Short-Term Price Benchmark Trends
ERC’s benchmark price for retail electricity ticked up slightly last week by 0.29 percent to $0.0749 per kilowatt hour. The biggest increase was in Illinois which shot up 7.10 percent to $0.0584 per kWh. In contrast, New England retail electricity prices continued to drop, with Rhode Island (-1.05 percent), Connecticut (-0.92 percent), and Maine (-0.60 percent) all posting declines. Most other states posted only slight variations compared to the previous week.
Like last week, shorter-term 12- and 24-month electricity contracts were more favorably priced than longer term 36- and 48-month contracts in all the restructured states except the District of Columbia and Maryland.
Despite record high natural gas storage levels, colder weather forecasts helped pushed up natural gas prices at the end of last week. As I have said before, the market is in an extremely oversold position, and it is poised for a short-covering rally. Weather forecasts on Friday projected that lower-than-normal temperatures in the western half of the country will slowly expand eastward over the next two weeks. The prospect of winter weather finally arriving was all it took to begin moving gas prices higher.
Long-Term Price Benchmark Trends
So far the heating season has produced below-normal heating demand. The latest NOAA six-to-ten day and eight-to-fourteen day forecasts now predict a growing area of below-normal temperatures will extend over a major portion of the US as we move toward the end of November. If the weather we experience follows the latest forecast, this could be the last weekly injection into inventory.
That being said, the first six weeks of the winter season has produced below-normal temperatures, low heating demand and record injections of natural gas into storage. It still looks good for us to top a record gas inventory of 4 TCF, which is more than sufficient to respond to even a cold winter. As such, any short-term increase in gas prices due to the real onset of winter should not, in itself, be a reason for a sustainable upward trend in electricity prices.
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.