Short-Term Price Benchmark Trends
The ERC average price benchmark for retail electricity in restructured states was relatively stable last week, with only a slight increase of 0.18% to $0.0723 per kilowatt hour. The greatest increase occurred in Pennsylvania (+1.49%). Illinois (-0.76%) and New York (-0.60%) had slight declines.
The price for long-term 36-48 month electricity contracts continued to rise last week at a faster pace than the price for short-term 12-24 month contracts in most restructured states. This is likely because of a similar trend in long-term natural gas contracts.
The latest National Oceanic and Atmospheric Administration forecast, extending into the second week of April, is projecting below-normal temperatures for the middle and eastern portions of the country. With the arrival of spring, however, cooling trends will not create a surge in heating demand like the winter season produces. It will likely be a couple of months before we see weather begin to impact cooling demand as we move from the shoulder months into summer.
Long-Term Price Benchmark Trends
Last week, the prompt natural gas contract price fell $0.12, as cold weather forecasts never materialized, and technical trading helped move the market toward $2.00. The April NYMEX spot contract price decreased 5.3 percent.
Although short-term prices trended downward last week, long-term prices continued to tick higher. Calendar strip 2017 traded up $.03 on the week, and calendar strip 2018 moved up $.04, continuing an upward trend for long-term contracts. Concerns about production slowdown and consolidation because of financial stress are likely driving the strengthening of long-term prices.
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.