumer and industrial/commercial buyers of everything from steel to tomatoes. But a power system that fails because of a few days of colder than normal weather is unacceptable. Especially when the alarm bells went of several times in the preceding decade.

    Cavalierly dismissing such issues as “oh, well the free market knows best and people need to learn how to chop wood and build fires in a high rise”. Collapsing infrastructure, tainted water supplies, and electrical power subject to whims of providers are unacceptable risks that we as a nation should not be burdened with. There are plenty of other natural and man made perils.

    IMHO

    Liked by 3 people

    1. Your comment makes a number of classic utopian arguments. They all boil down to a plea that human suffering cannot be allowed.

      I would ask, why not?

      You say, for example, “Electrical power is not an option in a modern industrial society. It is critical.”

      But who says so? Only you, from what I can tell. Why should anyone believe you?

      There is a good argument to be made that electeiciity is a “public good” in every formal sense, like potable water or good roads and bridges. Why don’t you make that argument?

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      1. ““Electrical power is not an option in a modern industrial society. It is critical.””

        If you truly feel that way, go ahead and disconnect yourself from any and all means that are powered by electricity.

        Don’t call for others to suffer if you are not willing to do the same.

        Like

      2. I have made the public good argument for years. Usually it includes healthcare and education to the dismay of conservatives.

        My statements that you label as “because you say so” are my opinions. Perhaps my selection of words sound authoritative, but that is either my or your misconception.

        I never said human suffering should not be allowed. That is a utopian yet achievable goal in many circumstances. I did want to stipulate that we should try to avoid it when we know we can. Kind of like working intelligently with “known knowns”. Which is not what the Texas power generators did.

        Liked by 3 people

        1. RE: “I have made the public good argument for years. Usually it includes healthcare and education to the dismay of conservatives.”

          The challenge is to explain why electricity qualifies as a pubic good, meaning it would be a legitimate good for government to provide.

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          1. Public good doesn’t mean the government has to be the actual provider. Regulatory oversight in return for either a utility monopoly or subsidies for affordability can also be applied for a public good.

            Recall that public roads are paid for by taxes or tolls, must follow certain guidelines for location, quality, etc. But the free market applies in competitive bidding and does the hiring, design, etc.

            Kind of like Medicare Advantage or Obamacare. Neither are government run, just subsidized and with certain requirements. Otherwise it is a competitive market for insurance companies.

            Liked by 3 people

      3. RE: “If you truly feel that way, go ahead and disconnect yourself from any and all means that are powered by electricity.”

        The quotation is from Mr. Rothman. He makes a fair point, but it doesn’t go very far. If modern industrial society makes electricity critical, then maybe modern industrial society — not electricity — is the problem.

        I think that’s the wrong discussion to be having. We should be talking, instead, about ways to increase individual freedoms, not choosing among different schemes for social control. With electricity that might mean making it easier for consumers to go off-grid. That’s just an example, but it derives from thinking about the world as it is, not as it should be.

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        1. It is easy to off grid. Just don’t pay your bill.

          Solar panels on the roof with battery packs in the basement or garage would do the trick. If available, a NG or Propane powered backup generator would add a measure of security.

          As far as the blame lying with being a modern industrial society, that seems a pretty circular debate. We would not be one without electricity.

          Still, if we are going to accept the benefits of modern, first world living such as clean water, sewage and trash disposal, public safety, transportation, medicines and disease control, HVAC where and when needed, safe and abundant food supplies, etc. then electricity becomes the “non-option”.

          This is particularly true if living has depended upon electric power for generations so that most norms are power dependent. At such a point, the companies that are charged with providing electric power cannot be allowed to play games with profit v. reliability. Especially if they receive certain protectionist benefits via monopolies, tax breaks or regulatory relief not afforded to other companies.

          The idea that we can opt out is possible for some, but 330 million of us need a little distance from the Darwinian nature of “nasty, brutish and short”.

          IMHO

          Liked by 2 people

          1. RE: “At such a point, the companies that are charged with providing electric power cannot be allowed to play games with profit v. reliability.”

            CANNOT BE ALLOWED. Got it. Your inner tyrant reveals himself.

