Milder-than-forecast cyclone season still affects Southeast US power demand, prices

After forecasting an above-normal hurricane season for 2022, the National Hurricane Center acknowledges the season was "near normal" and just three cyclones hit the southeastern US. Recent system hardening efforts may diminish the 2023 hurricane season impact, experts say, but supply chain issues could slow service restoration.

The storm's lessening of power demand and pricing was short-lived but significant, an S&P Global Commodity Insights analysis shows. The cost of restoring service may pinch consumers more, experts said, on top of rising energy costs tied to the war in Ukraine's energy market impact and load recovery from the novel coronavirus pandemic.

"Overall, the 2022 Atlantic hurricane season featured near normal activity in terms of the number of named storms and hurricanes, but was slightly below average in terms of the number of major hurricanes," the National Hurricane Center said in a Dec. 1 tropical weather summary.

The actual numbers, long-term averages and previous forecast numbers follow:

• Named storms: 14 actual, 14 average, 14-21 in May forecast
• Hurricanes: eight actual, seven average, six to 10 in May forecast
• Major hurricanes: two actual, three average, three to six in May forecast

Hurricane Ian made headlines, slamming into the Gulf Coast of Florida as almost a Category 5 hurricane, packing winds of about 150 mph with a storm surge ranging from 12 to 18 feet and knocking out power to as many as about 2.8 million customers on Sept. 29, causing plunging power demand and power prices, albeit for just a few days.

Florida utilities had restored service to about 2.3 million of their customers as of Oct. 3, but Ian had regained strength to hurricane status after crossing into the Atlantic and wrought havoc in the Carolinas and Virginia, temporarily cutting service to about 600,000 customers in those states on Oct. 1.

In the North American Electric Reliability Corporation's Florida Reliability Coordinating Council footprint, which covers all but the Florida Panhandle, power demand Sept. 28-30 was almost 30% below the previous 10-day average, according to US Energy Information Administration data collected by S&P Global Commodity Insights.

For the same three days, S&P Global assessed the Florida day-ahead on-peak bilateral power price index at 39.4% below the previous 10-day average.

'Dividends' for resiliency

"For once, the Gulf of Mexico was not the major target of the storms that did form, mostly off the West Coast of Africa," said Eric Smith, Tulane Energy Institute associate director. "The ongoing effects to harden the systems, not necessarily related directly to hurricanes, and particularly in Texas and Louisiana, should bear dividends when we are subject to the next onslaught. We do seem to be getting more resilient in terms of getting power back up after the storm."

However, Smith said in an email that he foresees "latent risk" related to replacing equipment for the next hurricane season.

"I understand there are some supply chain issues getting long lead time replacements (high voltage transmission towers, wire, insulators, and transformers, etc.) so we have them in stock for the next storm," Smith said. "Entergy has a full-time team planning for the next transmission failure. The same holds true for their distribution systems."

No one at Entergy responded to questions regarding the current or upcoming hurricane season.

Lagging restoration costs

Greg Upton, associate professor for research at Louisiana State University's Center for Energy Studies, said, "The biggest lesson learned this past year had less to do with this year's hurricane season, but instead due to the lagged effects of the 2020 and 2021 hurricane season on customer rates in 2022."

In Louisiana, surcharges for storms that devastated the Gulf Coast in 2020 and 2021 "were entering into customer rates at the same time that high commodity prices were also impacting customer rates," Upton said.

"So, the big lesson learned in my opinion is that when electricity prices are low, customers might not pay as much attention to rates going up to pay for storm damages, but when prices are rising for other reasons, storm restoration charges are much more noticed by customers," Upton said. "The relatively good news is that natural gas prices are anticipated to decrease over the next year, but are still anticipated to be higher than levels experienced in the several years prior to COVID. This will likely put downward pressure on customer bills."

Also, as utilities replace damaged systems with "more resilient" hardware, Upton expressed "hope that the storm damages as a share of total customer bills decline as the system itself gets more resilient."

Terry Bartifay, president of Houston-based Veritas Retail Energy, said he has seen a big shift, over the years, in how hurricanes in the Gulf of Mexico "now have nearly negligible effects on power pricing."

"There was a time when a significant hurricane threatened the Gulf region, the assumption was offshore wells would be shuttered, natural gas prices would rise and short term and spot power prices would follow," Bartifay said. "Now the number one variable affecting natural gas and associated power prices is the forecast of how much US-produced LNG will be shipped to foreign markets. The war in Ukraine, European natural gas requirements, sanctions, etc. have obviously had a major impact."