Q: Who determines the hourly price of electricity?
Q: What factors can impact the price of electricity?
Q: How does the weather impact the price of electricity?
Q: Why are prices higher during the summer?

Q: Who determines the hourly price of electricity?

As a Power Smart Pricing participant, the prices you pay for electricity are set by the Midwest Independent System Operator (ISO). The Midwest ISO is an independent, nonprofit organization that supports the constant availability of electricity in 15 U.S. states and the Canadian province of Manitoba. The organization is headquartered in Carmel, Indiana with operations centers in Carmel and St. Paul, Minnesota.

Q: What factors can impact the price of electricity?

Hourly, market-based electricity prices typically change as the demand for electricity changes; prices tend to increase as demand rises. As a result, average prices tend to be higher on weekdays and lower on weekends and holidays, when some businesses and factories shut down.

The weather can also impact the market price of electricity, particularly during the summer when air conditioner usage drives up demand for electricity. As a result, electricity prices tend to be highest on summer afternoons, and hot days tend to have higher overall prices than cooler days.

During the winter, electricity prices may increase if the temperature drops suddenly and significantly or if an extended cold snap pushes up natural gas prices, which increases the cost of operating gas-burning power plants.

Prices can sometimes increase in the spring or fall if a heat wave occurs during a time when some power plants are shut down for maintenance. There can also be unexpected and brief price spikes if multiple power plants have technical or mechanical problems at the same time, or if there are problems in parts of the regional transmission network that is used to transport electricity from the power plant to the Ameren Illinois Utilities’ distribution system.

Natural gas and coal prices also impact the market price of electricity, so when the costs of other fuels increase, those changes can be reflected in hourly electricity prices.

Q: How does the weather impact the price of electricity?

The weather can have a big impact on the market price of electricity because people may alter their behaviour, and consequently their demand for electricity, based on the weather. This is particularly true during the summer when hot weather drives up demand for electricity to power air conditioners. This is why summer electricity prices tend to be highest during the afternoon, which is typically the hottest time of the day. This is also why hot days tend to have higher overall prices than cooler days.

Q: Why are prices higher during the summer?

Electricity prices are higher during the summer largely because air conditioners use a large amount of electricity, and this pushes up demand during the summer months, especially when the weather is hot. Electricity prices also tend to fluctuate most during the summer as homes and business turn air conditioners on and off, so there can be a big difference between the highest price of the day and the lowest price. During July 2008, there were some hours when the day-ahead price of electricity was negative, meaning Power Smart Pricing customers received credits for the electricity they used during those hours.