Could Market Pricing Have Saved New Mexico Gas?

I usually don’t write about things for which I don’t have all the facts, but I think the recent problems involving the loss of natural gas service throughout many areas of New Mexico and the subsequent backlash is one topic that demands some speculation.

Before getting into this, it is important to note that politicians are the first to cry “foul” when instances of “price gouging” come to light. Price gouging simply involves raising the price of a specific good when supplies are extremely tight. While this may sound cruel, it also signals that distribution of the limited good should be allocated to those who are most willing to pay for it.

The problem for New Mexico gas is that there is currently no way to price gas in a time and supply sensitive way. It is all handled through the PRC.

But what if customers had the benefit of real-time pricing data? Once that meter started to jump, customers could have drastically cut back on usage. My family, hearing of the shortages, made sure to start a nice, hot fire in the fire place. Could more New Mexicans have done this if pricing signals encouraged them to do so? At this point, all we can do is speculate.

However, the technology for real-time pricing is available. In a free market (admittedly this is somewhat difficult in the utility sector, but I believe it can be done or we can at least move toward it), utilities would have a strong incentive to increase usage at off-peak times and reduce usage at peak times. Pricing is the best mechanism for doing this.