Congestion Pricing For Power?

Ken McCracken  •  August 14, 2007

Congestion pricing is essentially a reflection of free-market pricing, and it’s something that has been used to good effect in California to clear traffic congestion on toll roads.
In the case of toll roads, traffic capacity is finite. Only so many cars can be on a given road at one time, so when demand for road space increases so does the price. This encourages people to conserve road space by traveling at different times, or finding alternate routes, ultimately leading to a quicker trip home for everyone. When the toll price is controlled, however, and does not fluctuate with demand you get traffic jams. Or, put another way, shortages in road space.
This would also apply to the user of our power grids. Obviously power plants can only put out so much electricity, and our power grids can only handle so much capacity. Allowing power companies to charge more for power delivered during peak times of demand would encourage people to use less power during those times, thus essentially balancing out the load on our power grid and likely going a long way to reducing our overall power consumption.
North Dakota’s Public Service Commission is currently trying to decide if congestion pricing, or the “smart meter” technology that would make congestion pricing possible, should be allowed in the state. Personally, I think this is absolutely something we need to do.
It’s currently being used without any sort of disastrous side-effects in Europe and Canada, and currently only 6% of American meters have “smart” technology. Allowing the use of this “smart meter” technology would effectively be a partial de-regulation of the energy industry by allowing energy companies to make price for power reflect demand (which also introduces market forces into the energy consumption arena as well).

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  • http://www.bikebubba.blogspot.com/ Robert Perry

    Actually, there is no prohibition against having your own windmill or PV cell array to generate your own electricity, and if you want, you can even sell it back to the utility for about a nickel a kW-H. It’s not terribly cost effective, but it is legal most places.

    Personally, I’d love to see the laws improved to create a reason for big energy users (schools, factories, etc..) to generate more of their own electricity. It simply makes sense to decentralize power generation so the kind of things Lik talks about will be less likely. It can also double the amount of useful energy you get out of a pound of coal or therm of natural gas.

    When it comes to roads, though, a basic question comes up; “didn’t I already pay for these roads with gas and registration taxes?” There is something inherently obnoxious about being forced to pay to use that which you’ve already paid for, especially when you know that the reason there “wasn’t enough” is because funds were siphoned off for everything but roads.

  • robert108

    That’s why peaking plants make lotsa money but hardly ever run because spot market prices on peak days are crazy high.

    That’s the effect; the cause is govt control of the market for other than demand reasons. It’s a command system in the midst of a demand society.

  • http://sayanythingblog.com/readers/author/Anna/ Anna

    Or perhaps the ordinance or laws might be so some psycho granola neighbor doesn’t install a 3.6 megawatt wind turbine in his back yard

  • Neiman

    Anna:

    perhaps the ordinance or laws might be so some psycho granola neighbor doesn’t install a 3.6 megawatt wind turbine in his back yard.

    Now I suppose you are going to engage in a little more rude name calling, just because I am installing a micro-nuclear power plant in my back yard, not only for normal energy use but to keep my olympic size swimming pool warm?

  • http://sayanythingblog.com/readers/author/Anna/ Anna

    hehe…Nope, I’ll keep my mouth shut unless you drive a Volvo, believe Ward Churchill is an Indian, are a vegetarian who only eats organic grown, blow up dams, sit in trees to make a “point”, protest wars because “it kills”, stand in front of extremely large tractors as if you are Mighty Mouse, or don’t believe in shaving (any parts), cutting hair or appropriate under garments. If so, I am afraid .. I shall not remain quite for long. :)

  • http://proof-proofpositive.blogspot.com/ proof_positive

    the vibration and hum?

    Hmmm! How disappointing! Here I thought you were discussing technique and it’s merely a discussion of windmills!!

  • http://www.sayanythingblog.com/ electnixon

    The biggest part about reducing peak demand is the enormous payback due to reduced generation, transmission, & distribution capacity. If you can cut peak demand by 5%, you cut the required infrastructure capacity by the same amount.

    Conversely, if the customer base uses 5% more electricity one day a year, an entire power plant and system upgrade has to take place. That’s why peaking plants make lotsa money but hardly ever run because spot market prices on peak days are crazy high.

  • robert108

    How do you make energy more demand driven, though? If I wanted to switch power companies, how would the new power company get the electricity to my
    home and not all the homes of my neighbors without having to build new transmission lines?

    This was the same “problem” used to justify the monopoly on telephone service, and it was solved by recognizing that the public had paid for the telephone grid. We could do the same for the electrical grid.
    Lack of competition is the real villain here.

  • http://sayanythingblog.com/ likwidshoe

    robert108 – I willfully lighten my electrical load during peak hours because I am painfully aware of how weak our electrical system is. If a downed tree can take down the entire northeast, then I believe that personal jurisprudence demands that the individual does what he can.

    This nation is electrically hampered by environmentalist Democrats. We add 100 million people and think nothing of adding any new big power stations. The Democrats won’t allow it. They are against progress and would instead rather make do with old polluting power plants. Oh sure,..they make a lot of noise about “protecting the environment” and pass all sorts of laws with that supposed intention, but those laws end up acting counterproductive, so what are the Democrats really after? It’s sure as hell not a clean environment.

