'Polar vortex' costs billions. Open next fuel bill with care.

January's frigid 'polar vortex' may have cost the US economy as much as $5 billion. Meanwhile, consumers are cranking up furnaces and bracing for their February utility bills.

Katherine Taylor/Reuters
Abby Giotas walks through Boston Public Garden on her way to work in Boston, Jan. 22, 2014. January's frigid temperatures could take a hefty toll on household discretionary income as well, as residents crank up their furnaces and hunker down in their homes.

This month’s double dose of arctic cold that has sent even Southerners rooting around for thermals might put a damper on more than Americans' fashion sense. The frigid temperatures could take a hefty toll on household discretionary income as well, as residents crank up their furnaces and hunker down in their homes.

The polar vortex that swept through much of the United States earlier this month may have cost the economy as much as $5 billion, according to Planalytics, a research firm in Berwyn, Pa., and London that tracks the effect of weather on the economy.

In addition to damaged crops, grounded airline flights, disrupted deliveries, and lost work hours, cold weather can also diminish consumer spending and stress household utility budgets.

“When the weather is colder, people have a tendency not to go to the mall or to building material and home and garden stores,” says Chris Christopher, director of US Macroeconomics and Global Consumer Economics at IHS Economics in Lexington, Mass.

While consumers may make up for lost spending when the weather warms, “we do think [the cold] will lower spending and potentially cause some crop damage,” Mr. Christopher says. However, the extent of crop damage may not become apparent right away, and crop losses do not always translate into higher prices at the grocery store.

While residents may not feel the macroeconomic pinch immediately, they should probably brace themselves for some sticker shock when utility bills arrive next month.

With wind chills dipping into the negative double digits in many parts of the country, furnaces have been working extra hard to keep homes warm. On top of that, two major snowstorms have kept many schoolchildren and workers home during the day, when many households would otherwise have set thermostats to lower temperatures.

While consumers across the board could see higher heating bills, that toll will likely be felt most strongly by low-income households that rely on home-heating assistance from the state or federal government, says Gilbert Metcalf, an economics professor at Tufts University in Medford, Mass. “Those budgets don’t expand when we hit a cold snap,” he adds.

In the Northeast, residents may see both their heating-fuel and electricity bills rise. “We have just two pipelines to bring natural gas into the Northeast, and those are already operating pretty much at or near capacity,” Professor Metcalf says. That fuel is used not only to heat homes, but also to generate electricity. If demand for heating fuel were to result in a shortage of natural gas, the cost of electricity production could rise.

During the first arctic blast, Northeast national-gas provider National Grid reported record fuel demand across its distribution region, which includes New York, Rhode Island, and Massachusetts. National Grid’s 3.4 million customers broke one record on Jan. 3, collectively using nearly 4.56 billion cubic feet of gas. That’s 68 million cubic feet more than the previous record. A week later, the utility reported breaking the new record, with customers using 4.79 billion cubic feet of fuel. National Grid does not yet have usage data for the current cold snap, but spokesman Jake Navarro said residents could break the record again.

Depending on payment plans, residents may not immediately feel the pinch, Mr. Navarro says. Many National Grid customers have enrolled in a balanced billing program, which estimates the amount of fuel that the household might use during the course of the year and bills customers a flat average rate. Many utilities around the nation offer similar budget plans.

The plan can make it easier for residents to budget their expenses throughout the year and provides some protection from the inevitable usage peaks through the seasons. However, those estimates are based on usage rates during previous years and do not account for abnormally cold stretches. Customers on such budget plans may not feel the pinch until the utility company adjusts for the difference between estimated and actual usage, which could take several months.

In Ohio and much of the Midwest, many residents are experiencing a double whammy. A shortage of propane throughout the Midwest has driven up costs at the same time residents are running up their fuel bills. For the 30 percent of residents using propane-fueled heating systems, heating bills could be twice what they were last year, says David Field, executive director of the Ohio Propane Gas Association.

If the current cold snap continues, “we run the risk that houses will run out of propane and businesses may have to shut down,” Metcalf says. “That could have an outsized impact, particularly on small businesses in the upper Midwest.”

Even Southern states have had to contend with unseasonable bitter cold. Temperatures in Kentucky dropped to minus 4 degrees F. on Jan. 6, the lowest Louisville has seen since 1985. This week, many areas in Texas experienced overnight temperatures in the teens. While New Englanders and Midwesterners would be thrilled to see similar nighttime temps right about now, for Texans that’s bitter cold.

Moreover, many residents of Southern states rely on electric heaters, which are more costly than either natural gas or oil heat.

The arctic freezes have also placed considerable strain on electrical grids. The Tennessee Valley Authority, the nation's largest public utility, reported the second highest winter peak since the 1920s. TVA authorities asked consumers to cut back on power usage Thursday evening and Friday morning to avoid interruptions in service.

"When it's below 20 degrees, each time the temperature drops one degree another 400 megawatts of electricity is needed. That's almost as much as one of our larger hydroelectric dams," Tim Ponseti, vice president of TVA Transmission Operations and Power Supply, told The Associated Press. "Setting your thermostat two to three degrees below normal this evening and Friday morning can really help TVA manage the high power demand during this challenging time."

Demand was so high in South Carolina that one large utility had to implement rolling blackouts to maintain coverage.

“Obviously, anytime you are getting a sharp increase of demand, that could lead to brownouts or blackouts,” Metcalf says. “That’s not only an inconvenience for households, but also leads to disruption for businesses.”

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