Short-Term Price Benchmark* Trends
The average price benchmark for Power ($/kWh) climbed by a quarter percent last week, compared to prices the week before. Only Delaware, Pennsylvania, Maryland and New York declined last week. The other states posted increases, led by New Jersey (+1.96 percent) and Texas (+1.11 percent). While last week’s power prices reverse a three-week decline, the average price benchmark in most states remains two to three percent below what they were a month ago.
Summer is finally here. Demand is expected to pick up this week and could set fresh seasonal highs with elevated demand levels in the Midwest, Southeast and Northeast. The US National Weather Service is forecasting above-normal temperatures in August along the Gulf Coast, West Coast, and most of the East Coast, while below-normal temperatures are expected across much of the center of the country.
US power burn averaged 33.9 Bcf/d over the weekend, making it the highest weekend average of the year and ranking it in the top three highest weekend averages since Bentek began collecting data. Power burn is anticipated to remain elevated throughout the upcoming week.
Long-Term Electricity Price Drivers
Last week, the US Energy Information Administration reported that natural gas inventories rose a bit more than expected, 99 Bcf vs. 95 Bcf, for the week to July 10. Stockpiles are now 30.9 percent more than last year at this time, and 2.7 percent in higher than the five-year average. As expected, Aug15 natural gas futures prices fell due to the large injection.
US natural gas consumption was up by 6.4 percent this week, led by increased consumption in the power sector, which increased 12.3 percent.
The current projected supply and demand situation is not going to result in surge in Nat Gas prices in the short term, but it should serve as a floor in the market as new sellers may stay on the sidelines as the weather plays out over the next few weeks. If this is true, we should see power prices bottom out and begin their end-of-summer escalation.
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.