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ERC: Electricity Prices Will Moderate This Spring

April 15, 2015 By Josh Kessler

Short-Term Price Benchmark Trends

  • Most states posted an increase in average retail electricity benchmark prices last week. The average across all states, however, remained stable after the previous week’s increase in the national average benchmark to $0.0849 per kWh.
  • Bucking the trend with lower average benchmark prices last week are Texas, Connecticut, Maine, New Jersey and Rhode Island.
  • Twenty-four-month contracts continue to provide the best average benchmark price, followed by 36-month contracts.  Texas and Massachusetts are exceptions, where 12-month contracts have the lowest average price benchmarks.

Longer-Term Electricity Price Trends

Customers have just about transitioned out of the high demand winter season and into the lower demand spring. Wholesale natural gas prices continue to trend downward with considerable storage inventories. Most price drivers over the foreseeable short-to-medium term suggest retail electricity prices will likely trend downward. On the other hand, the summer months have historically produced the highest retail electricity prices of the year. This is due in part to the fact that in the winter much of the country relies heavily on oil and gas for indoor temperature control (heat), whereas air-conditioning is highest in the summer, and this is fueled almost entirely by electricity.

Price Drivers

Weather

The market is pricing in very mild temperatures in the coming weeks, with above-normal temperatures forecast for the western half of the US. Looking forward, the National Oceanic and Atmospheric Administration is forecasting a warmer-than-average summer along both coasts. At present, it looks like weather will have a downward effect on demand over the next several weeks.

Natural Gas

The natural gas index on the New York Mercantile Exchange is currently testing a 30-month low, with little pressure to reverse its downward trend. Prompt-month natural gas futures have not been this low since June 2012 and are expected to continue to decline as demand softens in the coming weeks.  Calendar strips for 2016 and 2017 also hit all-time lows last week. EIA reported that storage inventories are increasing more than expected, with the year-over-year surplus of underground natural gas storage increasing to 78.9 percent. Production continues to slip, with the decline spread evenly across most regions. With mild weather forecast for the next two weeks, demand is likely to continue to deteriorate. Overall, natural gas should exert downward pressure on prices over the next week or longer.

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