September Electricity Prices

There are two important components that go into electricity prices. Those of you who have followed my writings know natural gas prices have a direct effect on electricity prices and generally move on parallel planes. The second, and an equally important piece to the puzzle, is the time of the year which highlights the seasonal usage of electricity.

As the current administration pushes the use of coal as an evil, and makes natural gas a more acceptable fuel to fire our power generation plants, natural gas pricing becomes an even more important indicator of current and future electricity prices.

Electricity prices generally look like a camel if charted out over a 12-month period. We have a peak in prices when we are using our furnaces in the Winter as a great deal of the country uses electricity and natural gas for heating their homes and businesses. In the Summer months we find a similar peak in usage of gas and electricity as we crank up the air conditioners in July & August.

In between we find significant low spots when in the Spring time we finally get to turn off the furnace and open the windows for the first time in months. In the Fall we get to turn off the air conditioners and open the windows up again. These are the times you want to find the lowest electricity rates for your home or business.

Basic high school economics classes tell us the world runs on “supply and demand.” The greater the demand the higher the price. The greater the supply the lower the price. Duh…

The supply side of the equation for the pricing of natural gas, and therefore electricity, is the weekly natural gas storage report which comes out every Thursday at 10:30am EST. This report tells us how much natural gas is in storage for future energy needs the nation will face. Pricing of natural gas is generally based on where the current amount of gas on hand is relative to its five-year average.

Yesterday’s (9/17) report was a clear indicator of how this pricing mechanism works. Natural gas has been trading within a very narrow range recently between $2.80 on the high side and $2.60 on the low side. Earlier this week the price reached $2.788, falling again after it got near the upper range of $2.80. Going into yesterday’s report the price of the current gas contract was at $2.66. The analysts predicted we would see an increase of 72 bcf added to the gas already in storage. The report showed an increase of 73 bcf, almost exactly what the analysts were predicting, and very close to the 75 bcf for the corresponding week within the 5-year average. The gas market barely moved, and prices are now around $2.625, very near the lower point of the recent trading range.

But Fall is coming soon. Milder weather is on the way. Air conditioners will be turned off, and less gas & electricity will be consumed. Therefore, lower prices for natural gas and electricity will soon arrive. Now is the time to start looking for lower electricity prices for your home and your business.

Nationally we have an estimated capacity of 4 Trillion cubic feet to store natural gas. As of yesterday’s report we had 3.334 Trillion cubic feet in storage, 125 bcf greater than the 5-year average. Generally, based on the weather and energy production, we continue to add to the amount of gas in storage until mid-October or early November. If the weather stays mild and/or our energy production continues at near record levels we may actually bump up against the upper limits of our natural gas storage capacity this year. If that happens we will see incredibly low rates for gas and electricity.
My point to this discussion is your energy broker should be structuring your contracts so you have the ability to take advantage of the low rates in the Spring and/or the low rates in the Fall when renewing your contracts. Do not renew in January or August. The lowest pricing this year for natural gas and electricity fell on April 27th so far. Natural gas actually traded that day under $2.45. We may see those rates again within the next six weeks.

Doug Mathes
Power Energy USA