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ERC Price Benchmark Trends Week Ending: November 25, 2016

November 30, 2016 By Jim Moore, PhD

Jim Moore, PhD

Shifting to a January 2017 contract start date, ERC’s national average benchmark price for electricity declined week-over-week by 1.3%, to $0.0717 per kilowatt hour (kWh). The biggest drop in prices last week occurred in the District of Columbia (-3.0%), Delaware (-2.6%), and New Jersey (-2.6%). By contrast, prices increased in Texas (+1.3%).

Month-over-month, competitive electricity prices in every deregulated state declined markedly.  Prices in Delaware are now 7.2% lower that they were a month ago. Other states with steep price drops include District of Columbia (-5.5%), Maryland (-4.3%), New Jersey (-4.3%), and Texas (-4.1%).

Looking back over the past 12 months, the national average price for a 36-month January 2017 electricity contract has dropped 7.4%. The price of a 12 and 24-month contract has dropped by 5.9% over the same timeframe.

Last week, longer term (36-60 month) contracts were more favorable than shorter term (12-14 month) contacts in Maryland, New Jersey, Ohio, and Pennsylvania.

Short Term Trend

The most accepted and traditional measure of risk is volatility, and natural gas prices have been quite volatile over the past few weeks. We have moved down 26% over the past month and we have moved up 18% over the same timeframe. Last week, the spot December NYMEX natural gas contract was able to push above the psychological $3/MMBtu level and move into new technical range. The December NYMEX natural gas contract’s current boundaries are around $3.08/MMBtu on the support side and $3.16/MMBtu on the resistance end.

Right now, weather and natural gas storage levels are dictating gas prices. Above normal temperatures are forecast for the Midwest and East Coast through the second week of December, while the West Coast should experience a rainy cold front over the same time period. It now appears that the warm weather that has dominated the country over the first half of this month is shifting toward cooler temperatures. The current forecast is certainly not a major arctic blast but rather a movement toward seasonable temperatures for this time of the year.

From a supply perspective, we are heading into the heart of the winter heating season with a record high level of natural gas in inventory (4.045 TCF), which is 1% above last year’s level and 6.3% above the five-year average. This storage level should be sufficient to cover even the coldest winter season and should continue to limit a spike in natural gas prices as the result of a cold snap.

Long Term Trends

There are numerous long-term factors influencing natural gas (and, as a result, electricity) prices. Pressuring prices upward are the potential of an exceptionally cold winter and increasing gas exports. In PJM, electricity prices will also continue to rise due to $636 million in transmission investments, increasing Capacity Performance clearing prices and the approval of higher tariff rates. Factors depressing prices include new pipeline construction in the Northeast and along the Algonquin expansion. With a Republican administration, we can also expect few restrictions and strong growth regarding shale gas.

Price Benchmarks Wk Ending 11-25-16Price Benchmarks by Contract Term Wk Ending 11-25-16

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.

Price Benchmarks National Average Wk Ending 11-25-16Price Benchmark Changes Wk Ending 11-25-16

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