ERC Price Benchmark Trends Week Ending: July 29, 2016

Short-Term Price Benchmark Trends

The ERC national average benchmark price for retail electricity decreased again last week to $0.0737 per kilowatt hour (kWh), representing a -2.1% decrease in the past four weeks. Prices are lowest in Texas ($0.0428/kWh) and Ohio ($0.0567/kWh), and are highest in Massachusetts ($0.0983/kWh) and New Jersey ($0.0950/kWh). Although average benchmark prices for retail electricity are relatively high in Connecticut ($0.0809/kWh), the state has measured a notable -4.3% decrease in the past week, and a -6.7% decrease in the past four weeks.

The short-term weather forecast has moderated considerably and is now calling for above-normal temperatures to cover only 50-55% of the U.S. Only the Deep South and parts of the Rockies are expecting above-normal temperatures. The remainder of the U.S. is projected to experience normal or below-normal temperatures through the first half of August.

The trading range for the September 2016 NYMEX natural gas contract remains around $2.75 per million British thermal units (MMBtu) on the support end, and $3/MMBtu on the resistance side. The last time the market traded in this range was for a short period of time at the end of June and beginning of July 2016. The market is showing no sign of breaking out of these boundaries in the immediate future.

Long-Term Price Benchmark Trends

Although the large storage surplus has narrowed considerably since the summer cooling season began, a record level of gas remains in inventory. With summer weather beginning to moderate, all signs still suggest that total natural gas inventories will be at or near record-high levels at the start of the upcoming winter heating season.

Looking longer term, bull market drivers (arguing for higher prices) in PJM continue to focus on the PJM board’s approval of $490 million in transmission incentives, and the capacity performance model’s increase in PJM capacity clearing prices. As I have mentioned before, liquefied natural gas exports continue to grow with the opening of the Sabine Pass terminal.

Looking at bear market drivers (pressuring prices downward), we continue to see strong production from shale gas. In addition, new pipeline construction in the Northeast should help boost gas production in that region by 18 percent. The Algonquin pipeline expansion should also provide some relief in natural gas prices during the next year in the Northeast region.

Overall, the main drivers of gas, and therefore electricity prices, continue to be weather and natural gas storage levels. Along these lines, we are likely to tread water until one of these conditions changes significantly and disrupts the market.


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.

 Price Benchmarks Wk Ending 7-29-16Price Benchmarks by Contract Term Wk Ending 7-29-16

Price Benchmarks National Average Wk Ending 7-29-16Price Benchmark Changes Wk Ending 7-29-16

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