Electricity Restructuring: Letting Prices Work

This briefing looks at price as the principal means of communication between producers and consumers. It argues that price must be given the freedom to accurately reflect changing market conditions and achieve equilibrium in the market, but it can only do so if certain key fundamentals exist.

Document Highlights

This briefing, the fourth in Signal49 Research’s series on Electricity Restructuring, looks at the role of price in previous electricity restructuring attempts in Great Britain, California, Alberta, and Ontario. It points out that price is more than just the amount consumers pay for a certain good: it is the principal means of communication between producer and consumers. Letting Prices Work contends that too many electricity restructuring attempts have been blindsided by public policy initiatives that seek to artificially deliver low prices to consumers through price controls. It argues that price must be given the freedom to accurately reflect fluctuating market conditions and achieve equilibrium in the market. To that end, electricity markets require the fundamentals of effective competition/supply and demand links, timely price signals, and active futures trading.

The extent to which these fundamentals exist has a great influence on the ability of electricity restructuring to deliver its promised benefits of increased choice and the lowest sustainable prices to consumers.