Short-Term Price Benchmark* Trends
Last week, the overall ERC average price benchmark for power declined slightly to $0.0811 per kWh. New York experienced the greatest week-over-week drop (-1.75 percent), followed by Pennsylvania (-0.81 percent) and Texas (-0.71 percent). Conversely, power prices rose slightly in Connecticut (+0.89 percent), Maine (+0.53 percent), Rhode Island (+0.32 percent) and Ohio (+0.30 percent).
Longer-term contracts terms enjoyed the most favorable pricing in the District of Columbia, Illinois, Maryland, New York, Ohio and Pennsylvania. Rates on 48- and even 60-month contracts were favorable in Pennsylvania and Illinois.
Last week, cooler temperatures in the Southeast, Northeast, and Midwest drove the overall demand for natural gas for power generation down by 3.2 percent. Total inventories for natural gas now represent a 34.6 percent (662 Bcf) surplus compared to last year, and 1.1 percent (28 Bcf) surplus compared to the five-year average.
Weather forecasts by NOAA are becoming increasingly mild, with average or below-average temperatures predicted for most of the country. Areas of very warm temperatures in the West will be limited to the Pacific Northwest.
Long-Term Electricity Price Drivers
Natural gas storage levels are at record highs so far this year. Current forecasts indicate we may continue to experience normal to below normal temperatures for the remainder of the summer. This would further stifle demand, increase storage levels, and continue to put downward pressure on natural gas and power prices.
Aging coal-fired power plants are scheduled to retire in 2016. The majority of these retirements are occurring in Ohio, which could impact supply in this region. This means coal as a fuel for generating power will continue to lose market share to natural gas.
Exports to Mexico could be a key factor in balancing storage this summer if production falls ahead of schedule and storage capacity becomes tight this fall. In the long-term, exports to Mexico could feed growing demand for liquid natural gas.
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.