Short-Term Price Benchmark* Trends
The national average benchmark price for retail electricity held steady last week at $.0729 per kilowatt hour (kWh). While most states saw only marginal price fluctuation from the previous week, this week’s national average price benchmark is almost 4 percent lower than this time last month. The benchmark price for electricity increased last week by 1.43 percent in Pennsylvania but decreased notably in Texas (-1.67 percent) and Connecticut (-1.15 percent).
The National Oceanic and Atmospheric Administration (NOAA) weather outlook has become somewhat unstable, with the forecast changing almost daily. Although the temperature factor tends to diminish at this late stage of the winter natural gas storage withdrawal period, a possible heavy storage draw across next month may push natural gas prices (and subsequently electricity prices) somewhat higher.
Long-Term Price Benchmark Trends
The latest NOAA six-to-10 day forecast is projecting above-normal temperatures on both coasts, with the middle of the country showing pockets of below-normal temperatures. The eight-to-14 day forecast is projecting above-normal temperatures over the western half of the country, with a large area of below-normal temperatures over the eastern half of the US. Heating demand is expected to increase during the forecast period.
Production continues to soften with the continuing reduction in rig count. Any production decline going forward, however, is easily offset by Canadian imports. As such, production does not appear to be a significant price driver at this time.
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.