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Predicting Electricity Price Trends

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Guest Blogger: Kathy Kiernan Senior Vice President & Managing Partner, APPI Energy
Retail electricity prices are largely driven by natural gas prices. Even though your system operator (PJM, ERCOT, MISO, NEPOOL) is procuring power from a variety of sources—hydroelectric, wind, solar, nuclear, coal, gas—the way system operators pay generating plants is based on the last fuel used to meet demand, which is almost always natural gas. Therefore, the amount you pay per kWh is determined primarily by the current price of natural gas in your region. 
Retail electricity prices tend to follow trends in natural gas prices. Gas prices, however, are significantly more volatile than electricity prices. For example, when we see gas prices fluctuate by as much as 70% in a single month, corresponding electricity prices will generally move in the same direction, but by only around 10%. The change in electricity prices will also typically lag behind gas prices by a couple of weeks.
In the financial secto…