Short-Term Price Benchmark Trends
ERC’s average retail price benchmarks* have increased for the third week in a row, from .0820 for the week ending May 1 to .0842 for the week ending May 22. That is an 11 percent rise in the average price for retail power from the beginning of May. The highest jump last week was in Rhode Island and Massachusetts. Only Texas showed a slight decline in its average price benchmark.
Wholesale power prices were marginally higher across much of the country last week. In much of the country, the 12-, 24- and 36-month strips were all up last week. In New England, prices added between $0.30 and $0.75 across all three strips. PJM strips were also higher. Peak power was up $0.20 to $0.40 across all strips, while off-peak was largely unchanged.
The contract price for natural gas declined slightly at the end of last week in response to the fundamental influence of strong production and healthy supply. Colder than normal temperatures in the eastern part of the country last week also softened demand as production continues to hover at all-time highs. All of these facts argue for a softening of power prices going forward.
Longer-Term Electricity Price Drivers
After a spat of below normal temperatures, the East is likely to begin a slow trend toward “above normal” early next week. The warming trend is expected to intensify for the East over the next two weeks; temperatures in the 80s and 90s are not out of the question for the Eastern third. Most of the Northeast and New England will be well above normal. If actual weather is in sync with forecasts, there could be some light call on natural gas for cooling related demand, which could have a negative impact on the upcoming weekly natural gas injections. The summer months typically see a spike in retail power prices as demand for cooling increases. Much will depend on how hot the summer gets and on the impact of El Nino.
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.