The standard economic model of efficient competitive markets relies on the ability of sellers to charge prices that vary as their costs change.  Yet, there is no restructured electricity market in which most retail customers can be charged realtime prices (RTP), prices that can change as frequently as wholesale costs.  We analyze the impact of having some share of customers on time-invariant pricing in competitive electricity markets. Not only does time-invariant pricing in competitive markets lead to outcomes (prices and investment) that are not first-best, it even fails to achieve the second-best optimum given the constraint of time-invaraint pricing.  We then study a number of policy interventions that have been proposed to address the perceived inadequacy of capacity investment.  We show that attempts to correct the level of investment through taxes or subsidies on electricity or capacity are unlikely to succeed, because these interventions create new inefficiencies.  We demonstrate that the most common proposal, a subsidy to capacity ownership financed by a tax on retail electricity, is particularly problematic.  An alternative approach to improving efficiency, increasing the share of customers on RTP, has some surprising effects.  We show that such a change lowers the equilibrium price to flat rate customers and makes them better off, but it makes incumbent RTP customers worse off.  Also, an increase in RTP customers does not necessarily reduce equilibrium capacity investment.  If the equilibrium flat rate is higher than optimal, then an increase in RTP customers improves welfare.  However, if the equilibrium rate is lower than optimal, such an increase does not necessarily improve welfare.  We present an example in which welfare decreases, but the construction of the example suggests it is not likely to be policy relevant.  Finally, we demonstrate that the analysis is robust to inclusion of a simple form of reserve capacity. 

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