Innovate Thinking

You might not be aware of it, but the price of natural gas can affect the price of your electricity, even when you’re not burning gas. You see, the cost of fuel makes up about a third of the costs of electricity, and in Texas, that’s based mostly on the price of making power via natural gas fired generation methods. When the price of natural gas changes, so does your power bill. This can cause some pretty confusing results if you don’t know what’s happening. Sudden price increases may seem completely unexplained

The Texas Electric Choice Act of 1999 allows retail electricity providers to make changes to their prices twice each year, basing those changes on the current cost of natural gas. This lets the market and customers benefit, because the price of power always reflects market conditions. If you’re not happy with the price of your power, you have the option to pick a new supplier if you can find one that will offer you better terms. The Act, simply put, lets Texans choose where their power comes from. That allows you to pick a supplier that generates power the way you choose - helpful for people who are worried about the impact of their usage.

How is the price determined? First, the composite price of natural gas is calcuated according to the NYMEX Henry-Hub natural gas index. For every business day in a ten day period, the closing forward twelve-month prices are averaged. Then, providers take a look at the price that’s come up. If that number is more than four percent higher than the price used to set the fuel factor that’s being used at the moment, the provider can file for an increase in their prices (it’s rare to see a supplier file for a reduction).

The percentage increase in the price of natural gas will be applied to the current fuel factor, creating a new fuel factor. A new factor becomes effective in either twenty or forty-five days, depending on whether or not a hearing has been requested by the electricity provider. If a hearing is requested, the longer period is when the factor becomes effective, and if the hearing is successful, then the prices go up, affecting your utility bill.

While increases may seem confusing, they’re really quite simple. If natural gas costs more, so does all Texas electricity, even that which is not produced using natural gas. Next time you see something confusing on your bill, keep this in mind. It might help to explain a few things.