Short-Term Price Benchmark Trends
Retail electricity prices have finally responded to the recent decline in natural gas prices. The ERC average price benchmark for retail electricity dropped last week by a substantial 2.17 percent, to a new low of $0.0755 per kilowatt hour. That is the biggest week-over-week fall in electricity prices we have seen since the spring season. The biggest price declines were in Maine (-5.73 percent), Texas (-4.70 percent), and Rhode Island (-4.67 percent). Overall, the average price benchmark for retail electricity is now -2.17 percent lower than this time last month.
Last week, the pricing for short-term (12- and 24-month) contracts in most states was more favorable than longer-term 48- and 60-month contracts. The exceptions to this continue to be the District of Columbia, Maryland and Texas, where pricing for longer-term contracts remains slightly more favorable.
Long-Term Price Benchmark Trends
The market is currently in an extremely oversold position and waiting impatiently for some fundamental change to help put a floor under natural gas prices. Here are some of the primary market drivers.
This week’s weather projection is forecasting above-normal temperatures for most of the United States. This will likely result in a lower-than-normal level of natural gas heating and a higher-than-normal injection into storage. Looking forward, NOAA’s eight-to-14-day forecast anticipates the warming trend to spread across 75 percent of the United States, with the western Rockies as the only area seeing below-normal temperatures.
The gas market is currently focused on the possibility that we will match or break the storage record of 3,929 Bcf that was set for the week ending November 2, 2012. Injections during the next two weeks will need to exceed the five-year average in order to break the record. Warmer-than-average weather increases the odds of this happening. Setting the record would sustain downward pressure on gas, and subsequently electricity prices. Current storage levels stand at 3,877 Bcf. Bentek Energy is projecting injections of 54, 59, and 26 Bcf for the next three weeks. If this happens, it would put us over the record 4 Tcf storage level.
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.