posted on 12.11.14

Last winter’s extremely cold temperatures caused high energy costs for unprepared MTI members, some of whom are still feeling repercussions today. As the 2014-2015 winter season approaches, members are asking if energy prices will continue to rise, and how they should prepare and budget. It appears that electricity and natural gas prices reached historic lows in April 2012. Prices are likely to steadily increase through 2017.

During the first half of November 2014, a series of winter storms delivered heavy snowfall to the Midwest, New England, and regions as far as West Texas. Accumulation amounts were the highest that the National Oceanic and Atmospheric Administration’s National Snow Analysis has archived for the early November timeframe since 2003.

Weather forecasters are predicting another cold winter in the U.S. Below-normal temperatures are expected to encompass two-thirds of the U.S., particularly the East Coast and Gulf Coast. Above-average precipitation and heavy snowfall are expected in these regions. The jet stream over the northern region of the U.S. is expected to be erratic, which could force cold air from the polar and Arctic regions into the U.S., particularly into the East Coast and Deep South.

The West Coast, on the other hand, will experience above-normal temperatures, which means severe drought conditions could worsen. In California, where 60% of the state is suffering the worst category of drought, mountainous snowfall is crucial for recovery. Snowfall amounts, which depend on the strength of winter storms, are difficult to forecast more than seven days in advance.

If extreme cold weather forecasts are accurate, electricity consumers should prepare for the risk of more electricity price volatility. Natural gas demand for heating and power generation is projected to increase steadily. Consumer demand for gas and electricity are typically synchronized. Electricity price trends are closely linked to the natural gas market. Winter weather across the U.S. in 2013-2014 produced the most volatile natural gas daily price swings in several years, and electricity prices climbed, as well.

Stabilize energy costs

MTI members who used variable or index prices for gas or electricity supply in January 2014 experienced problematic cost increases. Some electricity suppliers quadrupled the variable price billed to customers from December 2013 through March 2014.

Weather-related events in January and February 2014 are examples of how unforeseen and uncontrollable circumstances can greatly affect gas and electricity prices. MTI members are encouraged to mitigate risk exposure to volatile energy prices by using a fixed-price supply contract as soon as possible, to cover supply through at least March 2015. Members unwilling to commit to a one-to-three year supply contract should at least consider locking in a short-term, four-to-five month supply solution.

Some industry experts now consider extreme weather, and resulting gas and electricity price volatility, as the new norm. Achieving budget certainty now for this winter’s gas and electricity costs is a prudent business decision. For more information, contact the MTI endorsed consulting firm, APPI Energy, at 800-520-6685 or info@appienergy.com.

Article provided by APPI Energy, MTI’s Official Energy Supplier.