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Polar vortex price spike? Read all about it!

Image Credit: Weather Symbols Clip Art from Vector.me (by sivvus)

Image Credit: Weather Symbols Clip Art from Vector.me (by sivvus)

At about the same time the “polar vortex” slammed Illinois with record cold this month—it also generated some heat from consumers who complained to CUB about an unheard of spike in electricity prices.

That’s right, electricity prices. About eight out of 10 Illinois homes heat with natural gas—so what business does electricity have going up during a cold snap? But up it went on “polar vortex Monday,” Jan. 6, when wholesale real-time power prices reached a whopping $2 per kilowatt-hour (kWh). That caused some gasps in the CUB office—a high price in the electricity market is more likely to be around 13 cents per kWh, and then, only in the middle of summer.

This didn’t impact most Illinois consumers, who pay a rigid rate for their electricity that won’t change until summer rates kick in on June 1. But it sparked concerned calls from people who had signed up for a creative pricing plan offered by ComEd called Residential Real-Time Pricing (RRTP). (Ameren has a similar program.)

On the RRTP program, participants pay the wholesale market price for electricity that changes by the hour. Usually, that price fluctuates between roughly 2 cents per kWh all the way up to 13 cents per kWh, or more, depending on demand. The idea is if customers can put off using big-ticket energy-guzzlers, such as the dishwasher or the clothes drier, until times when electricity prices are low (like, just after midnight), they can save big bucks.

Of course, the program isn’t for all families, but the ComEd hourly pricing program—one of the first in the country—has been a great success, saving consumers an average of 15 percent or more on their electric bills. To date, families on the ComEd RRTP program have collectively saved over $13.5 million dollars.

Usually prices are highest in the middle of a hot summer day, when businesses and households are all cranking up the air conditioners. I think it’s safe to say that NOBODY was cranking up air conditioners during the dangerous cold that invaded Chicago on Jan. 6-7.

So as I trudged through sloppy sidewalks on the way home that Friday after the bitter cold, one RRTP customer asked me an important question during a cellphone conversation: Is this the NEW normal? The answer, thankfully, is no. Prices will rise and fall for a number of reasons, but this was an extreme case–a triple-whammy, if you will:

1) Demand skyrocketed due to extreme cold. Sure, people were using a lot of natural gas, but they were also cooped up in their homes using a lot of electricity—for portable heaters, TV watching, electric furnaces, and the like. (In fact, the January cold sparked Illinois’ power grid operator to plea for energy conservation.)

2) The extreme cold drove up natural gas prices. That, in turn, made it more expensive to run natural-gas fired power plants, which made the electricity produced by those plants more expensive.

3) Plants went offline. Some electric power plants went offline, either because of complications caused by the weather, or for regularly scheduled maintenance. Fewer plants operating during a period of high demand drives up the price of electricity.

So the price spike was bad, but it’s no reason to sour on real-time, market-based pricing programs. In fact, this is exactly why we need creative pricing plans like ComEd RRTP: to give customers the tools they need to save money in the face of volatile energy markets. The new meters being installed across ComEd’s territory open the door for a whole menu of money-saving plans.

One of our favorites is the coming “peak time rebate”—which will reward customers with a bill credit if they put off using large amounts of electricity during high-demand times. Look for this plan to roll out in “smart grid areas” in the summer of 2015.