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Mild Start To Cooling Season, But Summer Heat Likely On The Way

As many forecasters look for a hot summer ahead, the first month of the cooling season got off to a slow start. Cooling degree days, or CDDs, nationwide during May were 14% below those in May 2019 and 8% lower than the monthly norm. As seen in the table below and in greater detail in the attached tables, regional variations were pronounced last month, with the South Atlantic, East South Central and West North Central regions experiencing the mildest first month of air conditioning season relative to May 2019. Conversely, the Mountain and New England regions were hot spots last month, with HDDs up 219% and 133%, respectively, versus year-ago levels.

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Recall that while the winter finished with cooler weather in most regions during April, the overall winter heating season was mild as HDDs nationwide during the first quarter were 14% below the same period in 2019 and 10% lower than the quarterly norm.

Despite the disappointing weather, utility earnings for the first quarter were only marginally impacted. Profitability during the quarter was reasonable, with average EPS for the electric and gas group up 1.4% over the same period in 2019. See the Financial Focus report, "US utilities post mixed earnings results in Q1," for an extensive overview of first-quarter EPS for covered energy and water utilities. Looking ahead to second-quarter profits, when the most severe impacts from the pandemic-related shutdown of the nation are anticipated to be realized, the favorable May weather noted above could be a plus for gas and electric heating sales volumes.

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Under normal weather conditions, the first quarter of a year accounts for about one-half of annual HDDs, with the fourth quarter accounting for roughly one-third. Regarding the magnitude of contribution by cooling degree days, the third quarter is the most important, followed by the second quarter.

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Loads and markets

Except for the California ISO, load trends continued to point to the downside across most U.S. power markets in May, particularly in Midcontinent ISO, where average loads declined 11% to 64.1 GW and around-the-clock prices declined 19% at the ISO's Indiana and Michigan hubs.

In the ERCOT market, average hourly load in May fell 2.7% from the May 2019 average, though electric demand reached a higher peak this year at 64.2 GW in May. Last year, the May 2019 peak load was 60.8 GW. The number of cooling degree days, a measure of cooling demand, was between two days and 19 days above normal in the West South Central region, which includes Texas, according to the latest data from the U.S. National Oceanic and Atmospheric Administration, or NOAA.

Average hourly and peak loads were down 9% and 6% to 73.3 GW and 107.9 GW, respectively, at PJM Interconnection, while hourly pricing was down 29% to $17.49/MWh. During May, the grid operator indicated power system operators in its footprint, which spans all or part of 13 states and the District of Columbia, are prepared to serve a forecast summer peak demand for electricity of about 148,000 MW. PJM said it has more than 187,000 MW of installed generating capacity available, with enough resources in reserve to cover generation that is unexpectedly unavailable or for other unforeseen demand changes. PJM said the assessment of its readiness reflects a more conservative high peak-demand day and does not reflect a drop in demand tied to the impact of the coronavirus pandemic.

Like other grid operators across the country, PJM has seen electricity demand drop as states locked down to prevent the spread of the novel coronavirus. PJM said so far, restrictions put in place in mid-March cut peak demand about 10%, "with closures of commercial, industrial and institutional power users more than offsetting the increased electricity use by people working from home."

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ENSO still neutral but change brewing

Despite the cooler temperatures in the US during April and into May, the NOAA's National Centers for Environmental Information noted that worldwide, the March through May 2020 period was the second warmest period on record, behind 2016. Higher global temperatures appear to be driven in part by the warmest global ocean temperatures on record; May global surface temperatures were 1.71 degrees F above the 20th century average of 58.6 degrees. Further, the northern jetstream is widely expected to remain to the north of the U.S., blocking colder weather from moving south. National Centers for Environmental Information projects a 99.9% chance that 2020 will rank among the five warmest years on record, and a 69% chance of being the warmest year on record.

According to El Niño Southern Oscillation, or ENSO, reports issued June 15, ENSO-neutral conditions remain in place. Equatorial sea surface temperatures are near to below average across much of the Pacific Ocean, and this pattern of anomalous convection and winds is generally consistent with ENSO-neutral conditions. The near-term NOAA forecast remains unchanged from last month, essentially looking for ENSO-neutral conditions to continue through the Northern Hemisphere summer, with a 60% probability. However, a cooling trend continues in the Pacific, which indicates La Niña conditions may be developing. The most recent NOAA update suggests that there are equal chances of neutral conditions or a move toward La Niña during the upcoming autumn or winter. Temperatures during the summer in the U.S. generally are warmer than average when a transition to La Niña occurs.

Last summer

Recall that CDDs during the critical air conditioning months of July through September of 2019 were 8% above normal. Temperatures in the East North Central and East South Central were particularly warm during the third quarter of 2019 with CDDs 15% and 14% above normal, respectively. The Pacific region was cooler than the national average with CDDs 7% below normal.

Hot summer 2020?

The June 17 forecast from The Weather Channel, an IBM business, projects that the summer of 2020 will be hot — warmer than normal in most regions from July through September. Above-average temperatures will dominate areas from the Pacific Northwest into the Plains and much of the East. Temperatures from north-central Montana into northeastern Colorado, north-central Kansas and much of Nebraska may reflect the greatest deviation from the average. The Weather Channel expects that some areas may trend near average or slightly warmer, including much of California, southwestern Nevada, southwestern Arizona, Florida, southern Georgia and southern Alabama, as well as much of Maine, northern Michigan and northeastern Minnesota.

In addition to noting typically hot temperatures during the summer as a precursor to a transition to La Niña, The Weather Channel also notes that current water temperatures in the Pacific are also associated with an atmospheric disturbance in the Indian Ocean referred to as the Madden-Julian Oscillation and the current phase of the oscillation should support hot weather in much of the U.S.

A cooling degree day is created for each degree that the mean daily temperature exceeds 65 degrees F, and a heating degree day similarly reflects below-65 degree temperatures. The data included in this report is based on population-weighted data collected by the NOAA/U.S. Department of Commerce. The "normal" data is computed by S&P Global Market Intelligence to be a 15-year average updated each month. We believe this 15-year normal is more representative of current weather trends and will reflect recent climate changes.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Regulatory Research Associates is a group within S&P Global Market Intelligence.

For a complete, searchable listing of RRA's in-depth research and analysis, please go to the S&P Global Market Intelligence Energy Research Library.

Jose Miguel Fidel Javier contributed to this article.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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