Short-Term Price Benchmark Trends
ERC’s average benchmark price for retail electricity remained virtually unchanged last week, increasing marginallyly (-0.11%) to $0.0749 per kilowatt hour. Once again, Texas bucked the trend, increasing its benchmark price by 1.69% in response to a high level of cooling demand. Compared to this time last month, the states posting a meaningful increase in electricity prices include New York (+4.86%), Illinois (+2.93%), Texas (+2.67%), and Pennsylvania (+2.22%).
Above normal temperatures in the six to ten day outlook are now forecast for only the eastern half of the country, with the rest expecting mostly below normal temperatures. The eight to fourteen day forecast is similar to the shorter term forecast . Overall, the weekend forecasts are projecting less cooling demand than those issued earlier last week. The overall outlook for the rest of the summer, however, continues to anticipate above normal temperatures and sustained cooling demand.
Prompt month natural gas prices rose for the fifth straight week, settling last Friday at the highest level ($2.987/MMBtu) since May of last year. The next major technical resistance area around $2.95/mmbtu is right where the market was trading at last summer. The market is going to have to solidly breach this key technical resistance level and remain above it for several days to move to the next level. While we still have a substantial natural gas surplus, the continuing draw down on storage levels due to weak injections is likely going to drive natural gas values above the psychologically important $3.00 mark in the next week or two.
Long-Term Price Benchmark Trends
Since its low in March, natural gas prices are now up an astounding 82.2%. Compare that with ERC’s average benchmark price for retail electricity, which has increased only 6.8% over the same timeframe. While retail electricity prices mirror the same upward trend as natural gas prices, the velocity at which gas prices have escalated over the past five months is much faster and steaper than electricity prices. This points out a fundamental difference between these two commodity markets. Natural gas is fundamentally more volatile and has more factors driving prices than the retail electricity market. Never the less, where gas goes- so goes electricity and both resources are headed upward with few factors aurguing for a downward trend any time in the foreseeable future.
James Moore, Ph.D., is CEO of the Energy Research Council (ERC). He 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.
* ERC electricity price benchmarks are derived by: 1) aggregating daily matrix prices issued by many electricity suppliers across General Service tariff rate classes for each electric utility; 2) averaging each utility’s price benchmark together for a state-level benchmark; and 3) averaging state-level benchmarks across five business days to create weekly average price benchmarks, based on next month’s start date, for commercial customers with an annual usage of up to one million kWh. The high level of correlation between matrix and custom pricing makes ERC price benchmarks a reliable measure of how prices are trending, and the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P and Dow measure the rate and direction of change in stock market prices over time.