Short-Term Price Benchmark Trends
For the fourth week in a row, retail electricity prices followed natural gas prices in a steady downward trend. Last week, the ERC national average price benchmark for electricity in the 13 restructured states fell 0.79 percent to a new low of $0.730 per kilowatt hour. Prices declined most in New York (-2.27 percent), Connecticut (-1.95 percent), Rhode Island (-1.77 percent), and Massachusetts (-1.25 percent). Across the board, shorter-term 12- and 24-month contracts had more favorable pricing than longer-term 36- and 48-month contracts.
Last week, the price for natural gas fell below the $2 per million British thermal units technical (and psychological) support level to its lowest point since April 2012. The drop in gas prices happened despite a larger-than-expected withdrawal from inventory of 76 billion cubic feet (Bcf), compared to an anticipated withdrawal of 62 Bcf. Additionally, because of continuing mild temperatures and limited demand for natural gas, the next two pulls from storage are projected to be extremely weak compared to five-year averages.
Long-Term Price Benchmark Trends
The surplus in natural gas inventory now looks like it will grow for the next several weeks, compared to last year and the fiver-year average. The latest National Oceanic and Atmospheric Administration (NOAA) six-to-10 day and eight-to-14 day forecasts project mild temperatures over the eastern half of the US, which traditionally consumes the majority of natural gas for heating needs. NOAA’s longer-term one- and three-month, outlooks are calling for above-normal temperatures for the entire northern half of the US through February. Now that we are halfway through the winter heating season with no significant cold weather in sight, the impact of record storage levels going into the spring season will likely begin to weigh on the market’s willingness to nudge prices higher.
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.