Electricity and Natural Gas Prices

In Texas, natural gas helps set the price of wholesale power. When natural gas prices go up, wholesale power prices should also increase. When natural gas prices go down, wholesale energy costs should follow. This correlation exists because natural gas fuels many electric power plants in Texas. It’s also a sign of a healthy energy market.

But unfortunately a gap has begun to appear between natural gas prices and what residential consumers pay at home. That is, the price of residential electricity has declined in recent years — but those declines are not nearly large enough to reflect what’s happening in the natural gas market.

Check out the chart at the upper right. It shows that the correlation between residential electricity costs and natural gas prices that existed for many years prior to the 1999 Texas deregulation law has begun to deteriorate. This phenomenon is most apparent between 2008 and 2011 – a period in which the drops in residential electricity prices failed to keep up with declines in natural gas costs. (Average residential electricity prices fell by 13. 5 percent during those years, while natural gas prices declined by nearly 55 percent. ) Not illustrated in this fact: Texans continue to pay more for electricity than residents in neighboring states. The second chart also shows that average residential rates for Texans in deregulated areas have been consistently higher than average rates for Texans outside deregulation.

The widening gap with the natural gas market apparently is not so pronounced with wholesale energy, or with retail electric customers in the commercial and industrial sectors. This would seem to indicate that economic inefficiencies are having a disproportionate impact on the Texas residential electricity market. This should concern anyone who pays an electric bill.

But what should we do about it? One good idea is to stay involved. We can encourage Texas policymakers to approve useful reforms, and also to avoid taking actions that could harm the market. One proposal at the Public Utility Commission, for instance, could lead to higher electricity prices despite shrinking natural gas costs. The Houston Chronicle has written about the change in an article (“Proposal could hike electricity rates despite lower fuel costs”) that you can find here. Supporting Standard Offer Products, a reform supported by the Texas Coalition for Affordable Power, also could make a difference. You can read about Standard Offer Products here.

Want to write your local lawmaker? You can find mailing addresses at this link. You can also write the Texas Public Utility Commissioners at P.O. Box 13326, Austin, TX, 78711-3326.

– R.A. Dyer

Who is the Texas Coalition for Affordable Power?

TCAP is a coalition of more than 160 cities and other political subdivisions that purchase electricity in the deregulated market for their own governmental use. Because high energy costs can impact municipal budgets and the ability to fund essential services, TCAP, as part of its mission, actively promotes affordable energy policies. High energy prices also place a burden on local businesses and home consumers.