> Except that's not how it works on the large scale. If you have 1000 consumers coming home and using their 3 kW ovens for half an hour "at the same time", you very reliably get nowhere near 3 MW of load on the grid. For one, people do not in fact come home at the exact same time, and then, the exact switching intervals of the oven thermostats are essentially random, so the actual simultaneous load on the grid is pretty close to the thermal loss of all ovens combined, rather than the total peak power that they could consume if synchronized.

Which is why they don't actually need 30 amps of capacity, only something less than that and a battery to smooth out the load. Or for the power company to sell "10 amps capacity" as a five-minute average that allows for temporary surges above that capacity as long as the average stays below it.

You're also focusing on one thing, and not the many other things that are synchronized. Grids often have problems on hot days, why? Because everyone wants to run their A/C at the same time. It'd be fine if half the people would do it at night or three days from now, but the grid needs that much capacity now. If you don't have it right now you can't make it back up over the rest of the month no matter how much people don't use.

> So, the power company calculates the maximum energy that you could use given the service that you are buying, makes up some per-kWh price, multiplies the two, and then bills you that amount minus the kWh that you didn't use, and that gives the power company a good incentive not to have an overloaded grid?

> Could you provide an example where the total of that bill wouldn't be identical to just billing the same per-kWh price multiplied with the kWh used?

You only get money back for not using when the grid is overloaded, which if the power company is doing their job should rarely if ever happen. And if it does it's because most people are using their full capacity, so the people who stop get paid to stop and the people who weren't to begin with get paid to not start.

> Well, that depends on the pricing? If it costs the same to buy 30 amp service and use 10 kWh per day as it costs to buy 10 amp service and use 10 kWh per day, why would I buy a 5 kWh battery?

Which is why per-kWh pricing is problematic. It's better for the grid for you to buy the battery and reduce your peak usage, and $-per-kWh gives you no incentive to do that. So then the grid needs more capacity because you consume more at peak times, which is more expensive for everyone. Meanwhile the cost of that would go on the person who is productively using a lot of zero-marginal-cost power during off-peak hours.

> So, the analogy to a hard rate limit where you have to operate your own energy storage is a setup where you can burst the service? I am not sure I get what you are trying to say.

Suppose you have 10 amp service, but a 5 kWh battery that will charge whenever you're using less than 10 amps. Then if you've been using only 3 amps for 20 hours, your battery is charged and you can run your 3 kW oven for half an hour even though it uses more than 10 amps.

Suppose you have 50 Mbps service, but the rate cap is a rolling average over 60 seconds. Then if you haven't downloaded anything in 60 seconds and you go to download a 100 MB file, you get the whole thing at link speed (e.g. 1000 Mbps) because your 60 second average is still below 50 Mbps so the cap hasn't kicked in yet.

I suppose the closer analogy is that you can do exactly the same for both, i.e. you get a 50 Mbps rolling average or a 10 amp rolling average and you can go over for a few seconds at a time as long as the short-term average stays below the rated capacity.

> Well, sure, that certainly could make some sense, but is completely orthogonal to whether billing happens based on Wh/bytes or W/bps? You also could have a time-dependent per-kWh or per-GB price, couldn't you? (And in the case of electricity, you usually can.)

Only the ISPs aren't doing that. And even then, it would mean that the off-peak price per-kWh or per-GB should be zero, which it isn't.

But even that doesn't quite capture it, because it's not just about peak hours in a given day, it's about peak hours in a given year. The grid has more load at 7PM in the fall than at noon in the fall, but it has more load at noon on the hottest day of the year than at 7PM in the fall.

If you want to run your A/C on the hottest day of the year or live stream the Superbowl then the network needs that much capacity on that day, which means it has that much capacity on every day. But none of the other days require capacity to be expanded further to support them.

> Well, infrastructure costs are fixed costs, yes, but infrastructure costs aren't fixed, as any given infrastructure has limited capacity. So, the marginal cost of one additional packet while you are under the capacity limit is a few femtocents (whatever the additional energy cost of moving that packet is, I haven't done the calculation), but the marginal cost of the next packet after you reach the capacity limit of some component is a few, possibly many, thousand bucks. Thus, the marginal cost that has to be used for calculating customer prices is the average over the range of realistic infrastructure expansion, which is quite a bit higher than the energy cost for an additional packet on existing infrastructure.

What you're really getting at is that marginal cost when the network is below capacity is much different than marginal cost when the network is at capacity. But that's the point -- almost all of the time, the network is below capacity and there is immaterial marginal cost.

> Also, wouldn't it follow from your argument that internet connectivity should be provided for free to most people? I mean, once you have the network built, it's a fixed cost, and providing service to an additional customer has nearly zero cost in most cases, so shouldn't people be able to sign up for free?

This is what we generally do with roads. The main cost is the fixed cost and the marginal cost is trivial, so the government pays for them from taxes and everyone can use them for free. This is also why toll roads are very stupid -- you pay the same fixed cost and then discourage use of an already paid for resource with a trivial marginal cost, by charging a non-trivial marginal cost.

But the fixed costs still have to be paid somehow. Having the first customer pay ten billion dollars and all the others pay nothing doesn't exactly work in practice. It's also not how the cost structure works, because a huge part of the infrastructure cost is per-customer -- if you want to service twice as many customers you have to wire twice as many streets.

On the other hand, having everyone who wants the same capacity pay the same monthly fee works pretty well. It still discourages people from signing up compared to the public roads model, and it would be better if it didn't, but probably doesn't discourage very many because the value of having internet service is much greater than the cost.

By contrast, charging high prices per byte at anything other than the all-time peak consumption period does in practice discourage productive use for no benefit.