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Market Failures in Real-Time Metering: A Theoretical Look

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  • Brennan, Timothy

    () (Resources for the Future)

Abstract

Restructuring the electricity market may secure efficiencies by moving away from cost-of-service regulation, with typically (but not necessarily) time-invariant prices, and allowing prices to reflect how costs change. Charging "real time" prices requires that electricity use be measured according to when one uses it. Arguments that such real-time metering should be a policy objective promoted by subsidizing meters or delaying restructuring until meters are installed, require more than these potential benefits. They require positive externalities to imply that too few meters would be installed through private transactions. Real-time metering presents no systematic externalities when utilities must serve peak period users, and may present negative externalities under some conditions. Positive externalities are likely when electricity is rationed through blackouts. Real-time metering may or may not increase welfare when peak period wholesale markets are not competitive; one might want to prohibit real-time metering in such situations even if metering itself were costless.

Suggested Citation

  • Brennan, Timothy, 2002. "Market Failures in Real-Time Metering: A Theoretical Look," Discussion Papers dp-02-53, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-02-53
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-02-53.pdf
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    More about this item

    Keywords

    real-time metering electricity restructuring; deregulation; rationing; externalities;

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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