Electricity Pricing: why is it done this way?

The Independent Electricity Operator pays for your electricity with an amazing pricing algorithm. I think this practice is not limited to us; I have a bad feeling the electricity swindles in California were made possible in part by a similar pricing scheme.

Here’s how it works, as I understand it:

Power suppliers bid, moment by moment, how much power they can supply and at what price.

The prices are sorted, lowest first. Then the total demand is assessed. Then the bids are accepted, going up the price rank until the power offered and accepted adds up to the demand. Now for the fun part.

All suppliers get the last price. That’s right, the most expensive kilowatt-hour bought sets the price for all the lower bids. Everyone gets the same price.

In the US, abuse was easy: a large supplier holds back power, making the use of a higher-bidder’s power necessary.

So here is the first dumb question: why would we not buy the power at the prices offered? A very small supplier can now always sell all his power by bidding low, and never risk being recompensed at that offering price.

Now for the second dumb question: why are we sometimes paying other jurisdictions to take our power, at a loss?

The answer seems to be, we have power plants whose output cannot easily be throttled down when not in need. I sort-of understand this for nuclear power, but it seems less clear with other forms.

And a third dumb question: if we can export power (at a loss), then it appears that our grid can handle it, we just aren’t needing/using it at the rate being created. So why don’t we push that power into one or more storage facilities? Batteries, uphill water reservoirs, creating heat and cold sinks for later use by industrial buildings, and that’s just a starter set list.

Final dumb question: when we buy power and sell it at a loss, how is that power priced? What does the supplier get for it?

It would appear that the pricing scheme is loaded against the consumer.

Do remember that commercial users get better rates than households. If you try to find out what the commercial time-of-use rates are, you’ll fail: they aren’t posted on the hydro website. We aren’t supposed to know how businesses are being helped while we pay more.

News Flash: By trudging through the small business savings calculator on the businesses link above, I was able to get this cut&paste:

Here are the current prices, effective November 1,2010 – April 30, 2011:

  • Off-peak: 5.1 cents/kWh
  • Mid-peak: 8.1 cents/kWh
  • On-peak: 9.9 cents/kWh

The source page is here. You will note that the base rate is less than we pay, and the information is out of date. I did not find current rates, nor the rates for “real”, i. e. large businesses. Can anyone point me to a source?

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