What Effect Do Natural Gas Prices Have on Texas Electricity Costs?

You might not know about it, but the current cost of natural gas could have an effect on how much you pay for your Texas electricity, even if you don't burn gas. That's because fuel costs make up around a third of the price of Texas electicity generation. In the state of Texas, that price is mostly related to how much it costs to create Texas power by burning natural gas. So, when natural gas prices go up, your power bill does, too. This could cause some real confusion if you don't know how it works.

The 1999 Texas Electric Choice Act says that suppliers of retail electricity can change prices twice each year at predetermined times, basing their changes on what natural gas costs at the moment. That way, you'll alwyays know that your power price is closely related to the current conditions on the market. If you don't like the service you're getting or the price you're paying, the Act also allows you to look for a new Texas electric supplier who will offer the kind of pricing, terms, and service contracts that you like. If you prefer a supplier with more environmentally friendly generation methods, you can also take the time to choose someone who does this. To compare Texas electric suppliers for your home or business, go to ChooseEnergy.com.

So, how does that price get determined? First, a composite price for natural gas is calcuated from the NYMEX Henry-Hub natural gas index. A ten day period is chosen, and the closing forward twelve month prices for every business day out of those ten days will be averaged. Then, there's an examination of the price that's arrived at - if it's more than four percent higher than the price that set the fuel factor currently being used, the supplier can file for a price increase.

Then, the percentage by which the price of natural gas has increased is applied to the current fuel factor, and the new fuel factor is created. It takes either twenty days or forty-five days for the new factor to become effective - depending on whether or not the Texas electric supplier requests a hearing. When hearings are requested, the fuel factor doesn't affect your bill until the supplier wins the hearing, and the longer time period is the one that applies.

Increases might seem like they're really complicated, but the truth is that they're not. When natural gas gets more expensive, all electricity in Texas does, even if it's not produced by burning natural gas. So, next time your utility bill confuses you, make sure you consider this fact.