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Winter Energy Costs May Make You Scream

Time to pull out and dust off your electricity and natural gas supply contracts to find out if you are exposed to a variable market rate. Why? Because if you are on a market rate this winter you will likely have a major case of sticker shock.

 
Natural gas and electricity prices for delivery this winter have increased dramatically moving up by more than 35% since early November. Natural gas futures for January delivery have not been this high since 2014 and are bouncing between $4.40 and $4.80 per dekatherm (dth).

 
The run in pricing has been driven by low inventories of stored natural gas coupled with below normal temperatures during the early part of this winter. The storage deficit started in July as inventories broke below five-year minimum levels. Since that time, the deficit has increased each month to levels which are now 12% below the five-year low and 19% below the five-year average. All it took was about three weeks of below normal temperature forecasts for the market to explode up to nearly $5.00 per dth. This volatility will continue as long as temperatures continue to be colder than expectations.

 
Since electricity prices are now heavily driven by the natural gas market, we have seen the electricity forwards for this winter increase by 23%. Wholesale prices for January alone have gone from $41.00 per MWh to $50.50 per MWh in just 45 days of trading.

 
Most customers like the stability of a fixed rate and enter into supply contracts for a defined term. Once the term of the fixed price expires nearly all suppliers roll the customer to a market variable rate. This goes unnoticed by most customers if the market rate is low but when it is screaming (like the current situation) it will make you scream when you get your bill!

 
High prices during times of high consumption obviously have a doubling- down effect. Most residential customers will be consuming nearly 80% of their annual natural gas usage in the next three months. The last thing you want to do is pay the highest prices seen in four years during the time when you use it the most energy.

 
If you are not sure if you are on a fixed rate or variable rate then call your supplier and inquire. Their phone number will be easily found on your bill. Now is the time to shore up those contracts and reduce exposure to market rates!

 
Susanne is a contributor to The Ohio Manufacturers’ Association (OMA) Energy Guide blog. OMA’s Energy Guide is the path to customized energy pricing, terms, and smart energy management for Ohio’s manufacturers. To see how the OMA helps manufacturers purchase and manage the costs of energy, please visit: http://energyguide.ohiomfg.com/

 

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