Many myths continue to plague dynamic energy pricing for residential consumers — despite a rich literature and pilot project history four decades long. This week a leading expert on dynamic pricing, economist Ahmad Faruqui (principal of The Brattle Group), dispelled some of these myths before an audience of regulators, academics, and industry executives at a University of Texas conference.

Here’s what he had to say…

First, to clarify, dynamic power pricing mechanisms include critical peak prices, critical peak rebates, and hourly pricing. All of these were successfully piloted in the PowerCentsDC pilot in Washington DC.

In its broader definition, dynamic pricing also can include time-of-use prices, such as those rolled out to all residential customers at Toronto Hydro.

Faruqui outlined these dynamic pricing myths — and truths:

Myth 1: Residential consumers don’t reduce peak demand in response to dynamic pricing? As proven in over 70 pilots, the reduction ranges up to 58% and averages about 20%.

Myth 2: Customer response does not persist over time? Since 1990, a half million customers at two Arizona utilities (Salt River Project and Arizona Public Service) have been on time-of-use prices, taking action to reduce their peak load, etc. Other programs have shown persistent response to critical peak prices and rebates for heat waves lasting two or three consecutive days.

Myth 3: Dynamic pricing hurts low income customers? Over 90% of low income customers saved money in the various pilots. For PowerCentsDC, where low income customers participated only in the critical peak rebate option, 100% of these customers saved money.

Myth 4: Customers don’t understand dynamic pricing? Historically many examples of popular dynamically priced services abound — from long distance phone call charges (remember that?), to cell phones, air fares, hotel rooms, and more. Dynamic pricing is even in parking meters, which often specify a daytime price and free nighttime use.

Myth 5: Customers don’t want dynamic pricing? Surveys of customers who have no experience with dynamic electricity pricing show that 40-80% report that they do want this option. Similarly, in pilot and ongoing dynamic pricing programs, typically 80% of participating consumers report that they like dynamic prices — and about 90% would recommend it to family and friends.

In his presentation, Dr. Faruqui addressed five additional myths.

Bottom line: Experience and research shows that a large percentage of consumers do like and will respond to dynamic energy prices by reducing peak demand. This saves them money. It also helps the environment: controlling demand means fewer fossil fuel power plants are needed, and more intermittent renewable resources (especially wind and solar) can be put into action.