ERC: Electricity Price Trends for the Week Ending Feb. 5

February 11, 2016 By Jim Moore, PhD

Jim Moore, PhD

Short-Term Price Benchmark Trends

The national average benchmark price for retail electricity decreased last week by just 0.5% to $.0725 per kilowatt hour (kWh). The largest price decreases were in Texas (-2.0%) and Connecticut (-1.8%). The slight price increases in Ohio (1.1%) and Pennsylvania (0.9%) were primarily because a former supplier with low pricing has left the market.
As mentioned before, the weather outlook has become more volatile compared to the first half of the winter season.  Last week, temperatures were warmer than initially forecast, and natural gas prices decreased accordingly. The March NYMEX natural gas spot contract price decreased last week by 10.23%, or $0.235 per million British thermal units. Forecasts are projecting more cool air this week, pushing natural gas spot prices slightly higher.

Long-Term Price Benchmark Trends

The latest National Oceanic and Atmospheric Administration six-to-ten day forecast is projecting below-normal temperatures over the high-demand, eastern one-third of the country, while the western two-thirds of the U.S. expect above-normal temperatures. The eight-to-fourteen day forecast is projecting above-normal temperatures over most of the country, with normal to below-normal temperatures over the East Coast.  The latest forecasts should increase heating demand to slightly above-normal levels during the next several weeks, which should push gas prices upward. Nevertheless, with natural gas supply at record high levels, it would take a sustained cold spell over much of the country to affect our gas reserves, and therefore electricity prices.

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Jim Moore, PhD, is president of the Energy Research Council. ERC manages a portfolio of primary research programs and databases that evaluate energy prices, procurement practices and management strategies.

Jim has been CEO of several research companies including TDC, a subsidiary of International Thomson; Highline Financial, a Thomson-Reuters company; and Mentis Corporation, which was acquired by Gartner Group. He has also served as executive director of The Global Futures Forum, an international think tank, and as managing director of Gartner Group’s Global Financial Services practice.

*The weekly average price benchmarks are derived from a standardized database of daily matrix prices issued by many electricity suppliers. The database is updated every business day and includes prices issued from September 2013 forward. The benchmarks are derived by aggregating individual supplier prices across the General Service tariff rate classes for each electric utility, and then averaging the utility price benchmarks together for a state level benchmark. Finally, these state level benchmarks are averaged across the five business days of each week to create the weekly average price benchmarks by state. These benchmarks reflect the average prices for General Service tariff rate classes by utility and state, based on next month’s start date. As mentioned, these benchmarks are based on matrix prices for commercial customers with an annual usage of up to 1 million kWh. While they are not a valid measure of pricing for larger C&I customers, the high level of correlation between matrix and custom pricing make the benchmarks a reliable measure of how prices are trending, as well as the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P or Dow measures the rate and direction of change in stock market prices over time.

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