Winter Energy Prices and Dallas TX Electricity Bills

DALLAS, 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 when weather conditions are unpredictable, the EIA expects higher residential energy bills as the United States recovers from economic growth.

The EIA predicts that nearly half of U.S. households that heat with natural gas will spend 30% more this winter than last year. This is if it is 10% colder than average and 22% if it is 10% warmer.

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The National Oceanic and Atmospheric Administration (NOAA) forecasts expectation of a colder winter. 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.

This outlook is based on the definition of winter heating season, which the EIA uses as it falls between October and March. This supplement provides a broad overview of household winter energy expenditures. These are not heating costs, but energy expenditures in general. The fuel expenditures of households are affected by the size and efficiency of their homes, as well as the thermostat settings and weather conditions. Each fuel also comes with its own market structure, infrastructure, regulations, limitations, and restrictions that can influence the connection between wholesaler and retail market events.

As a base, we use the Residential Energy Consumption Surveys (RECS), to calculate average winter energy consumption for each region. In this report, we use the primary space heating fuel of each household to calculate our projected household expenses for natural gas and heating oil. 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. Because electricity is the fuel with the greatest number of uses, it tends to be more sensitive to temperature changes than other fuels.

We expect all fuel prices to rise in the United States on average more than they were in recent winters. Wholesale commodity prices are increasing for petroleum products, natural gas, and crude oil. This is being passed on to the 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 led to falling inventories in crude oil and other petroleum products and inventories increasing less during summer than historical averages in natural gas or propane.

The price movements of petroleum products are quickly passed 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. Henry Hub natural gas spot prices were 5.61 British thermal units (MMBtu), which was 84% more than the average last winter. This price rise is contributing to our forecast that residential gas prices this winter would be 27% higher than the last winter and that residential electricity will be 5% lower than last season.

Based on the most recent NOAA winter forecast, we believe that temperatures in 2022-2023 would be slightly less cold than last year's winter and more similar to the typical winter of the past 10 years. We use heating degrees days (HDDs), to determine how cold temperatures are in relation to the base temperature. Higher HDDs signify colder temperatures. For the winter of 2022-2023-23, the average HDDs will be 3% higher in America than for last winter. It is also 1% higher than the 10 winter average. There have been no significant changes in the region since last winter. We expect that the Northeast and Midwest will have between 3% and 4% more HDDs than winter 2020-21. The South will see about the same amount of HDDs as last winter.

Weather is a major source of uncertainty for these forecasts. The Winter Fuels Outlook includes scenarios in which all regions are measured in HDDs and are either 10% or 10% cooler than the baseline forecast. As we saw last year, severe disruptions in energy markets can even occur in winters that are close to average. 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 by nature unpredictable, but due to the high prices of fuels and the low inventory levels, even short spells can cause disruptions in energy markets.

Two ways cold weather can impact household heating costs are: The first is that it increases the amount of energy needed to maintain a particular temperature in a home. Because it increases demand and can cause disruptions to supply, cold weather can cause energy costs to rise. This is a problem that can become more acute when there are low fuel inventories.

While this effect can be seen across all fuels it is likely to be most severe for propane. Because propane wholesale-to–retail price transfer occurs quickly, and cold weather has the potential to significantly impact market dynamics as well as prices. 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, cold winters have a greater impact on natural gas consumption. If the temperature is 10% lower than forecast, U.S. natural gasoline retail prices would rise by 2%, and 13% more people would consume it. This would lead to 15% more spending than in our base scenario.

Winter Energy Prices and Dallas TX Electricity Bills

Texas Electricity Ratings - Dallas, Texas

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