Short-Term Price Benchmark Trends
The ERC benchmark price for retail electricity fell again last week by 0.79 percent, to a national average of $0.0736 per kilowatt hour (kWh). The biggest drop in electricity prices was in Pennsylvania, where the average benchmark price fell a substantial -6.59 percent. The rest of the restructured states saw only a marginal shift in electricity prices.
The latest National Oceanic Atmospheric Administration six-to-10 day and eight-to-14 day forecasts are projecting mild temperatures east of the Rockies, while the western region is experiencing a shot of cold temperatures. The big question is whether temperatures will get cold enough for long enough this winter to significantly impact record-high natural gas storage levels. Most forecasts continue to project mild El Niño weather patterns at least through December. With record-setting storage levels and weak demand, natural gas prices will likely keep electricity prices from rising anytime soon.
Long-Term Price Benchmark Trends
To appreciate how low prices have dropped, the national average benchmark price this time last year was $0.884/kWh. That represents a decline of 16.8 percent compared to last week’s benchmark price. By contrast, natural gas spot prices have declined from $4.16 per million British thermal units (MMBTU) a year ago to $2.15/MMBTU. That represents a decline of 48.3 percent in natural gas prices. While electricity prices tend to follow natural gas prices, the price decline in natural gas has been much steeper than in retail electricity. With lackluster demand and a record amount of gas in storage, natural gas prices continue their downward trend, providing our best indicator of how electricity prices will likely trend.
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.