Short-Term Price Benchmark* Trends
Last week’s average national benchmark price for retail electricity ($0.0752/kWh) was down a fraction of a percent (-0.19 percent) from the previous week. The only states to see a meaningful change in their retail electricity prices were Texas, with a week-over-week increase of 2.08 percent, and Illinois, with a decline of -1.87 percent. For the most part, retail electricity prices appear to have stabilized after the introduction of real winter weather in the first weeks of January.
Long-Term Price Benchmark Trends
The latest weather updates from the National Weather Service anticipate cold weather east of the Rockies will stick around a little longer than previously forecast. This should translate into higher demand in the coming weeks. Despite cold weather giving rise to the largest storage pull of the season last week, natural gas stockpiles remain at a healthy level heading into the latter half of the withdrawal season. With the El Niño weather pattern still strongly in play, this winter has been short-lived periods of cold weather, followed by warming trends. Based on the latest short-term weather forecast, this remains the dominant pattern.
Looking ahead, long-term forecast call for the current cold spell to moderate and return to above-normal temperatures over the major natural gas consuming parts of the US, starting around January 19. This should last until at least the end of the third week of January. Unless a sustained cold spell causes demand for natural gas to surge at end of the heating season (March 31), the inventory level is projected to be more than 2.1 trillion cubic feet heading into the lower-demand spring shoulder season.
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.