Category: polar vortex
Have you ever heard the old adage, “Sell in May and go away”? It’s a popular one among stock traders since prices often dip during the summer months, but it’s not a rule to live by, especially when it comes to energy purchasing. We prefer the saying, “Prep in October, before winter gets closer”. Now, yes, we did make that up, but for good reason!
Winter weather can impact multifamily real estate owners on so many levels. From site-level crises like freezing pipes (and residents) to portfolio-level energy costs, the only way to manage the changing seasons is to plan ahead, early and often. For tips on how to prepare your actual buildings for winter weather, check out our checklist. For energy purchasing, getting ahead of the weather is key, however, that means your strategy heavily depends on forecasting, historical data, and taking action.
In the last few years, volatile winter weather has rocked New York City and national energy markets on a number of, often cleverly-branded, occasions. In 2014, Con Edison electric supply prices climbed to $.22/kWh after a string of single digit degree days – popularly known as the northeast’s Polar Vortex. In this past, extremely mild winter, Con Edison prices dipped to $.05/kWh. Owners who allow the price they pay to float with the market are susceptible to unexpected swings like this, which is why a pre-season contract often makes the most sense.
Heading into the upcoming winter, energy market prices are looking unstable. Due to an extremely hot summer in 2016, prices are no longer trending downward. Natural gas production has begun to level off and is expected to fall short of consumption in 2017, leading to a deficit in the storage system.. As always, prices are heavily influenced by fluctuations in weather, available supply, and expected demand. In the winter, extremely cold temperatures will cause the use of heaters to rise, drain natural gas supply and, inevitably, prices will go up. In turn, warm weather during the winter months will preserve natural gas and keep prices low. If only we really knew what to expect from Mother Nature!
Accuweather and the Farmers Almanac predict relative warmth in the South and Southwest but a colder-than-usual stretch in the Plains and Northeast.
The NOAA predicts warmer than usual weather across the map.
Ultimately, how you decide to budget and strategize for winter energy spending depends on how much risk you’re willing to take and able to handle. If you are more conservative and want to make sure that your budgets are set and secure each year, locking in a fixed rate for your energy supply before the winter would be your best option. This strategy is very typical in supportive or affordable housing and Co-ops or condos. If you have more ability to take on risk, and have enjoyed the recent low rates in 2015 and 2016, there are a variety of flexible and aggressive strategies to implement that can help you get the lowest rates possible.
No matter which approach you take to energy procurement for your buildings, one thing is certain: now is the time to act.
Reeling from the icy burn of 2014’s Polar Vortex, everyone wondered how 2015 would compare. Twelve months later, now that it seems like the worst is behind us, we can finally get down to business and determine which winter hit us harder, from an energy perspective of course. To do this, we’ll look at three factors: heating degree days, natural gas prices, and electric prices.
When did we need more heat?
During which winter did New Yorkers crank up the heat more? We can find out by looking at the Heating Degree Days. Heating Degree Days is a measurement of required heating demand based on the daily number of degrees below 65 degrees Fahrenheit. For example, if it’s 60 degrees outside, that equals 5 heating degree days. These add up over the course of the winter months. You can see in the chart below, in November 2013, there were 585 heating degree days. This measurement also makes an excellent guide for gauging the impact of a cold winter, or polar vortex, as we now call it. The table below shows the monthly heating degrees days for NYC for the past two winters.
What do we see? The short story here is that while we started the 2014/2015 winter on the milder side, February 2015 takes the cake for the highest heating demand over the last two winters. In fact, it was the coldest February on record in NYC and about 23% colder than the previous winter. 2014: 0, 2015: 1.
When did we pay the most?
The Polar Vortex isn’t just about cold temperatures. Businesses and consumers also paid a lot for natural gas and electricity in the winter months due to high natural gas demand and limited pipeline capacity. But which winter was worse? The impact on prices can be seen in the spot/cash market (the daily energy market) where energy is bought the day before it is used, where the volatility is most evident and where natural gas prices have a direct impact on electric rates. The two graphs below show the local spot/cash market for last winter and this one:
These local wholesale prices typically stay in the $2.00/DTH to $4.00/DTH (DTH = dekatherm) range, but under pressure from winter demand these price rose close to $120/DTH in January 2014 and only to about $40/DTH this winter. So even though February 2015 was colder in temperature, the winter of 2013/2014 was rocked by all-time high natural gas prices. We’re giving this one to 2014. It’s a tight race. 2014: 1, 2015: 1.
And what if we look at NYC electric prices? Well, what we find is that the electric prices echo the pattern we saw in the natural gas market. The graph below compares the NYC wholesale electric prices over the past two winters.
The chart clearly shows that winter 2013/2014 was much more expensive in terms of wholesale electric (energy only), with prices reaching over $0.20/kWh (kilowatt hours) while this year’s prices peaked at approximately $0.16/kWh. Like natural gas, the cost of electricity hit us hard in 2013/14, and we have a winner. 2014:2, 2015: 1
There you have it. Despite extremely cold temperatures this year, winter 2013/2014 actually cost us more and we’re dubbing it the true polar vortex. However, given the surprise snow storm last week, are we jumping the gun on this call? Did we leave out any factors that might swing the results? Tell us what you think!