Short-Term Price Benchmark Trends
Based on a January 2016 prompt month, the ERC benchmark price for retail electricity dropped by 1.25 percent last week to $0.0745 per kilowatt hour. This decline follows the steep fall in natural gas prices in the previous week. Ohio experienced the biggest drop in electricity prices last week (-3.52 percent), followed by Texas (-2.14 percent). Even though the average price benchmark in Illinois fell 1.33 percent last week, it remains 9.83 percent higher than one month ago. Much of the price escalation in Illinois appears to be because of higher transmission costs in the Ameren territory.
Long-Term Price Benchmark Trends
The National Oceanic and Atmospheric Administration’s one- and three-month outlooks forecast below-normal temperatures across the upper half of the country. Experts are now near consensus that December temperatures will remain above average. A mild December should ensure that natural gas storage levels will remain above 500 billion cubic feet for at least the next three storage reports. With storage well-above the five-year average for this time of year, nothing appears to be pressuring prices upward.
Mild forecasts continue to reinforce that an El Niño weather pattern could leave the market oversupplied into next spring. In addition to the mild weather outlook, the plunge in oil rig counts during the past year has not impacted gas production, partly because of prolific production in the Utica region. All in all, it appears that the market will have difficulty piecing together a meaningful price advance until the weather moves decidedly colder.
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.