So some businesses are complaining that the spot price of electricity occasionally spikes when there is a shortage (and that these spikes are inconsistent). They want government intervention.
My question is, if these spikes are such a concern – why don’t the businesses set up fixed price contracts with electricity retailers in the same way household do. Also, the retailers are complaining about the wholesale price spike – but couldn’t they also set up contracts on a fixed rate? Ultimately, knowing that the price can spike heavily in the face of a shortage of power, these businesses are CHOOSING to buy at the spot price (I guess it must be cheaper) – if that is what they choose to do then they should really face the risk of it.
Now if there was something anti-competitive about the setting of wholesale energy prices sure, go ahead and complain. But if they spike because there is a significant shortage – and this price is just representing the underlying opportunity cost associated with providing that power – then having the spike occur is a GOOD thing.
This is because the price is saying “hey, at the current time there is a severe shortage of power, and unless you can create oodles of value from it you should think about stopping power usage for a short period of time”. When it is placed in that context the spike seems reasonable, and all the complaining about it seems weird – so what is going on?
FYI: Good comments from Rauparaha.