Where’s The Market-based Retail Pricing?

Has it been a week? Boy, have I had my head in my work! Except for last weekend, when I had my head in my knitting, trying to finish a sweater to take on vacation next week. I am working on a book chapter on retail electric pricing for an edited volume on electricity restructuring. The focus is, surprise surprise, on the information content of prices, and how the traditional fixed, regulated, average-over-time retail price that we pay throws out a lot of information, doesn’t give consumers any incentive to conserve or to make informed choices about their energy consumption, and leads to poor investment incentives. Nowhere, and I mean nowhere, in this country has market-based retail electric pricing, even in places that have “deregulated”. This is going to become an increasingly important issue in electricity policy, and it’s going to be a sticky one, because it’s not just pass a law and bammo — it’s about changing a century of culture, for consumers, for industry, for regulators. My favorite articulation of this problem is from Vernon Smith, at ICES: utilities have to wrap their minds around the thought that they can make more money by selling less power.