Author: Michael Ferrari, PhD
VP, Applied Technology & Research

 

The 2010 summer cooling season has already provided numerous opportunities for proactive management of weather risks using the Weather Trends long range outlooks, and we still have a long way to go.  From the extreme heat that gripped much of the central/eastern US, to the development of an early and active Tropical Atlantic season (check back here next week), there has been no shortage of weather-influenced market activity.  For cooling requirements, it is useful to look at the summer pattern at a couple of high demand centers in the US.  The bars on these graphs below (Chicago & New York, respectively) show the Weather Trends long range forecast for year-over-year temperature changes from the beginning of June, and the dashed line is the observation.  It is less important to look at the absolute number for the y/y change, and more useful to examine the trend.  After the 2009 summer translated to lower cooling demand, many analysts were going into this summer season expecting a ‘normal’ year at best for many high demand cities.  However, the swing to much warmer y/y temps has been much more extreme than one which would accompany a normal summer demand outlook – the third chart (JUL elec futures) clearly highlights how being ahead of the curve regarding potential demand expectations can translate to positive financial and operational performance. 

CHICAGO

 

NEW YORK

 

JUL Electricity Futures (NYMEX)

As we are now moving into August, where price risk increases due to the combination of warmer temperatures coupled with the development of the more active phase of the hurricane season, check in with Weather Trends to help better identify and manage weather related risks.