ERC: Price Benchmark Trends Week Ending May 20, 2016
Short-Term Price Benchmark Trends
The national average benchmark price for retail electricity last week was down 1.11 percent to $0.0742 per kilowatt hour (kWh). Prices decreased the most (-2.2%) in Texas, which remains the deregulated market in the U.S. with the lowest average benchmark price for retail electricity, $0.0409/kWh. Although prices decreased in each deregulated market, Massachusetts remains the state with the highest benchmark price, $0.0981/kWh, after a 2.6% increase in the past four weeks. . Even with last week’s drop in electricity prices, every state except Maryland maintained higher prices than a month ago.
The warm summer season is just about to displace the cool spring weather we have experienced over the past several weeks. NOAA’s short-to-medium term weather outlook forecasts above normal temperatures across 80% of the country for the remainder of May and into the first week of June. The expected increase in cooling demand along with declining natural gas production continues to pressure both the spot June Nymex contract and the June 16 Nymex futures contract upward. Production is now down 4% since setting an all-time high in February. From a technical viewpoint the market is in a short term technical move to the upside. If the market remains above the $2.04/mmbtu level it is likely that the next upside target will be the actual technical range resistance level now at $2.15/mmbtu.
Long-Term Price Benchmark Trends
This week we are likely to see a net injection of about 73 BCF versus a larger weekly injection into inventory last year and for the five year average for the same week. With production now down 4 percent since setting an all-time high in February, only Marcellus/Utica output remains comparatively strong in offsetting supply losses across most other regions.
Dispite lagging production, storage surplus vs 5 year average still huge at more than 40% compared to last year. A very hot summer or unanticipated disruption of the natural gas supply is going to be required in order to significantly reduce the record surplus and bring supply more in line with consumption.
For the PJM region, prices are likely to increase based on two events. First, PJM is seeking a $687M in upgrades in its revised Regionmal Transmission Plan. Secondly, PJM’s Capacity Performance model has increased capacity clearing prices across the RTO.
James Moore, Ph.D., is CEO of the Energy Research Council (ERC). He 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.
* ERC electricity price benchmarks are derived by: 1) aggregating daily matrix prices issued by many electricity suppliers across General Service tariff rate classes for each electric utility; 2) averaging each utility’s price benchmark together for a state-level benchmark; and 3) averaging state-level benchmarks across five business days to create weekly average price benchmarks, based on next month’s start date, for commercial customers with an annual usage of up to one million kWh. The high level of correlation between matrix and custom pricing makes ERC price benchmarks a reliable measure of how prices are trending, and the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P and Dow measure the rate and direction of change in stock market prices over time.
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