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Fortnightly Magazine - June 1 2002



Dear Editor:

Chris King's article, "How Competitive Metering Has Failed," (Nov. 15, 2001) states that the Congressional Budget Office's report, (September 2001), found that advanced metering and improved price signals could have prevented California's energy crisis and averted rolling blackouts. Mr. King overstates both the weight the CBO report places on the demand side of the electricity market and the importance it assigns to advanced metering therein.

The report certainly does indicate that freezing the price of electricity to retail customers was a significant factor in California's crisis, but it emphasizes that many factors on both the supply and demand sides of the market came together to cause the state's problem. In discussing the lessons of California's electricity problems, the report notes that prices that accurately reflect costs are necessary for markets to function well, and that the broader use of real time metering and contractual agreements that permit service interruptions when prices rise are options worthy of consideration. The report, however, does not make the grander claim indicated by Mr. King that advance metering would have prevented the crisis and averted black outs.

David Moore
Deputy Assistant Director
Microeconomic and Financial Studies Division
Congressional Budget Office
U.S. Congress


Dear Editor:

While Mr. Moore and I seem to disagree on the semantics, it appears that we are in violent agreement on the big picture, as stated in the CBO report (emphasis added):

"California's freeze on retail rates inhibited the response of electricity to the state's supply problems. Thus, it proved to be a major factor in the ensuing crisis. A simple lesson of that experience is that consumers need to face the real cost of electricity. Exposing consumers to price changes will induce them to increase their use of power when prices fall and curtail it when prices rise.

"... relative to the size of the power disruptions that California has experienced so far, the ability to conserve could be significant. ...

"Price signals should encourage consumers not only to buy more or less power now, but also to invest in the ability to adjust their future use. ... Electricity consumers-particularly households-have acquired few devices that would let them reduce electricity use on short notice, such as real-time meters ... several approaches can make real-time pricing easier, such as technologies that monitor electricity use and prices, and contracting arrangements with electricity suppliers that permit the customer (or a designated agent) to interrupt service when the prices rises. In many cases, large industrial customers already have the capacity to monitor and adjust their demand in the face of rising prices and, in fact, do so. Successful restructuring may necessitate that residential and commercial customers may acquire many of the same demand-management capabilities that industrial customers have."

Chris S. King
Executive Director
American Energy Institute

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