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Posted July 16, 2001
Kilowatts and the Price of TurkeyBy Christopher Swope
At some point today, ask any five people the following question: What’s a kilowatt-hour? Whether you’re around the office water cooler or on a busy sidewalk, you are likely to get blank stares — and not just because you are asking a completely random question. Most people know that a kilowatt-hour has something to do with electricity. But what is it? Does it measure time? Voltage? Cost? Very few people know the answer.
This basic confusion says a lot about why electricity deregulation is failing as it stumbles forth in about half the states. Consumers are being told to shop for electricity in much the same way that they shop at the grocery store. The problem is, consumers understand much less about electricity than they do about sliced turkey. It’s easy to buy turkey by the pound when you know what a pound is. It’s a little scary, however, to buy electricity by the kilowatt-hour when nobody has a clue what a kilowatt-hour is.
It’s not surprising, then, that as residential customers are given the chance to shop around and ditch their old monopoly utility, most people simply shrug it off. In Massachusetts, New Jersey, New York, Rhode Island and Maryland, fewer than 3 percent of residential customers switched power suppliers. In Washington, D.C., which opened its electricity market up six months ago, a mere 16 households have changed over to a new utility.
To be sure, there are other reasons contributing to these abysmal numbers. But the main and perhaps most enduring reason is that most residential customers are simply not interested in dallying in a market they don’t understand. They never asked for deregulation in the first place; manufacturers and other big industrial customers did. Residential customers always had little to gain by deregulation — a few dollars a month — and they have plenty to lose, as the ongoing debacle in California demonstrates. Perhaps the greatest mystery from that mess is how politicians could be persuaded to place ratepayers (i.e., voters) so squarely in harm’s way.
To the states’ credit, they’ve tried to overcome consumer ambivalence with massive education campaigns. Pennsylvania alone is spending $25 million on marketing. Even if they succeed in getting every man, woman and child to understand what a kilowatt-hour is, however, it isn’t clear that would help. There’s another reason why deregulation ultimately doesn’t mix well with residential customers. It has to do with prices.
Let’s go back to turkey. If the price of sliced turkey goes up by a dollar, the butcher at your grocery store will change the price tag accordingly. You, the consumer, can now easily take this change into account as you decide what meats to buy. Perhaps turkey is now too expensive for your budget and you’d rather buy ham. At the grocery store, prices are easy to see and customers respond to changes in those prices without even thinking about it.
But unlike turkey, the market price of electricity is in a constant state of flux because both supply and demand are volatile and change by the second. For example, if a morning fog burns off and sudden sunshine makes the afternoon hot, thousands of people might turn on their air conditioners at the same time. The spike in demand causes a sudden rise in the price of electricity. To you, the customer, the rise is invisible, so you can’t react to it. As you set your thermostat, you don’t have a chance to weigh whether it’s worth the extra cost to turn on the A/C in the same way that you can pick between turkey and ham.
Ultimately, technology may solve the price-transparency problem. Perhaps when all of your appliances are wired to the internet, you could program a computer to turn off the A/C when electricity goes over a certain price. Some power-hungry businesses and a few residential customers already use so-called “smart meters.” But the vast majority of us are nowhere close to this. We still leave a light on when we go out at night. We still turn the TV on, go into another room and leave it on while nobody is watching it. And we still have no idea how much it actually costs to do that.
States should have left deregulation to the big industrial users who wanted it most. Residential customers are simply not ready to play in this market alone. Over time that may change. But for now, most people would just as soon leave their electric service as it was when nobody went around asking them to define a kilowatt-hour.
Christopher Swope is a staff writer for Governing. After conducting an Internet search, he offers the following definition of a kilowatt-hour, compliments of the Sacramento Municipal Utility District: “Definition of kWh: This abbreviation stands for kilowatt-hour, a standard measure of electricity. To measure, the formula is: (Number of watts) x (hours of use) ÷ 1000 = kWh. For example: a 100 watt lamp x 20 hours = 2000 ÷ 1000 = 2 kWh.”
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