Why Does Extreme Weather Cause Electricity Costs, and Consumers’ Power Bills, to Increase So Much?

Extreme weather events, both hot and cold, drive up customer utility bills due to higher electricity demand, higher wholesale energy prices, and transmission bottlenecks that can occur during times of high demand. Exploring trends from this year’s winter weather events can provide insights into how the hottest days of summer may affect our electricity system and customer bills.

In January 2026, Winter Storm Fern brought extreme low temperatures to much of the U.S. Southwest, Southeast, and Northeast. Increased demand for heating caused very high wholesale electricity prices. Combined with transmission constraints, the result was high utility bills for many residential customers in affected regions of the country. In addition to monetary costs, extreme weather events can cost human lives when vulnerable populations such as the young, elderly, or medically fragile groups lose access to power used to heat, cool, or run necessary medical devices.

One element that makes extreme hot and cold weather events especially difficult for customers is that the cost of electricity can increase suddenly and unpredictably, meaning these extreme weather periods may result in higher bills regardless of how carefully consumers manage their energy consumption. Even turning down the thermostat may not be enough to avoid sticker shock when the bill arrives.

Why Does Extreme Weather Drive Higher Energy Prices?

Customer bills in the wake of extreme weather events are shaped by the way in which the electricity grid operates, how electricity rates are set, and what mechanisms are in place (or not) to protect retail electricity consumers from the impact of large swings in wholesale electric power prices. Looking across the regions impacted by Winter Storm Fern, wholesale energy prices rose as electricity demand soared, supply tightened, and transmission constraints created pockets of very high prices. In many cases, these high wholesale energy prices were passed on to retail consumers.

When extreme weather leads to spikes in electricity demand, additional, generally higher-cost power generation comes online to meet that demand. A state or region might already have a “summer peaking” or “winter peaking” system, reflecting whether a given area uses the most electricity for summer cooling or winter heating. In some regions, demand peaks in both summer and winter, described as dual peaking. For most of the U.S. grid, the highest use, or peak demand, occurs during summer afternoons when high temperatures lead to an increase in air conditioning use, as shown in Figure 1.

Figure 1: U.S. Summer and Winter Peaking by Grid Operator

Source: GridStatus. Available at: https://blog.gridstatus.io/winter-risks-2024/.

Periods of significant electricity demand from home heating or cooling strain the grid, resulting in high prices as grid operators turn on peaker units; power plants that might only operate during these peak times to meet increased demand. These peaker units provide power needed to meet customer demand but generally cost more to operate than base-load generation units that run continuously.

During Winter Storm Fern, wholesale electricity prices increased significantly as peaker units came online. In the New York Independent System Operator (NYISO), the grid operator for New York, wholesale power in NYISO Zone J (representing the New York City area) reached $679.13/MWh for January 27 delivery. In PJM Interconnection’s West Hub (including parts of Pennsylvania, Ohio, West Virginia, Virginia, and Kentucky), wholesale power prices reached $890.01/MWh. Likewise, prices in Dominion Energy’s Virginia territory reached over $1,800/MWh early on January 25. By contrast, on April 22 at 10 a.m., the price for energy in PJM was $44.17/MWh.

How Do Transmission Bottlenecks Contribute to Higher Electricity Bills?

Transmission constraints are another driver of higher electricity bills during extreme weather events. A system of transmission and distribution poles and wires delivers electricity from a power plant to a home or business. In regions with competitive wholesale power markets, the grid operator establishes markets that set prices for specific areas on the grid using a locational marginal price (LMP). LMP values electricity in these locations based on “load, generation, and the physical limits of the transmission system.” For example, NYISO’s grid, shown in Figure 2, is divided into eleven pricing zones.

Figure 2: NYISO Load Zone Map

Source: NYISO, 2022 Reliability Needs Assessment, November 15, 2022. Available at: https://www.nyiso.com/documents/20142/2248793/2022-RNA-Report.pdf.

Under extreme weather conditions, the price of electricity varies based on the consumer’s location on the grid and their ability to access inexpensive electricity. A RMI review of wholesale electricity prices across the country during Winter Storm Fern found variations in price even within the same regional transmission organization or independent system operator (RTO/ISO) market due to transmission constraints. For example, the price differed by “more than $700/MWh” between northern and southern parts of Texas. Additionally, customers in the northern part of the Midcontinent Independent System Operator (MISO), the grid operator for parts of the Midwest, paid prices that were between two and 15 times higher than others in the region.

Construction of new transmission, or better utilization of existing transmission capacity through the adoption of grid enhancing technologies (GETS) and advanced conductor technologies, could support easier transfers of electricity from places with excess supply to areas in need of electricity. The development of new transmission facilities can be difficult and expensive, and the associated costs must be taken into account in determining what amount of transmission, and which generating resources, provide the best overall electricity service for consumers that is reliable, affordable, and environmentally responsible. The development of new transmission and the deployment of GETS has the potential to ensure reliability and alleviate some energy price increases and consumer costs.

Finally, greater interregional transmission capacity could also support the goal of ensuring that least-cost electricity is able to travel to places that need it the most. A recent 2024 report exploring interregional transfer capabilities from the North American Electric Reliability Corporation (NERC), the entity tasked with ensuring reliability in North America, found that “enhancing specific transmission interfaces could reduce the likelihood of energy deficits during extreme conditions.”

What Are Some Policy Changes to Support Affordability?

In the face of high electricity prices during extreme heat and cold events, policymakers in many parts of the country have identified actions to alleviate some of the cost pressures on consumers. Programs such as levelized billing that spreads the cost of energy over the year allow for more predictable pricing and would help customers budget consistently. Utilities and other retail electricity providers can also hedge their fuel costs to mitigate the impact of high capacity and energy market prices in times of stressed system conditions.

That said, there is still much work to be done to address electricity affordability, and energy affordability in general, in the United States. Reforming the federal permitting system has the potential to unlock new electric power generation and transmission projects, allowing greater access to lower-cost, better performing electric power facilities, including during times of extreme weather and grid stress. Support for the deployment of GETS and advanced conductors promises better utilization of existing grid infrastructure to ensure that low-cost electricity is better able to travel to people who would benefit from it. Many regulators, ISOs/RTOs, and market participants are working on wholesale and retail electricity market improvements, such as the Southwest Power Pool’s Consolidated Planning Process and the Federal-State Current Issues Collaborative, which aim to help ensure the United States maintains a reliable and affordable electric power supply.

What This Means for Electricity Affordability

High electricity costs will continue to present an affordability challenge for many Americans. During extreme hot and cold weather events, increased demand, higher wholesale energy prices, and transmission constraints drive up customer utility bills. Constraints from past underinvestment in power generation facilities and electric transmission will mean higher electric power costs, and higher electricity bills for consumers, especially during times of high demand and high system stress. Policy changes at the federal and state level could play a role in addressing these challenges and their impacts on electric power consumers.

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