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The Effect of Winter Energy Prices on San Angelo TX Electricity Bills

Sep 19

The Effect of Winter Energy Prices on San Angelo TX Electricity Bills

SAN ANGELO, TEXAS - September 20, 2022 - Texas Electricity Ratings

Retail prices for energy in the United States are nearing multi-year highs as we enter the winter of 2022-2023. 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. We anticipate that Americans will spend more this winter on energy than in previous years due to higher energy prices. Also, it is likely that there will be a milder winter in some parts of the United States.

Even as weather conditions are unpredictable, the EIA expects higher residential energy bills as the United States recovers from an economic slowdown.

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.

The expectation of a cooler winter is based upon forecasts by the National Oceanic and Atmospheric Administration. NOAA's forecasts are a key input into the EIA energy consumption forecast. They also contribute to our expectation of an increase in winter energy usage.

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The winter heating season runs from October to March. This supplement provides a broad overview of household winter energy expenditures. These are not heating costs, but energy expenditures in general. Individual households' fuel expenses depend on their size, energy efficiency, and temperature settings. Each fuel has its own market structure. Regulations, restrictions, and limitations can all affect the link between wholesale and retail market events.

To estimate the average winter energy consumption in each region, we use the Residential Energy Consumption Survey. This report forecasts household expenditures for propane, heating oil, electricity and heating oil. We have divided households according to their primary space heating fuel. The winter forecast includes all heating fuels, not just heating. The report will include households that heat primarily using electricity. It would also include electricity used in lighting and appliances. Since electricity has the broadest range of uses, it is more susceptible to temperature fluctuations than other fuels.

In the United States, average prices for all fuels will be higher than during recent winters. Wholesale commodity prices are increasing for petroleum products, natural gas, and crude oil. This is being passed on to the retail prices. While price increases in the last year can be attributed to many factors, the main reason wholesale natural gas, crude oil and petroleum products prices have risen over the past 12 months is because fuel demand has grown 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.

The price movements of petroleum products are quickly passed to the consumers. Brent crude oil spot prices on October 1 were $79 per barrel (b), up 51% over last winter's. This winter, we expect average retail prices for propane to increase by about 49% and heating oils to go up 33% compared to last year's.

Because these costs are included in regulated rates, commodity price fluctuations can have a significant impact on residential natural gas and electricity prices. 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. We predict that residential natural gas prices in winter 2018 will be 27% more than last winter, and residential electricity prices will rise 5%.

According to NOAA's most recent winter forecast we expect temperatures for 2022-2023 to be slightly cooler than last winter's, but more like the average winter in the previous 10 year. 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. The regional changes are consistent with last winter. 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. Last year's experience showed that even in a mild winter, severe disruptions to energy markets can happen. An earlier cold snap in February that affected large parts of the country, including Texas, caused disruptions to energy supplies and continues to impact energy markets. These weather events are not always expected, but the high prices and low inventories across a variety of fuels mean that even brief periods of severe weather can have an impact on energy markets.

In two ways, cold weather can have an impact on household heating expenses. First, it can increase the energy required to maintain a house at a given temperature. Cold weather can lead to an increase in demand and disruptions in supply. This could be particularly acute during low fuel inventories.

This effect can occur for all fuels. However, it is more severe for propane because wholesale-toretail price pass-through happens quickly for this fuel. Cold weather can also significantly affect market dynamics. In the Midwest, where propane supply problems have been a problem in the past, we anticipate that propane retail prices will be approximately 12% higher in a 10% colder than forecast scenario. Additionally, households will consume 12% more propane. This would result in propane expenditures that are 26% greater than our base case.

The immediate effects of a colder winter on natural gas are more pronounced for the consumption side. We forecast that U.S. natural gas retail prices will rise by 2% in a 10% colder than expected scenario. 13% more Americans would consume the gas, which would result in higher expenditures of 15% than in our base case.

The Effect of Winter Energy Prices on San Angelo TX Electricity Bills

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