ERC Price Benchmarks/Week Ending 3-24-17

moore-jimEnergy Research Council’s (ERC) national benchmark price for a May 2017 electricity contract rose last week by 0.5% to $0.0754 per kilowatt hour. The greatest price increase last week was in Connecticut (1.4%), followed by New York (1.2%). Conversely, prices pulled back slightly in Delaware (-0.6%) and Illinois (-0.1%). Month-over-month, electricity prices are higher in Texas (2.3%), New York (1.2%) and Connecticut (1.6%). Compared to this time last month, electricity prices are lower in Illinois (-2.3%).

Over the past year, the May 2017 electricity contract hit a high in early July 2016 of $0.0738/kWh and reached its low point at the end of November 2016 ($0.0622/kWh), a price fluctuation of over 15%. At the end of last week, the price for a 12-or-24-month May contract had returned to last year’s levels. The 36+ month contracts, however, remain 2% below their year-ago level.

Following natural gas Calender 2019-2022 strip prices, the benchmark prices for longer term (36-60 month) electricity contracts last week were lower than short-term (12-24 month) contracts in Maryland, Massachusetts, Ohio, and Pennsylvania. Favorable pricing for longer term electricity contracts has now prevailed in many states for over a month.

Short Term

The exceptionally warm weather that drove down natural gas prices down this winter is now giving way to concerns about persistently sluggish production.  Low natural gas prices are keeping over 5,300 drilled but uncompleted (DUC) wells idle, and many producers on the sidelines. In the prolific Marcellus/Utica basin, distribution of shale gas to other regions remains constrained by inadequate pipeline capacity that will not be relieved until 2018. Additionally, a large block of nuclear generation plants is coming offline for maintenance in the April/May 2017 timeframe, and low gas prices are diving higher levels of coal generators offline this spring. This will put further upward pressure on gas prices, and subsequently electricity prices, going forward.

Long Term

With natural gas storage projected to end the withdrawal cycle above 2 Tcf, stocks should be adequate for handling a normal summer draw. However, overall demand is growing as a result of expanding Mexican and LNG exports, increasing gas-driven power generation, and rising industrial demand. If we experience an abnormally hot summer with high cooling demand and/or production fails to rebound, we could see natural gas (and electricity) prices move well beyond their current levels.  

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.

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