Short-Term Price Benchmark* Trends
The average price benchmark for Power ($/kWh) dropped 1.12 percent last week, compared to prices the week before. At the end of last week, the average price benchmark was 2.45 percent lower than the previous month. Power prices declined last week in every state, led by Rhode Island (-2.55 percent), Maine (-2.51 percent), and Ohio (-1.81 percent). Compared to this time last month, power prices have plummeted in Texas (-4.46 percent), Maine (-4.02 percent), New York (-3.92 percent), Massachusetts (-3.30 percent), Rhode Island (-3.26 percent), and Pennsylvania (-3.18 percent).
Last week, longer term 36- and 48-month contracts continued to have favorable pricing compared to the shorter 12- and 24-month contracts in many states.
The most recent NOAA six- to 10-day forecast is projecting above normal temperatures over most of the country except for the Rocky Mountain region. The eight- to 14-day forecast is similar except temperatures in the upper northeast return to more normal conditions. This forecast should stimulate demand and move injections closer to normal levels, compared to the above average levels we have seen in the first half or the summer months.
Long-Term Electricity Price Drivers
Natural gas has now surpassed coal as the fuel of choice for electric power generation in the United States. The trend toward natural gas has been building over the past few years. Since 2008, fracking and the drilling boom in natural gas have increased production by 30 percent. At the same time, new environmental regulations have made coal more expensive for power generators. Total US coal production decreased 15 percent from 2008 to 2014, according to the US Energy Information Administration (EIA). Today, 31 percent of electric power is generated by gas-fired plants, 30 percent from coal, and 20 percent from nuclear.
In June 2015, the Federal Energy Regulatory Commission (FERC) approved PJM’s Capacity Performance Proposal, imposing new and unclear costs on energy suppliers. It seems that customer costs in the PJM region — which transmits electricity throughout parts of 13 Mid-Atlantic and Midwest states — will increase because of increased capacity costs starting in 2016–2017. It remains to be seen how much of these costs are passed through to customers by their suppliers.
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.