Efficient pricing of electric power service

Abstract

The author here argues that to maximize efficiency in the production and consumption of electricity, its price to the consumer should be varied in real time according to the short-run marginal social cost of providing power at various times and places, through remote control metering. To motivate privately-owned utilities to set prices in this manner he proposes the use of an escrow find to or from which would flow the difference between the responsive rate paid by the customer and the regulated retention rate established by regulatory proceedings. With consumption subject to instantaneous control through price, spinning reserves would no longer be needed and emergencies could be dealt with with fewer blackouts. How to calculate short-run marginal social cost under various circumstances is discussed in detail, and also how prices should differ from marginal cost to allow for costs involved in the provision of subsidies.