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Coldest weather of season so far in eastern US drives up electric power costs

Recent cold spells have been driving up the cost of electricity for power providers in the eastern United States.

The coldest air of the season so far pushed into the eastern U.S. during the first full week of January, leading to an increased power demand and higher wholesale prices, according to Bloomberg News. It may mean higher consumer electric bills in the future if the trend continues.

A glancing blow from the polar vortex will direct more frigid air into the central and eastern United States toward the middle of January. The cold air will also increase the snow chances.

The spot wholesale power for the Manhattan area increased by $1,157.88 to average $1,172.75 a megawatt-hour during the hour ended at 10 a.m. EST Tuesday, compared with $14.87 during the same hour Monday, Bloomberg reported.

The cost to supply electricity actually varies minute-by-minute, according to U.S. Energy Information Administration (EIA).

During the course of a single day, the wholesale price of electricity on the electric power grid reflects the real-time cost for supplying electricity, the EIA said.

One way meteorologists and industry leaders understand the impact of colder weather is through the use of heating degree days (HDDs).

"A heating degree day is based on how far a day's average temperature is below 65 degrees Fahrenheit," AccuWeather Senior Meteorologist Dan Pydynowski said. Weather derivatives, such as electricity traded in the winter, are based on an index comprised of monthly HDDs.

"For example, if the average temperature [Thursday] in State College, Pennsylvania, is 35 F, that would be 30 HDDs," Pydynowski said.

Most consumers pay prices based on the seasonal average cost of providing electricity, so they do not experience the daily price fluctuations, the EIA said. Some utilities offer their customers time-of-day pricing to encourage conservation and to reduce peak demand for electricity.