On August 24, 2014 the Old Farmer’s Almanac (“Almanac”), the 223-year-old chronicler of weather and climate, released their 2014-15 winter forecast. The New Hampshire-based Almanac is predicting a “super-cold” solution to winter for the majority of the eastern two-thirds of the United States. The release of the winter projection was also accompanied with the headline “More Shivery and Shovelry!” The most frigid temperatures are forecast to occur from the Northern Plains to the Great Lakes, which were at one point more than 92 percent frozen during the 2013-14 winter season.
While we are only in the last week of August and longer-term weather forecasts have a relatively poor track record, the Almanac has correctly predicted weather solutions for the 2013-14 winter and the 2014 summer to-date. Even as most of the attention to this 2014-15 prediction appears devoted to finding the best winter travel destinations, select forward electricity contracts are trading higher on the back of this forecast. This is not surprising and reactionary, especially after numerous independent system operators and regional transmission organizations observed new all-time winter peak load conditions and were required to take unprecedented steps in order to ensure grid reliability.
The Almanac did mention one potential bogey to their forecast, the initial release of NOAA’s El Niño watch and updates to this forecast since its release. The development of a significant El Nino pattern would increase the uncertainty of the Almanac’s forecast. Thus, while we must wait and see whether or not this weather scheme develops, electricity contracts for delivery in December 2014 through March 2014 in select eastern PJM, ISO-NE and NYISO delivery points will continue to trend with updated weather expectations for the 2014-15 winter.