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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.

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.

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.

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.