With the advent of the smart grid, dynamic pricing is receiving increasing interest by state commissions throughout North America as a means of enhancing economic efficiency by reducing the need for expensive peaking capacity. But several barriers stand in the way of its rapid deployment.

As noted by MIT’s Paul Joskow in a recent discussion of the economics of climate change, “On the demand side there are relatively low cost ways to reduce electricity consumption by increasing energy efficiency in building, lighting, heating, ventilating, air conditioning and other equipment. That’s why getting the retail price signals right is important and why muting them with regulation based on traditional cost of service models is inconsistent with promoting adoption of economical energy efficiency opportunities.”

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