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The marginal cost of electricity fluctuates hour-by-hour, yet retail customers typically
face flat prices. Using data from all seven US wholesale markets and a new method to evaluate
alternative rates set in advance that accounts for equilibrium price effects, we estimate
efficiency gains from time-varying price schedules that better align price with cost. We have
three main results. First, time-of-use rates and critical-peak pricing, the two most common
time-varying rate plans, each correct about 10% of mispricing. Second, more complex
rate structures based on historical prices often backfire. Third, an alternative structure,
real-time pricing with price ceilings, can capture most potential allocative efficiency gains.
