How does weather impact your energy bills, and what can you do to protect yourself?

Whenever severe weather strikes, energy prices are directly affected. During the second week of January a “Polar vortex” caused much of the U.S. and Canada to experience brutal winter storms. The weather conditions were severe enough to claim several human lives and at least one peacock that escaped from a suburban Chicago zoo. The bitterly cold temperatures even crept as far south as the state of Florida where some counties closed schools due to the frigid weather conditions. Flights were canceled, schools and businesses were closed, transportation and infrastructure was disrupted. It’s estimated that the Polar Vortex cost the U.S. economy roughly $5 billion dollars.

With roughly 187 million people in the U.S. stuck indoors trying to stay warm with heaters and furnaces turned up, while also fending off cabin-fever-induced boredom with their video games, TV shows, movies, computers, phones and/or internet devices, it’s no mystery why both natural gas demand soared to record levels and electric utilities were stressed to their limits.

Higher demand means higher wholesale prices for energy. But, fortunately, analysts are saying that the impact on customers from this particular weather event is expected to be limited. However, the Energy Information Administration says that the cold spell has led to elevated power prices in both New York and New England.

Develop a purchasing strategy to control your energy costs

It isn’t too surprising that many energy customers have become complacent regarding their energy purchasing strategies. After all, we’ve been rather lucky for the past few years; winters have been mild with above-average temperatures. And with increased natural gas production, energy prices have remained relatively low and stable. However, as we saw with this year, weather can be volatile.

Adding a fixed price component to your energy purchasing strategy is kind of like purchasing fire insurance. You see, it’s important to think of severe weather as a potential liability, similar to a house fire. Purchasing fire insurance is one of the only ways to protect yourself and your financial assets in the event of such a disaster. And while you could pay for fire insurance forever, and never ever have an actual fire, the risks of NOT purchasing fire insurance could be financially devastating should the worse happen.

And when the weather takes a sudden turn for the worse – just like it did this year, your energy purchasing strategy needs to protect you just like an insurance policy. But like someone who has never had a fire and believes something like that could never happen, good weather over a number of years can lull energy customers into disregarding the need for “insurance.” And floating on a variable rate contract to take advantage of the market’s historic lows, instead of choosing to go with fixed, partially-fixed, or combination pricing, is a lot like choosing not to buy fire insurance.

With the frequency and force of future severe weather events predicted to only increase over time, that means more floods, droughts, hurricanes, tornadoes and temperature extremes on both the high and low end. These things will be more severe and occur more often. A house built out of straw near an active volcano would probably want some fire insurance, right?

A sound energy purchasing strategy can protect you against the unknown. Are you protected?