Metering in Electricity Markets

Abstract

Worldwide, from England to Australia, with many stops in the U.S., electricity markets are being restructured. Although, as pointed out by Considine and Kleit (2001), “proponents of restructuring have a difficult time articulating why restructuring is a good idea,” economists see the principal goal of these restructuring initiatives to be the increase in market efficiency, in both a static and dynamic sense.¹ From the point of view of economists, an important facet of restructuring initiatives is thus the creation of markets to serve as resource allocation mechanisms. Markets allocate resources in a decentralized fashion through the use of prices. Prices act as signals for production, consumption, and investment decisions. The success of markets (in terms of efficiency) as resource allocation mechanisms therefore depends on the clear communication of accurate price signals. Economists therefore generally support the increased use of price signals for production, consumption, and investment decicions in electricity markets.

The authors gratefully acknowledge funding support from the Alberta Department of Energy. Doucet acknowledges the J.D. Muir research grant from the University of Alberta School of Business. Tina Zhang provided excellent research assistance. All opinions and conclusions are the authors’ alone.

For a discussion of the motivations for restructuring see Joskow (1997) and Borenstein and Bushnell(1999).