Traditionally, the Comed (CE) electricity market has been valued as a summer peaking market. This means the highest CE control area loads have been experienced in the summer and therefore it has always been expected that the highest spot electricity prices would occur sometime in the summer.
However, because of the extreme pricing seen this past winter in combination with a mild summer to date, the market has priced the winter months much higher than the summer months all the way out thru 2018- which is the current length of the PJM/ComEd forward curve.
The chart above shows forward curves for Cal 2015 on July 25th over the last three years. The aggregate prices at the three snapshots shown in the chart are $32.77, $30.43 and $31.09 per Mwh for 2012, 2013 and 2014 respectively. However, these small price differences mask the more important story.
The January-February forward on July 25, 2013 was $30.06 per mwh while on July 25, 2014 the same forward was 42% higher at $42.59 per Mwh. In an opposite movement, the July-August 2015 combined forward settled July 25, 2014, 9% lower at $33.57 versus the $37.28 price that was seen on July 25, 2013. Given such price changes it is now prudent to examine some of the fundamentals to see if the market may be overreacting in terms of relative pricing. Examining actual load shows that the 2014 winter ComEd peak load on January 6, 2014 was 16,514 while the summer 2013 peak load was 22,269 on July 18, 2013, confirming that ComEd remains a summer peaking control area from a load perspective. The argument that the incredibly high gas prices seen last winter is the only reason needed to support a winter peaking forward curve may need more support.
An improving pipeline infrastructure nationally and regionally should allow more natural gas to reach the Chicago area in the winter months going forward. Additionally, longer term weather trends would indicate that in general winter temperatures will be warmer as will the summer temperatures over time. This all would seem to indicate that the Comed forward curves should revert to a summer peaking formation over time everything else being equal.