    And until all of that changes, I am forced to do things such as run my laundry at night so that I can save peak demand electricity. A simple small cascade can take out everything from Detroit to New York to Ontario to Philadelphia to Cleveland to Boston.

    I don’t want to see another ironic situation like the one I experienced in 2003 where across the street from my house, they were dark for days all the way to Boston. Behind my house going for only 12 small city blocks, we were the lucky ones in the entire triangle WITH power. We only had an hour power outage. Everybody else had days. Only four miles from my house was the power plant that caused all of it. I don’t want to see that again. All it takes is, quite literally, a bird on a wire and it’s all going down.

    Don’t blame me. Blame the environmentalist Democrats. They’re forcing me to act a certain way. We need to be allowed to build more power plants so that this kind of thing isn’t a concern. It’s a shame that we’re living in 2007 and power needs are still a dire concern. That’s not the mark of a first world nation and blame can squarely be laid to rest at the Democrats’ feet. They’re the ones who block all needs power related. And then they go further by funding ones that don’t work.

  • http://www.ski-blog.com/ sayanything-24

    Now here is what I want to now, what is to keep the suppliers, wanting to keep the most people off their backs, simply charging those using less more money, so they don’t have to raise the prices on those using the most more than a token amount?

    Not how it works. Here is how it works in AZ, where we do have peak power pricing:

    Power company sets two rates–peak rate and off-peak rate. Peak rate is usually triple the non-peak rate and the peak rate is designed to reflect the actual peak demand period (day). Everyone pays the same rate for peak power and off-peak power. This pricing model is awesome for working folks that are smart about usage because they simply adjust their habits to use less electricity during off-peak hours. Peak hours are M-F 9AM to 9PM. So you run the dishwasher when you go to bed at night and you do laundry on the weekends. We have an adjustable thermostat that we set significantly higher when we are gone at work. Businesses have no choice on usage.

    Now, for businesses, they also have a flat rate pricing plan that residential customers can also choose. For the flat rate plan, you pay about 75% of the peak rate, but you pay it for all your usuage. And every year, they send you out a summary of what your utility bill would be under each model.

    This is just like cell phone pricing–free nights and weekends but only so many weekday minutes per month.

    If not for this model, Arizona’s infrastructure isn’t sufficient to supply enough power for everyone on peak days when the temperature rises too far. And that is best case–it barely handles it. Three or four years ago, there was a major fire that shut down about 10% of Phoenix’s power and we were within inches or rolling blackouts or brownouts on the hottest days.

  • http://www.bikebubba.blogspot.com/ Robert Perry

    I’ll gladly concede that windmills might not be terribly welcome, especially as that nutcase talked about by Anna might not pour a good earthquake proof footing for his mill.

  • Neiman

    Robert Perry: Not in California! Anything beyond solar panels on the roof, energy efficient wiondows etcetera; no one in an urban area may erect a windmill or have a solar array panel in their yard. If we generate enough through solar energy with our roof solar panels the local utility must buy the excess, but thta is it as far as I know.

  • robert108

    Don’t blame me. Blame the environmentalist Democrats. They’re forcing me to act a certain way.

    This is my point. In our society, the govt has no business forcing people to act a certain way, unless it’s for preservation of the social order. The govt simply isn’t capable of supplying demand; it’s not their business, when you come right down to it. It’s time to end the fraud of a govt-controlled energy market, and turn it back to free enterprise.

  • http://sayanythingblog.com/ likwidshoe

    Hey! That power outage happened four years ago today!

  • http://sayanythingblog.com/readers/author/Anna/ Anna

    LOL, can’t you imagine the vibration and hum? I wonder if anything would stay on walls or shelves. Oh wait, I bet there wouldn’t be a gopher or mole problem!

  • http://sayanythingblog.com/ likwidshoe

    A peak demand power pricing structure makes sense.

    Do your heavy appliance stuff, such as running the dishwasher and clothes washer and dryer, at off peak times.

    I currently do this (even though I don’t really have to because there is no peak demand pricing where I live) to lighten the electrical load. (I live one town over from the power plant responsible for this unforgettable incident).

  • http://www.ski-blog.com/ sayanything-24

    Neiman,

    I thought the nuclear reactor you are building was for “peaceful power generation purposes” to help feed your starving people. Come to find out that after the US helped you build it, you were enriching weapons grade fission materials and trying to leverage that into billions of dollars in aid from the US Government.

    Now it all makes sense.

  • http://www.ski-blog.com/ sayanything-24

    Public utilities are in a rigged market, by design.

    That is why their stock yields an annual dividend each year and investments in Utility companies are about as safe as government bonds. Rock solid. The ROI is guaranteed because prices are fixed by state corporation commissions or regulatory agencies.

  • robert108

    JustinB: The real solution is to let private business into the energy market, but govt monopoly won’t allow that to happen. Eventually, the high energy prices will create a black market in some form.

