This is the Cato Daily Podcast for Friday, August 19th, 2011.

I'm Caleb Brown.

When the idea of price sensitive thermostats was first introduced, the reception was not warm.

But the idea has merit, especially for those of us who might wish

to purchase energy from greener sources and pay the premium in order to do so.

Lynn Kiesling is a senior lecturer in the Department of Economics at Northwestern University.

We spoke at Cato University in Annapolis, Maryland in July.

Going forward, technologically, why is it inappropriate to think of electricity? word technologically

the regulated utility has treated and the regulators have defined the product in

electricity markets as a product and not really a service but it's the

services the delivery of this commodity, electricity into the customer premises.

One of the things that technological change in particular digital technology has made increasingly possible

is to think more of the service component of electricity. Think of electricity as a service and service

and how that can both be differentiated over time

or be bundled with other products.

So for example, product differentiation, the most obvious example and I think the most intuitive

and useful for consumers is some form of dynamic pricing, which is the cost of generating electricity

fluctuates over the course of the day, over the course of the week, seasonally.

And those fluctuations in the wholesale price of electricity

that really affects the cost to the distribution company of distributing the electricity to you.

And if you're paying a fixed price, as we pay under a regulated price, you're paying some average fixed price all the time,

and that means there will be some hours when the price you're paying is lower than the cost to serve you. And then there will be other hours overnight

...