            Here’s what I say to such thinking: Until one can abandon the impulse to impost social control, it is impossible to talk rationally about markets and economics.

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          2. When I say “not be allowed” that has little to do with authoritarian rules as it has to do with companies that affect the public good.

            You want bridge builders to be allowed to make crappy bridges until they find one that doesn’t collapse?

            Yes, companies do screw up and when they do either the marketplace or the people through regulatory rules will hold them accountable.

            Simple and not authoritarian. Just smart.

            Liked by 2 people

          3. You are the author of these words of wisdom – just today . . .

            “I’m in favor of exposing people to the risks the natural world inevitably presents to them”

            and . . .

            “Dynamic electricity pricing could serve that purpose by giving unpredictable weather the power to break household budgets. Consumers’ lives would be closer to the ideal of living in caves”

            Exposing people more than necessary to risks is a stupid idea. Breaking household budgets in bad weather is a bad thing. Living in caves is NOT an ideal. Do you really think the supply of firewood in our cities and towns is inexhaustible? You think Central Park denuded of all burnable plant life would be a good thing?

            Just so you know, your smarmy, self-satisfied lectures for Len and Adam as you set yourself up as a paragon of erudition and rationality are truly laughable and not in a good way.

            Liked by 1 person

          4. Hell, if you’d talk “rationally” it would be refreshing surprise.

            Your grasp(?) of markets and economics continues to embarrass and make any who read your nonsense dumber than they were before so…

            Liked by 1 person

    1. RE: “Who needs this living in civilization bullshit!”

      Civilized people, for one. That would be people who can understand trade-offs and make rational decisions based on their understanding.

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      1. There is NOTHING rational about being in favor of exposing people to risks that can be avoided through the advances made by civilization. The value system that leads you to such opinions is – to be kind – bizarre.

        Liked by 2 people

  2. Ahh, another Nanny State screed. I propose you have it exactly wrong. Not so much in outcome, but in the relative and the total oucome.

    It’s more like a Mommy and Daddy State. Right now, Mommy is asking Daddy to spend $1.9T on food, clothing, medicine, and school supplies, and Daddy is complaining because he’s going to have to explain why every night after work he has been at the DoD nudie bar shoving $1.7T into the F-35 g-string of a stripper.

    Liked by 3 people

    1. RE: “I propose you have it exactly wrong. Not so much in outcome, but in the relative and the total outcome.”

      I can’t decipher your meaning. If you don’t like government spending on guns, why would you favor government spending on butter? Or are you trying to say that government spending on guns and butter is all bad?

      Like

      1. Given your myopic comment it’s clear you “ can’t decipher”.

        The “real” world awaits, if you can consider ANY perspective other than your own.

        I increasingly wonder if you’re just “trolling” a la Bobr….

        Liked by 2 people

        1. REa; “Given your myopic comment…”

          I am not your only audience. If you have wisdom to share, you can do a lot better than insulting me. I could be your object lesson, if you are really that smart.

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          1. Sorry stating obviousness is insulting.

            And I seriously “doubt” you can be a lesson of any kind, to any one…

            Well, perhaps as a cautionary tale.

            Liked by 1 person

          2. RE: “And I seriously ‘doubt’ you can be a lesson of any kind, to any one…

            Maybe not, but I’m not the one who is trying to be. The shallowness of your commentary here makes you uselesss.

            Like

    2. “…DoD nudie bar shoving $1.7T into the F-35 g-string of a stripper.”

      Laughed out loud at that one.

      I still feel that our military is a jobs program once we get above a certain number that is adequate to defend our shores and shipping lanes. Cyber attacks and terrorism (domestic particularly) are the threats going forward. $12 Billion carriers by the dozen are not addressing those.

      Liked by 2 people

      1. RE: “I still feel that our military is a jobs program once we get above a certain number that is adequate to defend our shores and shipping lanes.”

        What “number” would that be? I would suggest that a simple formula is true: To the extent that defense spending deters war, it creates extreme economic growth. That is, compared to the costs of war, the economic benefits of peace are profoundly greater.

        Like

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