Creating reliability choice: How building less reliability into electric power grids could improve the welfare of all customers

Electric power grids are designed to attempt to provide the same basic level of reliability to all consumers. With consumers having non-uniform preferences for reliability, the provision of one level of reliability at the same price for all consumers forces many to pay for reliability that they value less than the cost. Load control technology can decrease these equity problems by increasing the reliability received by some consumers and decreasing the reliability received by the others. By replacing generation capacity, load control technology would increase the total number of kWhs shed annually, thereby decreasing the reliability provided by the electric power grid. Using simple examples, we show that if the cost of this load control technology is low relative to the cost of generation capacity, voluntary load shedding could increase the welfare of everyone on the grid by allowing consumers to choose their level of reliability.