chapter  4
26 Pages

Rethinking retail regulation: Enabling active demand and retail choice

Many of the assumptions underlying the traditional regulatory model are no longer correct. This chapter provides evidence supporting that claim with respect to the retail sale of electricity services to end-use consumers, and in particular their ability and willingness to respond to price signals. Technological change is the primary driver making the assumptions that consumers will respond false, although even without digital technology, customers can and do respond to dynamic pricing. The availability, and increasing cost-effectiveness, of digital technologies that enable consumers to monitor and control their own energy use and to see transparent price signals has made existing retail rate regulation obsolete. Instead, the policy recommendation that this analysis implies is that regulators should reduce entry barriers in retail markets and should allow for dynamic pricing and product differentiation, which are the keys to achieving decentralized coordination.