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Price-Responsive Retail Demand: Key to Competitive Electricity Markets

Wholesale and retail are two different worlds, and therein lies trouble and opportunity.
Fortnightly Magazine - March 1 2001

* All four of the operational independent system operators (ISOs) in the United States experience market-power problems when demand is high (typically during the summer). As a consequence, the four ISOs impose price or bid caps on the participating generators. A robust demand side that participated in bulk-power markets might obviate the need for such caps.

** The price elasticity of demand is the percentage change in the demand for the product (electricity in this case) caused by a 1 percent change in its price. Mathematically, the elasticity is equal to (dQ/Q)/(dP/P), where d is a small change, Q is quantity, and P is price. For example, doubling the price would cut demand by 6.7 percent if the price elasticity is -0.1.