The Effect of Winter Energy Prices on Abilene TX Electricity Bills

ABILENE, TEXAS - September 19, 2022 - Texas Electricity Ratings

As we head into winter 2022-23, energy retail prices in the United States have reached or are close to multi-year records. Due to changes in energy supply and demand patterns, the high prices are a result of the war in Ukraine and the COVID-19 pandemic. Due to the higher energy prices, and because it is expected that the winter will be colder than usual in the United States, households will likely spend more money on energy this year.

Even though we have different weather forecasts, the EIA forecast expects that the rise in energy prices due to the United States' economic growth will result in higher residential energy bills for this winter.

The EIA estimates that almost half of U.S. homes that heat primarily using natural gas will end up spending 30% more than last winter. If the winter is 10% less cold than average, the EIA expects to see 22% more and 50% respectively.

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The National Oceanic and Atmospheric Administration (NOAA) forecasts the expectation of a colder winter. The NOAA forecast is an important input into the EIA energy consumption forecast. It contributes to their expectation for increases in winter energy use.

This outlook is based on the definition of winter heating season, which the EIA uses as it falls between October and March. This supplement's average household winter energy expenses is a broad measure of recent winters. It does not include heating, but all energy costs. The fuel expenditures of households are affected by the size and efficiency of their homes, as well as the thermostat settings and weather conditions. Every fuel has its own market structure and physical infrastructure. There are also regulations and limitations that may affect the connection between wholesale market events and retail market events.

To calculate the average winter energy usage in each region, we use our Residential Energy Consumption Survey. We group households by primary space heating fuel to forecast household spending on natural gas, heating oil and electricity in order to develop this report's projected household energy consumption. We estimate winter expenses for all primary heating fuels. This includes heating. In this report, households that heat primarily by electricity include the electricity used for lighting and appliances. Electricity has the most uses of all fuels. This means that it is less sensitive to temperature changes than other fuels.

In the United States, average prices for all fuels will be higher than during recent winters. Rising wholesale commodity prices of natural gas and crude oil are being passed onto retail prices. We can attribute price increases over this past year to many factors. However, the main reason wholesale commodity prices for natural gas, crude oils, and petroleum products have risen in the past year is that fuel demand has increased faster than production. This has caused falling inventories for crude oil and many petroleum products as well as inventories decreasing by less than historical standards during the summer like the case for natural gas, propane, and other fuel products.

Commodity price changes for petroleum products are quickly passed on to consumers. Brent crude oil spot price was $79 per barrel (b) on October 1. This is 51% higher than last winter's. Average retail prices for propane will be 49% higher this winter and heating oil 33% higher than last season's.

Since these costs are integrated into regulated rates, price changes for commodities have an impact on residential prices of natural gas and electricity over longer periods. Even with a lag in price increases, spot commodity prices have increased over the last year pushing up retail prices this Winter. On October 1, Henry Hub natural gas spot prices were at $5.61 per MMBtu (million British thermal units) which was 84% higher than last winter's average. This price rise contributes to our prediction that residential natural gases prices this winter will be 27% above last winter and residential electricity prices that will be 5% more than last year.

We assume that the winter of 2022-2023, based on NOAA’s most recent winter forecast will be slightly warmer than last winter's in most parts of the country, and closer to the average winter of 10 years ago. Heating degree days (HDDs), which are used to measure how cold temperatures are, is compared to a base temperature. Higher HDDs mean colder temperatures. We expect to see 3% more population-weighted HDDs in the winter 2022-23 than we did last winter, and 1% more over the 10-year average. There are no notable changes to the last winter's regional trends. We expect the Northeast, Midwest, West, and West to have 3%-4% more HDDs next winter than winter 2020-21. HDDs in South will remain about the exact same as last year.

These forecasts are subject to significant uncertainty due to weather. Therefore, the Winter Fuels Outlook contains scenarios where all regions are 10 % or more cold than the baseline forecast. As we saw last year, severe disruptions in energy markets can even occur in winters that are close to average. The country was hit by a severe cold snap in February. This affected Texas and Texas. It caused major disruptions to energy supplies, which continues to affect energy markets. Even though these weather events may seem unavoidable, the prevailing high prices for fuels and low inventories mean that even short periods of severe weather could have an impact on energy markets.

House heating costs can be affected by cold weather in two ways. It raises the energy needed to maintain a certain temperature in a house. The second reason is that cold weather can increase demand and cause disruptions in supply. This can make energy prices rise more quickly during times of low fuel stocks.

This effect can occur for all fuels. However, it is more severe for propane because wholesale-to-retail price pass-through happens quickly for this fuel. Cold weather can also significantly affect market dynamics. We expect that the Midwest, which has seen propane supply problems in the past winters, will see propane retail prices rise by 10%. In this scenario, propane households would consume 12% less propane and the price of propane would go up by 12%. This would lead to propane consumptions that are 26% more than the base case.

However, natural gas' immediate effects are more evident on the consumption end. In a scenario where the temperatures are 10% below forecast, we predict that U.S. gas retail prices will be 2% higher and 13% higher consumption. This would translate into 15% higher spending than in our base situation.

The Effect of Winter Energy Prices on Abilene TX Electricity Bills

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