Harsh winters are not a thing of the past. The winter of 2024/2025 has brought volatility back to U.S energy markets and higher utility costs to millions of Americans nationwide. It has been the coldest January-February period in a decade. After two relatively mild winters in a row and predictions for a mild winter again this year due to the La Niña weather pattern, this winter has come as a shock to many. Let’s take a look at what happened and how to view this in the context of future procurement strategy.

Lead up to Winter

On 10/31/2024, U.S Natural Gas Storage Inventory levels were 4.8% above the 5-year average, meaning we had a slight surplus of natural gas supply relative to historical levels. Spot market natural gas and electricity prices in 2023 and 2024 traded below historical averages for most of the country. Volatility was nowhere to be found and market sentiment continued to be overwhelmingly bearish. As late as mid-December, a warmer-than-normal winter was still being predicted, one source even calling for the “10^th warmest since 1950.”

December

December was actually warmer-than-normal for most of the U.S, the average temperature of 38.3°F, was 5.6°F above average. This unfortunately was not the case for New York and New England where electricity markets began to spike in a major way due to early cold. The average day-ahead electricity price more or less doubled from November to December. It ended up being the 3^rd most expensive December in New England and the 2^nd most expensive December in New York over the last 13 years. The prices seen for December electricity in these regions was roughly 50% higher than average for the month.

January

January was frigid for just about everyone, the average temperature of 29.2°F made it the coldest January on record over the last 20 years. Electricity markets throughout the Northeast, Mid-Atlantic and Midwest were significantly impacted. The average Day-Ahead electricity price was the 4^th highest in PJM, 3^rd highest in New England, and 3^rd highest in New York over the last 13-years. The NYMEX Henry Hub natural gas spot price averaged $4.62/MMBtu with an intra-day high of $9.86/MMBtu on 1/17/2025. Operational Flow Orders (OFOs) were called by utilities around the country, requiring businesses to measure or curtail the amount of gas they use during extreme cold and in some instances extra gas would have to be purchased at exorbitant market rates.

February

In late January, forecasts for February initially called for a return to normal or warmer-than-normal conditions. Unfortunately for energy users around most of the U.S, that turned out not to be the case. Colder-than-normal temps persisted throughout much of the U.S. New England electricity Day Ahead prices averaged even more expensive than January, making it the most expensive February since 2014. In New York and PJM it was the most expensive February since 2015. In New York and New England the average price this month was nearly double the historical average.

Conclusion

Many U.S energy buyers had grown comfortable enjoying the cheap spot market prices of 2023 and 2024 prior to this winter. A lack of volatility in the market made many hesitant to consider putting hedges in place to mitigate risk in electricity and natural gas budgets. The winter of 2024/2025 reinforces the lesson that extreme weather can always drive volatility in the market, even in the absence of a geo-political event or catalyst. A winter like the one we’ve just experienced has happened 3 times in the last 13 years. It doesn’t happen often but it needs to be considered as a possibility when considering future energy purchasing strategy or a floating commodity based approach. A seasonal winter hedge could be something to consider in future years as long as it is viewed as a risk mitigation tool or insurance policy vs a market beating tool.