Taking Shelter: Why Hurricanes Can Raise Electricity Prices and How to Keep Them Steady
Our hearts go out to all those affected by Hurricanes Harvey, Irma and Maria. Many people in the affected areas are hurting right now, hurting in ways that many of us have never experienced and can barely fully imagine. For those of us at Liberty Power working out of our Fort Lauderdale office, the past few weeks have ushered in a scary new normal. We can see for ourselves that for those who live in Texas, Florida, Puerto Rico, and the many other states damaged by the storms, life won’t return to normal for a long time, if at all. As Americans, it is essential to help our neighbors in whatever ways we can, and, as our lives go on, to pause in reflection with the survivors in our hearts and minds.
The loss of life in these storms is tragic and horrific. The material cost is immense. Homes and businesses are flattened or flooded for miles. Floodwaters have lingered in some areas, continuing to damage the buildings they’ve inundated. Where they’ve receded, they’ve left behind toxic sediment, disease, and mold. In Florida in particular, much of the state was without power, relying on generators or the kindness of their neighbors. Irma, and the trees she destroyed, dealt catastrophic damage to the state’s energy grid. It may be weeks or months before the state is back up to full connectivity.
Hurricane Recovery Forebodes Higher Electricity Bills
In the short term, recovery involves helping people return to their homes, clearing out the debris, and assessing the scope of the major and minor damage to people’s homes and livelihoods. In the long term, recovery means either rebuilding damaged homes or relocating to new areas, and assessing and repairing the damage done to infrastructure and utilities. In Florida, this means extensive repairs to power lines and poles, electrical substations, and potentially to power plants themselves. In Texas and Louisiana, it means reopening and repairing damaged oil and gas refineries.
None of this is going to be cheap. Thankfully, federal and state governments will be providing monetary aid to the regions affected. Also, insurance companies will help residents and businesses recover damages incurred by the storm. Still, the sheer scope of the devastation will require an enormous outpouring of investment. In particular, electric utilities in Florida will need to spend heavily to rebuild the miles of line and millions of dollars in damage to power plants and substations. In turn, electric companies will need to raise their rates in order to recoup some of their losses. For homeowners and businesses in the area, this spike in rates will be an additional, lingering difficulty imposed by this year’s hurricane season.
Another factor will also contribute to higher electricity prices as a consequence of the storms. Much of our nation’s oil and gas refining capabilities are located on the Gulf Coast between Houston and Louisiana. These refineries, like Florida’s power lines, have been damaged by Harvey and Irma. Thanks to prudent foresight, stockpiles of oil and gas laid down before the storms will prevent the possibility of a true oil and gas shortage. However, as the refineries sit offline during repairs, the supplies of oil and gas will dwindle as the nation’s stockpiles are consumed. As supply falls, the price of oil and gas—and therefore the price of electricity produced by oil and gas plants—will rise.
Furthermore, like in Florida, the costs of refinery repair itself will be passed downstream to anyone purchasing oil and gas directly or indirectly. While insurance companies will help offset the costs of Florida’s rebuild and refinery repairs, this too will contribute to higher prices and insurance companies will raise their premiums to recoup their outlay.
Variable-Rate Electricity Prices Will Rise
Most commonly, people in the United States pay a variable rate for their electricity. This means that the actual price of the electricity people use changes continuously, based on what their electric company paid at the moment they used it. The price changes based on how many people are currently using electricity, what type of power plant produced it, and what the raw materials the power plant consumed cost. So electricity during a hot summer’s day will be more expensive than it would be in winter when fewer people rely on their air conditioning units.
Power consumers with variable-rate power plans are the ones who will see increased electric bills due to the costs of hurricane recovery. Like the long-term swings brought on by changing seasons, these added costs will raise the base electric rate from which short-term prices will vary. This pattern is repeated each time a natural disaster such as hurricanes, blizzards, earthquakes, tornadoes, and wildfires damage the electric grid. As electric companies spend to recover, the costs are passed along to consumers.
Fixed-Rate Electricity Plans Keep Prices Steady
The other method of purchasing electricity is via a fixed-rate energy plan. Under one of these plans, a consumer and their third-party energy supplier agree on a set price for electricity for a certain time period, usually between six months and three years. This price is based on the average historical and expected cost of electricity during that time. Then, for the length of the agreement, consumers pay that price no matter what the cost is.
Should the going rate of electricity be unusually low, consumers can end up paying more than customers with variable rate plans. However, if prices are raised due to natural disaster recovery or any other reason, consumers with fixed-rate plans end up paying less than others. Not only do these steady rates smooth out normal seasonal variation in price, they help insulate consumers from extra costs incurred by catastrophic events.
Liberty Power is a Florida-based company. Our thoughts and condolences go out to all of our neighbors affected by Hurricanes Harvey and Irma. Our thanks go to our first responders, all the volunteers who pitched in to help rescue and recovery operations, and anyone who has contributed material or financial support to those affected. We hope our fixed-rate energy plans can help people recover from these storms and prepare for those to follow. Contact us to learn more.
Photo Credit: ISS (International Space Station)