Average daily power prices in the Northeast and Midwest from the beginning of November 2011 through the first week of February have been unusually low. The driving factor is warm weather. Warm winter weather decreases the demand for electricity, which puts downward pressure on prices. The warm weather also cuts demand for natural gas, both as a heating fuel and as a fuel for power generation. This acts to hold down natural gas spot prices, which in turn decreases the cost of generating power.
Northeastern and Midwestern wholesale power prices typically are linked closely to natural gas prices, since natural gas-fired generators are often the marginal provider of power, and the marginal generator sets the power price in those markets. This connection is illustrated by the close tracking of the natural gas price (red line) and power price (blue line) in the chart above. This winter, warm weather and robust natural gas supplies moderated natural gas prices.