ERC Price Benchmarks Week ending 12-30-16
ERC’s national average price benchmark for retail electricity across the deregulated states rose last week by 1.3% to $0.0765 per kilowatt hour. The average price benchmark is now 2.8% higher than it was a month ago. The largest price increase last week was seen in Connecticut (2.2%), Massachusetts (2.0%), and Delaware (1.9%). Texas prices also increased last week (1.8%) and are now 5.6% higher than they were last month.
A year ago, the national average price for a January 2017 electricity contract with a 24-month term was $.0823/kWh. At the end of last week, the price for this contract had dropped 7.9% from that point to $.0758/kWh.
The price of longer term electricity contracts (36-60 months) are trending lower than short term contracts (12 & 24 month) in many states including Maryland, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, and Texas.
Natural gas prices spiked last week based on a polar vortex that will bring frigid temperatures to most of the country through the first half of January. February’s NYMEX natural gas contract closed out December at $3.802 /MMBtu. With cold temperatures now baked into the market, natural gas prices are trending down slightly as we move into the first week of January. Where we go from here will depend on whether frigid temperatures will prevail into February or moderate with a warming trend. The most current mid-range forecasts are calling for a warming trend in the third week of January. Sustained cold weather could push natural gas prices above $4.00 while a warming trend could pull prices down into the $3.55 region.
Total U.S. natural gas consumption during the first three weeks of December 2016 exceeded last year’s level by 21% and topped the previous five-year (2011–15) average by 17%. Consumption last week was 11% higher than the previous week. Exceptionally cold weather drove a significant storage withdrawal (237 Bcf) last week (compared to a five-year average draw of 80 Bcf). This decreased gas stocks to 3,597 Bcf, which are now 2% above the five-year (2011–15) average for this week and 6% a year ago. Most regions, however, are still well above their five-year average levels because of the significant volume of working gas in storage at the start of the heating season.
More than 200 energy companies filed for protection in 2016, impacting the country’s ability to increase natural gas production. Constrained production is likely to become an issue if demand continues to grow in 2017. In addition to domestic demand, this year the U.S. became a net exporter of natural gas for first time in more than 60 years. While this will likely have little effect on natural gas prices in the short term, there could be more of a long-term impact on how prices are set due to various global factors coming into play. Finally, the energy policies of the next U.S. president could have a major impact on the industry in 2017 (and beyond) – especially Trump’s pledge to roll back regulations. This could significantly change the economics of energy production and pricing this coming year.
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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