Summer 2024 Heat Waves
Results are in. Once again, the top trending coworker small talk topic is… weather. To be fair, this summer’s weather has been worthy of conversation. A heat wave in New York City is defined as three consecutive days of at least 90-degree high temperatures. Through July, the city has already experienced three heat waves and 15 days in the 90s, while NYC historically averages 15 such days for the entire summer! It’s been hot.
If you haven’t already noticed that your latest electric bill was higher than normal, you likely will on your next one. But don’t worry, this is to be expected. When temperatures rise to these extreme levels, you typically run your cooling system for longer to keep your building or home comfortable. The additional cooling demand means higher electricity consumption, which translates into higher electric costs. The same concept applies in very cold weather for electric-heated buildings. You already knew this though.
Aside from the obvious, there are some hidden reasons why your electric costs are disproportionately higher in the summer months, especially during billing periods with a heat wave. During these months, delivery costs will account for much of the increase. Delivery refers to the portion of the bill paid to the utility, or Con Ed, for distribution of the energy and the associated costs of upgrading and maintaining the distribution system.
The primary input for your delivery cost is demand. It is measured in kilowatts (“kW”), which is the rate of power an electrical load uses. For utility billing, demand is a recording of the peak 15-minute interval of electric usage for a property in a given period. All it takes is one extremely hot day and high kW reading to impact an entire month of billing.
The kW is then multiplied by a price per kW, which can vary depending on the rate class. The New York Public Service Commission (“PSC”) approves these rates for Con Ed in advance of each year. The Con Ed electric tariff for demand separates the year into two periods – (i) the summer months of June through September, and (ii) all other months. Summer months will see elevated, or nearly double, price per kW charges when compared to the non-cooling months.
So when there is a heat wave, you are hit with a triple whammy:
Higher consumption,
Higher demand or kW, and
Higher Con Ed summer demand rates — with the latter two showing themselves on the bill as a higher price per kWh.
This is an unfortunate seasonal event that will happen every summer, but it is especially relevant this year. Once we move beyond the September billing period, we would expect price per kWh to come down again.
But wait… there’s more. The PSC had not approved Con Ed for a demand rate increase during COVID. Then last year, Con Ed received approval for 2023 to 2025. This year is the first full summer season since the 2023 rate increase last August, which was roughly 13 to 16 percent year-over-year on kW. This summer, there was another hike of 10 percent. Con Ed is exacerbating the issue further, and all of this is resulting in some pretty expensive electric bills this summer.
The next largest component of delivery is the cost of the actual energy used. Consumption, or kWh, is multiplied by a rate also set by the PSC to arrive at total energy cost. The good news is this kWh rate is declining – 7 percent last August and another 7 percent this summer. However, unfortunately, this kWh cost component is only a small fraction compared to kW. Con Ed’s priority seems to be peak demand rather than overall usage.
Though energy efficiency projects nowadays are often discussed in the context of carbon emission reductions for Local Law 97, let this serve as a reminder that reduced consumption and demand can also impact your utility costs. If your building systems are old and/or not consistently maintained, consider allocating a budget toward energy efficiency, as there are likely some options with strong paybacks. Even some newer buildings may benefit from certain projects. In these extreme weather scenarios, the ability to prevent costs from potentially ballooning can prove quite valuable.
Market Analysis
Electricity
NYISO Zone J climbed a bit compared to the first half of the year, as is typical during the summer season when cooling demand is at its peak. Daily settlements were primarily in the $0.03 to $0.05 range throughout July, though it spiked even higher during the heat waves. At one point, NYISO settled at nearly $0.09. Even with the run up due to the hot weather and increased demand for A/C load, the commodity settled on average at historically low numbers for this time of year.
Natural Gas
Front-month NYMEX futures took a near straight-line tumble throughout July, opening the month just under $3 while closing at $2. Though the commodity settled in the mid-$1 range for several months this spring, $2 is also considered historically low. With natural gas being the primary input to electricity generation, this is partly why NYISO was so favorable as well. Primary contributors to the downward market movement were forecasts for cooler weather nationwide, solid LNG production, and ample gas in storage. Total working gas in storage is 8.4% above this time last year and 16.4% above the five-year average.
Crude Oil
Crude oil persisted in the low $80s range per barrel until the third week of July, when hopes of a ceasefire in the Middle East and concerns over slowing U.S. economic growth sent prices falling. After reaching levels as low as $75, it climbed back up by 4.3% on a single day on July 30, as the conflict in the Middle East showed no signs of slowing. This was the largest daily increase in nearly a year.
💡 Mitchell’s Tip: Invest in energy efficiency projects.
