Tuesday, June 30, 2009

How Natural Gas Prices Affect Electricity Costs

By J. Dyess

You might not know it, but the current cost of natural gas can affect how much your electricity costs, even if you don't burn gas or use power generated from it. That's because the cost of fuel makes up about a third of the generation cost for electricity, and in Texas, most of that electricity is generated via natural gas. Since so much of the industry uses natural gas, your power bill goes up when the price of this fossil fuel does. That can cause some real confusion if you're not sure what's going on, and you may see unexplained price increases.

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 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.

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.

The percentage by which the price of natural gas has increased is applied to the current fuel factor to make a new fuel factor, which will affect your bill in either twenty days or in forty-five days, depending on whether or not the supplier decides to request a hearing. The longer period will apply if a hearing is requested, and prices go up if the provider is successful in the hearing.

Increases in your electricity costs might seem confusing, but they're really incredibly simple. When natural gas prices go up, so does the price on all electricity in Texas, even the power made without using natural gas. If you see something unusual on your bill, don't forget to take this into account.

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