Power Costs Explained
At Tri-County Electric Cooperative, we strive to keep our members informed and provide resources to help them be mindful of energy consumption. With natural gas prices fluctuating like they are, we are here to help our members understand the natural gas market and the driving factors behind its varying prices beyond usage.
Natural gas prices help determine the costs to our power supplier.
Here are some of the reasons prices move up and down:
Inflation
From 2022 - January 2023, DFW's consumer price index (CPI) increased 7.5 percent overall. Energy prices alone were 5.4 percent higher. The 10.3 percent increase in electricity costs and the 20.6 percent increase in natural gas prices are among the key reasons for that rise.
Debt Ceiling
Recently, the national debt ceiling was reached - surpassing the $31.4 trillion limit. The debt ceiling is the set amount of money Congress can issue out to public sectors. If Congress breaches the debt ceiling, funding is delayed. Should the government be unable to pay its obligations, the economy would "simply grind to a halt," (NPR, 3/23/2023).
Demand
Fact: power costs vary each minute. This is why we encourage members to conserve energy during certain times of the day (1pm - 7pm) to "shave the peak." When the demand for electricity is lower, the cost is lower and vice versa. The wholesale price of energy from the ERCOT market reflects the real-time cost for supplying electricity. Using less energy during peak hours will help drive down the costs for everyone.
Source of Power
In Texas, we rely significantly on natural gas to generate electricity. Renewable energy, such as solar, is becoming more common and affordable in the state, but is not as consistently reliable as natural gas. Additionally, geothermal energy has a lot of potential in the near future and will align with the oil and gas markets, like a partnership, rather than replacing them.
Weather
Weather plays a vital role when it comes to not only natural gas, but also electricity prices. It is a common misconception that high temperatures cause the prices to change. More often than not, severe cold and massive storms are the main issues that impact supply and demand, which is what causes variations in power costs. When temperatures rise or fall, it can make your heating or cooling equipment run for longer periods of time and at maximum capacity, which in turn uses more electricity.
Geography
Texas is fortunate to have coastline along the Gulf of Mexico, which produced one fourth of the country's natural gas last year. Texas generates more natural gas than any other form of energy within the state thanks to access to the Gulf of Mexico's natural resources.
Market Type
In Texas, the electric utility market is deregulated. This competitive market structure leads to higher prices compared to regulated markets. This is because "wholesale energy markets are designed to pay all suppliers of electricity in each area the same rate for their power," (NYT, 1/4/2023). This rate is determined by the supplier (typically a natural gas plant) "to ensure there is enough electricity to meet demand," (NYT, 1/4/2023).
Grid Protection
Better known as weatherization, grid protection is not cheap. To offset the costs of proper grid reliability and maintenance, gas supply chain facility and pipeline operators may increase their prices.
Supply Chain Issues
High natural gas prices may limit the production of manufacturing facilities. If these factories curtail production because they cannot afford to operate at full capacity, it can cause global supply chain disruptions.
International Events
What happens on the other side of the Atlantic can still affect natural gas markets in the U.S. For example, the Russian invasion of Ukraine has led many allied countries to halt trade with Russia, insourcing instead. Gas prices have been higher because Congress has requested we withdraw our involvement with countries such as Russia and China.