Short-Term Price Benchmark* Trends
The average price benchmark for power showed little change from the previous week in most states. The exception to this was Maine, which had a 2.85 percent increase in the average price benchmark. Rhode Island and Texas also had an increase of 1.47 percent and 1.20 percent respectively.
A contract term of 36 months was priced below 12- and 24-month contracts last week in Illinois, the District of Columbia, Maryland, New York, Ohio and Pennsylvania.
Short-term weather forecasts are projecting warmer than normal temperatures over large parts of the country. Both the six-to-10-day and eight-to-14-day forecasts are still predicting above normal temperatures for both coasts through June 28. The middle of the country remains normal throughout the forecast period. This forecast should result in only a normal call on Nat Gas for cooling demand.
Longer-Term Electricity Price Drivers
Natural gas supply is continuing to outstrip demand, and last week’s weather forecast is projecting that this mode will continue for the foreseeable future. It is very difficult to see how the massive oversupply situation is going to reverse in the short to medium term. This should continue to depress natural gas prices and subsequently, power 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.