ERC Price Benchmark Trends Week Ending: September 16, 2016
Short-Term Price Benchmark Trends
Energy Research Council’s national average benchmark price for retail electricity rose last week by 1.34%, to $0.0740 per kilowatt hour (kWh). With last week’s increase, electricity prices are now only 0.74% higher than this time a month ago. Prices increased most notably last week in Maryland (2.92%), Massachusetts (2.92%), and New Jersey (2.16%). By contrast, electricity prices declined slightly last week in Illinois (-1.07%) and Ohio (-0.09%). Electricity prices are still higher than they were a month ago in Maine (2.54%), the District of Columbia (2.59%), and Massachusetts (2.25%). In contrast, Texas and Ohio have experienced a month-over-month decline in retail electricity prices of -2.03% and -2.44% respectively.
Longer term electricity contracts (36-60 month) were favorably priced in a number of states last week compared to shorter term contracts (12-24 month). Maryland, New Jersey, New York, Ohio, Pennsylvania, and Texas all had relatively low priced long term electricity contracts.
Long-Term Price Benchmark Trends
The warming trend that has brought above normal temperatures to most of the east is slowly dissipating while tropical storm activity remains fairly quiet. Above normal temperatures are forecast for 45-50% of the country over the next two weeks but this should generate only moderate cooling demand.
The fundamentals for this market are about were they have been throughout the summer. We still maintain a natural gas surplus compared to both last year and the five year average for the same week. This continues to tether prices below the $3.00/MMBtu threshold. The October Nymex natural gas contract boundaries are still around $2.78/MMBtu on the support end and $2.92/MMBtu on the resistance side.
As a sign that production will gradually increase as prices near the $3.00 mark, the natural gas rig count increased by 4 last week, bringing the number up to 92. At some point we are likely to breach the $3.00 threshold and see prices move into a new trading range. While the current fundamentals do not create excessive pressure for prices to move significantly upward, there is even less room for them to substantially decline. We may need to wait for the first signs of winter before prices finally begin a sustained upward march.
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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