Paying People Not To Use Electricity - The Fatal Flaw

In the first article of this series I identified a beautiful scam. In this article I explore the fatal flaw that makes it possible. It wasn't obvious to me at first and given the community enthusiasm for paying people not to use electricity, it mustn't be obvious to most others either.

Without hearing the proponents pitch, people I've discussed this with have said that's daft I don't believe anyone would think otherwise, just as the implausibility made the emperors story unappealing when I was a child. However, my colleagues thought paying people not to use electricity was inspired. For me the concept is so obviously daft it defies belief that it could have lasted this long and grown into government policy

Once you know, it can never be seen the same way again. The genius can be admired but the wonderment is gone.

It led to this strange situation where I was trying to convince colleagues of what seemed an obvious truth and utterly failing. In retrospect I think, like Shawn Spicer's claim on the inauguration crowd, the greater truth was that if paying people not to use electricity was truly daft the personal consequences would be negative. It's better to prefer alternative facts. The other possibility is I was wrong and there is no fatal flaw. I've thought hard in the intervening thirteen years and I've not been able to devise nor have I heard a good counterargument. If there is no fatal flaw it would be painfully cathartic for me to learn the truth. 

The Fatal Flaw 

If you don't accept the fatal flaw as truth then everything in this series is waffle or perhaps there are multiple truths in accordance with epistemic relativism.

Everything hangs on this:-

• Contention: The amount of electricity that would have been consumed in the absence of payment not to consume it is unknowable.
• Corollary 1: The volume of electricity that would have been consumed if people hadn't been paid not to consume it can only be guessed/estimated. 
• Corollary 2: In any peak some consumers will consume less than estimated for reasons unrelated to being paid.
• Corollary 3: If you pay by volume for something that can't be measured people will sell you a lot of it.
• Corollary 4: A consumer not paying market price should consume as high a proportion as possible of their total energy at peak times so as to maximise the amount they will receive when responding to a request to switch off.
• Corollary 5: A consumer that can increase market price by not consuming should consume as high a proportion as possible at peak times while ever the increase in consumption cost is exceeded by payments for switching off. 

It is as simple as that but a lot flows from it. The whole purpose of demand management is to reduce consumption when electricity is expensive or more often shift consumption from times of high demand to times of low demand. However, the incentive scheme incentivises exactly the opposite until a payment is offered. As well, some would have switched off anyway, perhaps they were out that day.

So paying people not to use electricity means accepting their claims of how much they should be paid or at best guessing while incentivising behaviour that makes the problem you are trying to solve worse. All this when incentives could be aligned with desired behaviour by selling electricity at cost plus a retail margin.