What’s Happening with Power Markets Now?

June saw a steady decline in forward electricity prices (see 12 month strip, August 2013-July 2014, below). While this is slightly a-typical, now is not a bad time to consider making an electricity purchase even if your contract is not up for renewal quite yet. If we see an active hurricane season, as NOAA predicts, these declines could disappear quite quickly.

The EIA has an interesting analysis of natural gas markets, which tend to drive electricity prices in the Northeast and in New York.

U.S. Natural Gas Prices

Natural gas spot prices averaged $4.04 per MMBtu at the Henry Hub in May 2013, down 13 cents from the $4.17-per-MMBtu average seen the previous month. EIA expects the Henry Hub price will increase from an average of $2.75 per MMBtu in 2012 to $3.92 per MMBtu in 2013 and $4.10 per MMBtu in 2014.

Natural gas futures prices for September 2013 delivery (for the five-day period ending June 6, 2013) averaged $3.97 per MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95-percent confidence interval for September 2013 contracts at $3.03 per MMBtu and $5.21 per MMBtu, respectively. At this time a year ago, the natural gas futures contract for September 2012 averaged $2.48 per MMBtu and the corresponding lower and upper limits of the 95-percent confidence interval were $1.51 per MMBtu and $4.07 per MMBtu.

Analysts seem to believe that with natural gas prices this low, demand will be stimulated and prices will ultimately increase.

So What’s Happening in Retail Markets?

The combination of capacity market uncertainty (take a look at our analysis of capacity markets here) and greater wholesale power volatility has resulted in greater divergence in retail supplier pricing lately. The lowest pricing offers for Megawatt Hour clients has come in 12% lower than the highest prices. Also, supplier contract terms and details varied widely. Some suppliers sought to offset market risk to clients, while others wrote their contracts in such a way that shielded clients from risk. Make sure you have a solid range of suppliers on your list when you seek electricity supply proposals, as the results you receive may surprise you. Call us if you have questions.