Short-Term Price Benchmark* Trends
This week’s average price benchmarks won’t map to last week’s prices because we have entered August and changed the contract start date for calculating price benchmarks to September. This happens at the end of each month so that price benchmarks are always based on a contract start date in the next calendar month. That said, the decline in prices we saw over the previous two weeks has now stabilized, with competitive power prices treading water at a national average of just over $0.08 per kilowatt hour. The average price benchmark changed less than a percentage point across all deregulated states. States trending slightly upward include Rhode Island, Texas, Maine, New York and Ohio. The states showing a slight downward trend include Delaware, Illinois, Maryland and Pennsylvania.
Once again, longer-term 36-month contracts were favorably priced compared to shorter 12- to 24-month contracts in Washington DC, Illinois, Maryland, Ohio and Pennsylvania. In addition, 48-month contracts were favorably priced in Illinois, Washington DC and Texas. Pennsylvania also had favorable price benchmarks for 60-month contract terms.
The latest weekend NOAA six- to ten-day and eight- to fourteen-day forecasts are showing above normal temperatures over a major portion of the country, including the highly populated eastern half of the United States. The only area that is projected to experience normal to below normal temperatures is the Rocky Mountain region.
September natural gas futures declined slightly on the week after a marginally smaller than expected net injection into inventory. This reversed what otherwise would have been another strong push toward downside prices.
Long-Term Price Benchmark Trends
We have been seeing power prices rise in New England for the past decade as the region becomes increasingly dependent on natural gas to supply power. Now the closing of New England’s largest coal-fired power plant in May 2017 promises to drive prices even higher. The US Energy Information Agency (EIA) reports plant operators across the country have retired or plan to retire 12.8 gigawatts of coal-fired generation this year alone, in addition to 4.1 gigawatts retired last year. In New England, more than 25 percent of current capacity (almost 8,300 megawatts) will be retired by 2020, according to ISO New England. Due to these changes, capacity is becoming an increasingly larger percentage of customers’ total bills. By 2016, it’s projected to make up about 12 percent of a customer’s total cost, and that will rise to 34 percent by 2018, according to ISO New England.
Jim Moore, PhD, is president of the Energy Research Council. ERC manages a portfolio of primary research programs and databases that evaluate energy prices, procurement practices and management strategies.
Jim 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.
*The weekly average price benchmarks are derived from a standardized database of daily matrix prices issued by many electricity suppliers. The database is updated every business day and includes prices issued from September 2013 forward. The benchmarks are derived by aggregating individual supplier prices across the General Service tariff rate classes for each electric utility, and then averaging the utility price benchmarks together for a state level benchmark. Finally, these state level benchmarks are averaged across the five business days of each week to create the weekly average price benchmarks by state. These benchmarks reflect the average prices for General Service tariff rate classes by utility and state, based on next month’s start date. As mentioned, these benchmarks are based on matrix prices for commercial customers with an annual usage of up to 1 million kWh. While they are not a valid measure of pricing for larger C&I customers, the high level of correlation between matrix and custom pricing make the benchmarks a reliable measure of how prices are trending, as well as the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P or Dow measures the rate and direction of change in stock market prices over time.