Do Price Spikes Really Affect Electricity Consumers?

March 2009

• On February 18, 2009 Bruce Power had to take one of its generators offline, creating a supply/demand imbalance for a three-hour period.
• Over the affected period, prices averaged $1,030/MWh with the peak being $1,891/MWh.
• However, the net annual impact on HOEP is about $0.085/MWh, which translates into an increase of about $1.00 on the annual bill of an average residential consumer.

On February 18, 2009, a problem on a transmission line between Bruce Power Generating Station and Milton, Ontario forced the generating station to take one of its generators offline. This cut in generation created a supply/demand imbalance in hours ending (HE) 11, 12 and 13 (from 10 am to 1 pm). Prices for those hours spiked, particularly in HE 11 and 12. The peak price of $1,891/MWh occurred in HE 12 and over the three-hour period prices averaged $1,030/MWh.

Such spikes can often cause alarm. However, unless they are sustained, their impact is frequently not as large as thought. This is particularly true in the Ontario electricity market, where the government and its agencies have put a number of fixed-price arrangements in place on behalf of customers.

The math

Let's look at the numbers.

If we use prices from February 17 and 19 and make certain other assumptions, in the absence of the price spike, prices on February 18 might have averaged about $40/MWh over the three hours in question. This means that over that period, prices were on average about $990/MWh higher than they would have been without the spike.

Given the average Ontario demand of 19,286 MW over the three hours, the notional cost to the market of the three-hour price premium was about $ 57 million.

Impact on HOEP

Spreading the unit price premium over the 8,760 hours in a year, the impact on the average Hourly Ontario Energy Price (HOEP) would then be:

$990/MWh x 3 hours / 8,760 hours = $0.339/MWh

Actual bill impact

The fixed-price arrangements mentioned earlier serve to mitigate about 75% of variations in HOEP. That means the net impact on HOEP over one year is about $0.085/MWh. On a typical all-in unit cost of $100/MWh (10 cents/kWh), this represents 0.085 %.

While this will affect the vast majority of Ontario electricity consumers, including residential customers on the Regulated Price Plan, the cost spread over one year is fairly small.

The price spike will therefore cause the average residential customer consuming 12 MWh or 12,000 kWh annually to pay a total of about $1.00 more on their annual bill than they would otherwise have paid.

For information on other elements affecting electricity bills, please see previous newsletter articles:

Explaining the Global Adjustment, Part 1 Read more »

Explaining the Global Adjustment, Part 2 Read more »

End of OPG Rebate - How Will Consumers Be Affected? Read more »