5 July 2001

The invisible hand at work

As a response to the (deliberately manufactured) energy crisis in California, some of the electricity distribution companies began offering special contracts to encourage corporate customers to be more efficient. The deal was: They’d get a cheaper electricity rate, if they agreed to cut their usage by 15% when asked to do so during peak time shortages. If they failed to do so, they’d have to pay extra-high premium prices.

This is, of course, rational market-based pricing of goods—as the theory goes, people who need lots of electricity when it’s in short supply should pay more, and the way to encourage efficiency and flexibility is to give it a financial incentive.

Well, as a result many big corporations are now deliberately consuming 15% more electricity than they need, so that if they’re asked to cut usage at peak times, it’ll be easy to do so. Bwahahaha, another victory for the free market.

© mathew 2017