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ERC: Electricity Price Trends for the Week Ending Jan. 1

January 6, 2016 By Jim Moore, PhD

Jim Moore, PhD

Short-Term Price Benchmark* Trends

The ERC average price benchmark for retail electricity rose again last week by 1.74 percent to $0.0754 per kilowatt hour. Increasing prices were seen in every state last week, driven by the introduction of winter weather conditions across much of the US. The steepest increases last week were in Ohio (+2.97 percent), New York (+2.59 percent), Rhode Island (+2.44 percent) and Pennsylvania (+2.10 percent).

Long-Term Price Benchmark Trends

The National Oceanic and Atmospheric Administration’s (NOAA’s) latest six-to-10 day forecast projects cold air covering most of the country, with the exceptions of the West Coast and New England. In the eight-to-14 day outlook, warm temperatures in the west are projected to expand over the US west of the Rockies, while areas of below-normal temperatures shift eastward to cover more than half of the eastern US.

With this first shot of cold weather this winter, the market remains cautious of cold spells that have been short lived to date, followed by longer periods of warmer-than-normal temperatures. Several forecasters, including NOAA, are predicting above-normal temperatures for the second half of the winter heating season.

Even though the approaching cold weather should increase demand for natural gas, the market continues to anticipate a record-high amount of gas left in storage at the end of the withdrawal season. Consequently, occasional severe cold spells may not prove capable of forcing a major contraction in the current 450 billion cubic feet supply surplus, unless accompanied by a significant decline in production and additional gains in demand because of power generators switching from coal to gas.

ERC Avg Wkly Bnchmks 010116

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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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