There’s no escaping rising oil prices. They’ve driven up the cost of gasoline, and the higher expense registers every time people fill up the tank.
The price of natural gas has increased even more than crude oil, but many consumers may not have noticed. They will soon enough — in higher electric bills.
How much higher? Over 70% higher than a year ago for residential customers in Texas’ competitive market, according to the latest rate plans offered on the state’s Power to Choose website.
This month, the average residential rate listed on the site was 18.48 cents per kilowatt hour. That’s up from 10.5 cents in June 2021, according to data provided by the Association of Electric Companies of Texas.
It also appears to be the highest average rate since Texas deregulated electricity over two decades ago.
For a family using 1,000 kWh of electricity a month, that translates into a monthly increase of roughly $80. Over a full year, that would sap nearly $1,000 extra from the family budget.
“We’ve never seen prices this high,” said Tim Morstad, associate state director for AARP Texas. “There’s going to be some real sticker shock here.”
Consumers will experience the increase at different times, depending on when their current electricity contract expires. While some cities, such as Austin and San Antonio, have regulated public utilities, most of the state operates under a competitive market.
Residents choose electric plans from among dozens of private-sector offers, which typically run for one to three years. As a contract ends, they must select a new one or get pushed into a month-to-month plan with even higher rates.
“Many people had locked in at low rates and when they roll off those plans, they’re going to be astounded by the market prices,” Morstad said.
By his calculations, today’s average residential rate is about 70% higher than what was offered a year ago. He’s especially concerned about the impact on retirees living on fixed incomes.
Many received a cost-of-living increase of 5.9% in December. “But that’s no match for a 70% increase in electricity,” Morstad said. “This is a must-pay bill.”
For most of the past two decades, Texans could get cheap electricity by shopping aggressively — in large part because natural gas prices were low.
Power plants fueled by natural gas currently account for 44% of capacity on ERCOT, the grid serving most of the state. Just as important, gas-generated units set the market rate, largely because they can be switched on if demand surges, the wind goes still or the sun doesn’t shine.
For most of the 2010s, natural gas was selling for $2 to $3 per million British thermal units. On June 2, 2021, natural gas futures contracts sold for $3.08, according to the U.S. Energy Information Administration. One year later, the futures price for a similar contract was $8.70 — nearly three times higher.
In the government’s short-term energy outlook, released a month ago, natural gas prices were projected to rise sharply from the first part of the year to the second half of 2022. And it could get worse.
“Natural gas prices could rise significantly above forecast levels if summer temperatures are hotter than assumed in this forecast and electricity demand is higher,” the report said.
Texas’ market design has provided low-priced electricity for years, even if the grid’s reliability has been suspect (as during the 2021 winter freeze). Much of the credit goes to the shale revolution, which unlocked huge stores of natural gas.
From 2003 to 2009, average residential rates in Texas were higher than in the U.S., but aggressive shoppers could consistently find offers well below the average. From 2009 to 2020, Texas’ average electric rate was far lower than in the U.S.
More recently, energy inflation has been climbing faster here. Last fall, the Consumer Price Index for electricity in Dallas-Fort Worth surpassed the index for the U.S. average city — and the gap has been growing.
“Texas has this whole mythology around cheap gas and prosperity, and those days are clearly over,” said Alison Silverstein, an energy consultant who formerly worked with the Federal Energy Regulatory Commission and Public Utility Commission of Texas.
Production is not increasing as it has in the past, she said, and at the end of April, the amount of stored natural gas was about 17% below the five-year average. In addition, more liquefied natural gas is being exported, especially in the wake of Russia’s invasion of Ukraine. And the government projects that U.S. consumption of natural gas will rise 3% this year.
“We’re in trouble as consumers,” Silverstein said. “The most effective thing we can do is try to use less electricity. That means using automated thermostats, energy efficiency measures and the like.
“Turn up the thermostat on the air conditioner, crank up a fan and drink lots of water,” she said. “We don’t have a lot of other choices.”
Wind and solar power are providing a growing share of electricity, accounting for a combined 38% of generating capacity on ERCOT this year. That’s helping Texans consume less electricity from gas-powered plants, which are growing more expensive.
“Wind and solar are saving our wallets,” Silverstein said, and more renewable projects, including storage batteries, are in the pipeline.
But Texas has failed to invest heavily in energy efficiency, which ranges from incentivizing new heat pumps and insulation to imposing higher standards on buildings and appliances.
“We got used to low energy prices and fell into some complacency,” said Doug Lewin, an Austin consultant who works on energy and climate issues. “But this would be a good time to double down on energy efficiency as a way to help people lower their electric bills.”
Low-income residents can get help with bills and weatherization from the state’s comprehensive energy assistance program. TXU Energy, a leader in the retail market, also has offered an aid program for over 35 years.
Lewin warned of a looming “affordability crisis” and said lawmakers in Austin may have to step up when consumers get hit with higher rates and more electricity usage during the summer.
“It’s a daunting problem, and I don’t think our state policymakers are even half aware of it yet,” Lewin said.
The best way to improve prospects is to boost natural gas production, said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University.
“It’s not like oil — where you can drive less,” he said. “It’s very difficult to reduce natural gas consumption.
“This time of year, most of it goes to power generation — to cool homes, offices and manufacturing plants. And if we get real hot weather, demand is going to be even higher.”
