Short-Term Price Benchmark* Trends
Based on a contract start date of February 2016, the ERC average price benchmark for retail electricity fell again last week by 0.74 percent to $0.0731 per kilowatt hour. The drop in price was most pronounced in Rhode Island (-2.01 percent), Texas (-1.83 percent), and Maine (-1.77 percent). Pricing for long-term 36- and 48-month contracts continued to trend higher than short-term 12- and 24-month contracts.
Long-Term Price Benchmark Trends
Although the latest National Oceanic and Atmospheric Administration short-term forecast is projecting mild temperatures over the majority of the US, some cold weather is finally forecast for the Northeast. As a result, natural gas prices are trending higher. The NYMEX prompt natural gas contract price traded higher by $.046 to close last Thursday’s session at $2.029. Also on Thursday, the US Energy Information Administration reported a larger than expected draw from storage of 32 billion cubic feet. The draw was lower than last year and the five-year average. Even with the larger withdraw, the surplus is projected to grow compared to last year and the five-year average.
Apart from short-term wintery temperatures for the Northeast, the temperature pattern into early January 2016 is forecast to remain mild for the key heating consumption regions of the US. If the latest forecast holds true, the majority of the US will continue to experience non-wintery weather. This should continue to suppress retail electricity prices for the foreseeable future.
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.