Short-Term Price Benchmark Trends
For the second week in a row, the ERC benchmark price for retail electricity has dropped -1.11 percent to a new low of $0.0747 per kilowatt hour. The biggest declines were in New England, notably Rhode Island (-2.30 percent), Connecticut (-1.94 percent), Massachusetts (-1.47 percent), and Maine (-1.28 percent). Bucking the downward trend, electricity prices in Texas rose slightly last week by 0.42 percent.
Short-term 12- and 24-month contracts were more favorably priced than long-term 36- and 48-month contracts in all restructured states, except the District of Columbia and Maryland.
With no end in sight for the unseasonably warm weather across major portions of the United States, natural gas prices continue to trend downward. The market remains focused on weak fundamentals and its oversold position. Inventories are approaching four trillion cubic feet. Short-term weather forecasts are still mostly bearish. If El Niño remains in play, a warmer-than-normal winter is likely on the horizon.
Long-Term Price Benchmark Trends
So far, the heating season has produced below-normal levels of heating demand. The latest NOAA forecasts are still projecting above-normal temperatures across a majority of the country through November 23. This will likely result in normal to above-normal storage injection levels.
The heart of the winter heating season starts next month in December. Several weather vendors have already solidified their forecast that December will continue to have above-average temperatures. With weather being the main driver of gas and electricity prices, no short-term pressure is moving prices sharply upward.
Looking longer term, the NYMEX forward curve has shifted roughly 30 percent lower than last year, which is expected to continue through 2020. Although production in Texas continues to decline, leading to a 62 percent reduction in oil rig counts, shale production is at an all-time high with more than enough volume to generate a surplus.
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.