A great idea that everyone hates

The simplest way to bring down utility bills is to charge what the electricity actually costs.

High-voltage pylons at the Elsfleth West substation in Germany. (Photo by picture alliance/Contributor via Getty Images)

Everyone is angry about electricity prices.

The good news is that there is a very straightforward and well-understood idea that would have a meaningful short-term impact on prices without killing incentives for new investment.

The bad news is that nobody in their right mind even talks about this idea because it’s universally understood to be politically toxic and something everyone would hate.

I’m not here to dispute that diagnosis, just to say that failing to even talk about it is impoverishing the discourse — I keep encountering efforts to essentially recreate it with extra bells and whistles, and I don’t think that anyone coming up with these “new” ideas is taking seriously enough the question of why we don’t just do the straightforward thing.

So what’s the straightforward thing? It’s simple: We could charge household electricity users the spot price of electricity.

Electricity grids must constantly balance supply and demand, which means that on wholesale markets the prices fluctuate wildly based on shifting conditions. On July 15 in New England, for example, it was unusually smoky, thereby putting solar power production below the seasonal average. Then on July 17, there was a weird occurrence where grid congestion led to a period of negative prices in the specific part of Maine where I am.

Residential consumers, however, don’t pay these prices; what households pay instead is a kind of annualized average. That’s a lot more convenient than having an app that gives you an emergency notification that electricity has spiked to quintuple its normal price and you’d better change the thermostat before you go broke. But it also involves significantly higher prices on average. And as more people get electric appliances and cars and as batteries become cheaper and more widely available, the potential gains of forcing everyone to pay the spot price grow — even though almost everyone agrees it’s a terrible idea.

Why this saves so much