- As we move out of August and into the shoulder months, ERC’s average power price benchmark reversed a three-week decline last week, moving up by a third of a percent (.32 percent), to a national average of $0.0790 per kilowatt-hour. The biggest increase was in Ohio (+1.19 percent), followed by New York (+.96 percent), and Delaware (+.87 percent). Contrary to the upward trend was Illinois, which continued to decrease by 1.2 percent, and Maryland, which declined by half a percent (-.50 percent).
- The average price benchmark for longer-term 48- and 60-month contracts were favorable last week in Washington DC, Illinois, Maryland and Texas.
- While this week’s short-term forecasts call for above-average temperatures on both coasts, a cooling trend with above-normal temperatures is projected for the Midwest. This will likely produce mild demand for electricity as we move out to the summer and into the fall.
- Natural gas storage levels are now 18.3 percent higher than this time last year, and 4.0 percent above the five-year average. Storage is currently on track to finish this year’s natural gas stockpiling as the first or second highest season ever. With a substantial amount of gas already stored for the winter heating season, increasingly mild weather should limit demand in the power sector and allow for significant injections to finish the season.
Long-Term Price Benchmark Trends
- Gas storage inventory: The US Energy Information Administration (EIA) forecasts inventories at the end of October 2015 will surpass the five-year average for that time. The storage withdrawal season typically begins in November each year. Storage levels remain a key driver of electricity and natural gas prices.
- Drilling: While low natural gas prices have prompted significant cuts in rig counts, the number of operating gas rigs seems to be stabilizing. According to Baker Hughes, the natural gas rig count remained steady week-over-week for the week leading up to September 4 at 202 rigs. Despite being 138 rigs below the number operating last year at this time, natural gas production remains robust. With falling demand heading into the shoulder months, storage-building is anticipated to pick up and is on track to possibly exceed 4.0 Tcf by the end of the season.
- Environmental concerns: As US Environmental Protection Agency rules go into effect to limit power plant emissions, many generators will continue to switch from coal burning to natural gas burning. While this is good for the environment and current power prices, building congestion in the gas pipeline infrastructure (particularly in the Mid-Atlantic and New England areas) will create additional capacity charges, putting upward pressure on electricity bills going into 2016.
- Weather: The National Oceanic and Atmospheric Administration predicts a below-normal 2015 hurricane season. NOAA also anticipates a mild winter due to a strong El Niño this year. Current forecasts indicate weather will produce relatively low demand for energy this winter, which will help support low power and gas prices looking forward.
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.