Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I
Thanks James for your comments.
Go back to part 2 of my comments. Spaces A, C and D are stable architecture. Space B is unstable: as price increase, system reliability decrease. That is a counterintuitive systemic behavior. Trying to make stable there is a movement from Space B to Space C, which is at the core of the afterthought in the 2005 Energy Bill, which resulted in Bruneto & Wimberly’s article.
Bruneto & Wimberly explain that to get to Space C, the process of evaluating and implementing DR is less complex, than the “current” - Space B - architecture in the US. However, under the EWPC environment, the process of evaluating and implementing DR is not only less complex than in Space C, but also more efficient in the long run as we get to the End-State - Space D - of the electricity industry. The benefits are shared among two major stakeholders, the consumer and the competitive retailer under EWPC, instead of three major stakeholders – customer, monopoly distributor, and regulator, under a fully regulated environment.
LMP theory and practice comes from Fred C. Schweppe as the leader of the spot pricing of electricity research at MIT. LMP without DR leads to an incomplete – Space B - market. When you say “[T]hen, the household could respond to that price signal,” you are, like it or not, using Fred Schweppe’s – Space C - theory. As you can see a practical analyst has mental models - theories in use – to suggest decisions. Some of those theories - beliefs -are flawed when policies interact with each other in dynamic systemic ways on complex systems, as the counterintuitive behavior of Space B referred above.
I agree that under the flawed “current” market design and architecture it is politically impossible to implement a market structure without maximum prices. That happened because Schweppe insights were not taken into consideration. Space C was “bypassed” (Schweppe recommended A to C to D) and innovation was foreclosed, as the three California utilities preserve their “native” loads and delay innovation one decade, keeping alive a totally unnecessary debate.
Search for Hogan in the following articles, read the complete comments (not only samples), and their links, and get back to me with your conclusions.
What a surprise: Prices move both ways
The Gap Between Demand Response Potential and Demand Response Reality
Post hoc ergo propter hoc: The fallacy of blaming deregulation for rising electricity prices