  • robert108

    I my state if peak demand for anything goes up, the prices go up to pay for the increased costs, when peak demand for anything goes down, prices go up because the providers are losing money as compared to when they could charge higher prices. Not in a free market. If demand increases faster than supply can increase to accomodate it, prices go up until the increased supply hits the market. If demand decreases, prices fall until supply can adjust downward. In public utilities the same can be said of supply, the more available the higher the price and the less available the higher the price. Public utilities are in a rigged market, by design. The util companies are guaranteed a return on their investment, so if demand goes up and supply doesn’t, the profit margin isn’t allowed to change, which prevents more supply from coming online, which would happen by the price mechanism in a free market. Paradoxically, if demand decreases(due to conservation, for instance), the price will increase in order to maintain the mandated return to the util company.

  • Neiman

    I am no ecomomist, balancing my checkbook is a major accomplishment, so forgive this ignorant question:

    I my state if peak demand for anything goes up, the prices go up to pay for the increased costs, when peak demand for anything goes down, prices go up because the providers are losing money as compared to when they could charge higher prices. In public utilities the same can be said of supply, the more available the higher the price and the less available the higher the price.

    Now here is what I want to now, what is to keep the suppliers, wanting to keep the most people off their backs, simply charging those using less more money, so they don’t have to raise the prices on those using the most more than a token amount?

  • Neiman

    Rob:
    Doesn’t the government by their rules in many states actually destroy the idea of free energy markets, with lots of competition to lower prices?

    Why is it that private windmills and larger backyard solar panels are stopped by government regulations, unless it is government supporting big energy business and stifling private entrepreneurship and product innovations; which new products may launch new energy companies, providing more jobs, spurring on the economy and individual prosperity?

  • http://www.ski-blog.com/ sayanything-24

    Eventually, the high energy prices will create a black market in some form.

    People are sticking up solar panels and some folks have even resorted to diesel generators. Hell, just run on diesel during peak periods and you would probably be better off.

    But instead of Govt investing in more power capacity, they invest in pet projects like wind mills and “alternative fuels” like Ethanol. Just build some effing power plants and some power lines. Stop the social engineering until alternative energy sources can hold their own. The social engineering is as much to blame as the crazy regulations.

  • http://www.ski-blog.com/ sayanything-24

    The real problem with the energy situation as it is now is that demand cannot create supply through the price mechanism, due to govt regulation(forced on us by the enviros).

    That is our problem in PHX. First, not enough plants but we all know that. We have the largest and newest nuke plant in the country that was build 30 years ago (Palo Verde). They have the ability to add another 5 reactors to it, but first they have to fight to get the approvals then they have to build the infrastructure including powerlines to bring it to the market. The envirowackos have convinced everyone that high voltage power lines cause cancer (so do cell phones according to their anecdotal “research”) so no one wants one near their house and they have to fight to get that approved too.

    Supply is fixed. It is basically unmovable. Prices are fixed by state regulatory agencies. But demand keeps rising. Utility companies, when not allowed to use price to bring demand into balance with supply, have a situation where they cannot bring enough power to market. Prices need to go up considerably in order to shape people’s demand habits. No getting around it. Either demand has to decrease or supply has to increase. And government has seen to it that neither can happen.

  • robert108

    Rob: The real problem with the energy situation as it is now is that demand cannot create supply through the price mechanism, due to govt regulation(forced on us by the enviros). IMO, if the govt allows monopoly control of energy, it also has the responsibility to produce enough power to suit our needs. This is what we pay them to do. Under current conditions, they should be prosecuted for fraud.

  • robert108

    A peak demand power pricing structure makes sense.

    Only if you think it’s our responsibility to make sure there is adequate power, rather than those we pay to furnish power for us. If it’s your choice, fine; if it’s imposed on us, not so good.

  • http://sayanythingblog.com/ likwidshoe

    Only if you think it’s our responsibility to make sure there is adequate power…

    No, it’s not that at all. It’s that I see a peak demand pricing structure the same way I see the market structure of supply and demand.

    Notice that that doesn’t speak to whether or not the power grid is in any way the free market. We all know that it is not. That doesn’t mean that I won’t support some free market incentives into the power industry.

  • robert108

    likwid: I make a distinction between demand-driven pricing and command pricing. If we had a market-driven electricity market, one might assume there would be a pricing structure which reflected the real supply/demand relationship, and which would be an integral part of our having all the electricity we might want to consume.
    Unfortunately, that isn’t the case with this particular pricing scheme. It is designed to suppress demand, thus relieving the utility monopoly from supplying our needs. Not the same thing at all.

  • http://sayanythingblog.com robport

    How do you make energy more demand driven, though? If I wanted to switch power companies, how would the new power company get the electricity to my home and not all the homes of my neighbors without having to build new transmission lines?

  • http://sayanythingblog.com robport

    At the very least power lines should be built. Regardless of the energy source, we’re still going to need the transmission infrastructure to bring the power to market.

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