People often ask us what the price of electricity might do. Some of our customers are quoted an attractive price like 5 or 6 cents per kilowatt-hour.
These prices are primarily affected by the price of natural gas which is why we have displayed this Henry Hub natural gas futures chart to help in our explanation.
Maybe we quote a customer some rates and the wining provider offers rates at 5.98 cent per kilowatt-hour for 12 months, one for 5.88 for 24 months, and one at 5.75 for 36 months.
It’s common for a customer to sit on the proposal and think about what to do for a few weeks. This is not always a bad idea if you have a hunch that prices will go lower.
The problem is that unless you know how to trade stocks and commodities you are dealing in a pretty speculative market.
Natural gas futures drives the cost of electricity and so each day and even an interval of a few hours will cause those prices to expire and new ones to come out.
So if a customer calls back the next day asking for a contract and natural gas futures are up that 5.98 cent price for 12 months may now be 6.25 cent per kWh for the best rate in the bunch.
A personal friend of mine I was helping had this happen to him and he had to wait 3 months until prices came back down.
He was able to get in below 6 cents and locked in a sweet deal.
One summer prices were very low and then took off and never came back down. I had several customers who wanted to wait for the drop back but it never happened.
Their contracted price they were on with the provider they were currently with expired with all of them and so they were on a month to month variable price that follows the market.
These potential customers watched the market while their expired contract went to a much higher variable price that doubled and even tripled the original quoted price they received prior to the market spiking.
When trading stocks, commodities, futures, and other investments you will find natural gas to be highly erratic and full of surprises.
The price can rise and fall by huge percentages in less than a few hours. This being said I want to offer my humble opinion on what might happen by August or September of 2013.
It looks like natural gas might make a higher low at the $3.50 resistance level and begin its bounce back up.
If this bounce continues up it will likely proceed to make a higher high. You will be able to have a confident confirmation that a higher high will be achieved if it makes up 50 % or more from the previous drop.
If it bounces back up and continues beyond 50 % of the previous move up it will likely completely correct for the rest of the prior move and have a statistically higher chance of moving even further to make a higher high.
This prediction on price is completely technical and we have not even seen a bounce at $3.50 yet so it’s a little premature to be guessing at this but I think it’s worth putting this out there so you can know how this guessing game works.
If you are waiting it out because you want to see electricity prices drop in price a significant amount more it appears to me the odds are against you and in fact we may be headed for a few months back up in price.