An argument against mandated price increases. Instead, the bigger market participants will probably take on risks as they see fit.

The core argument is here:

"The market risks are divided up between retailers and generators and very little of it is pushed out directly onto the consumer.
Obviously, whatever risks generators take on will be reflected in the prices they’ll seek in contracts with retailers, and whatever risks retailers take on will be reflected in the prices that retailers offer to consumers. But competition among generators to contract with retailers and competition among retailers to sell to consumers should work to do well one thing that the usual rate-regulated monopoly power systems do poorly: competition should shift risks onto the market participant who can most efficiently manage the risks. Consumers typically are not the best able to handle the risks, so competitive markets usually won’t stick them with the risks."

I think one should indeed give market participants in a deregulated market time to search their preferred risk level. However, we do have to remember that not all small consumers are able to carry some risk. If dynamic prices happen, some part of consumers will take on risks and through their flexibility help to kep overall supply costs down. Others will pay their part through increased average prices. If the market is indeed competitive, these small consumers will also find their acceptable risk/price level.
Regulation should not regulate these things, but pay attention to the consumers that need protection. If some consumer is not able to be flexible or to understand a dynamic contract, they need a fixed contract. And if they are to poor to pay increased rates, they may need support. In my view, this is where most discussion should be headed.

06 Jun 2012 - 0:47
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