You might not know about it, but the current cost of natural gas could have an effect on how much you pay for your electricity, even if you don’t burn gas. That’s because fuel costs make up around a third of the price of electicity generation. In the state of Texas, that price is mostly related to how much it costs to create 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.
According to the 1999 Texas Electric Choice Act, providers of retail electricity are permitted to chance their prices twice a year, based on the cost of natural gas. This allows customers and the market to benefit, by making sure that the price of your power reflects market conditions. So what do you do if you’re unhappy with your electric costs? You can always choose a new supplier with better prices and service that makes you happier. That’s why the Act was passed – to give Texans the ability to decide where and who their electricity is coming from. You can also choose a supplier with methods of production you prefer, such as wind power. This is excellent for people who are concerned about the environmental impact of their energy 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).
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 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.
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.
