Short-Term Price Benchmark Trends
With the prompt month shifting to June 2016, ERC’s national average benchmark price for retail electricity increased last week to $0.0720 per kilowatt hour. Prices increased less than 1.0% in each of the restructured states, with Massachusetts and Rhode Island experiencing the largest increases of 0.9 percent. Texas and Illinois currently have the lowest average benchmark prices for retail electricity. Massachusetts and New Jersey rank as the highest.
The latest National Oceanic Atmospheric Administration forecast is projecting above-normal temperatures over most of the U.S., with spring-like weather now expected for the remainder of the month. The milder weather is likely to cause lower heating demand, which should increase the pace of natural gas storage injections after a slow start to the injection season.
Long-Term Price Benchmark Trends
The May 2016 NYMEX contract price for natural gas decreased 4.42% last week as the weather turned warmer throughout much of the U.S. Spot natural gas futures remain in the middle of a technical trading range that has prevailed since the first half of March. The existing technical support level is around $1.83 per million British thermal units (MMBtu), with the upside resistance area near $2.04/MMBtu.
Production continues to soften, as the 95% plunge in the natural gas rig count during the past couple of years is finally a measurable effect. With continuing strong production in the Marcellus and Utica regions, however, rig count alone is no longer the lead indicator of production.
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.