The cost of electricity in Texas is tightly tied to the price of natural gas, which has more than doubled since Russia invaded Ukraine in late February.
Texans are seeing skyrocketing home electric bills this spring and summer, with many customers paying at least 50% more than they did for electric bills at this time last year.
And nobody seems to know when costs will go down.
“I am worried people are going to be shocked,” said John Ballenger, vice president at Texas retail electric provider Champion Energy. “Realizing this is 50 or 60 or 70% higher than what they had paid before, I’m just not sure it’s real to people yet. If it’s not, it will be very, very soon when the bills hit this summer.”
Here’s what Texans need to know about why utility bills are getting more expensive:
What’s driving electricity and gas bills higher?
The elevated utility bills have primarily been driven by the price of natural gas, which has shot up more than 200% since late February when Russia, a top gas-producing country, invaded Ukraine and upended the world’s energy market.
Since then, Texas, the leading natural gas-producing state in the U.S., has not been able to keep offering its own residents cheap energy.
Since the war in Ukraine began, Texas has been exporting more natural gas than ever before, sending much of it to Europe as many countries try to wean themselves off Russian gas. Congress lifted a longtime ban on exporting U.S. oil and gas in 2015, which opened world markets to Texas oil and gas producers.
“People are lining up around the world to get our product,” said Todd Staples, president of the Texas Oil and Gas Association.
But demand for natural gas has also been growing at home as more people and businesses continue to flock to Texas. A hotter-than-normal spring and early summer also have driven demand for power to record-high levels. Most Texas power plants run on natural gas.
“We’ve seen Texas gas go over to Europe, which has then created a supply issue locally in the state of Texas,” said Cory Kuchinsky, chief financial officer and treasurer for CPS Energy, San Antonio’s municipal utility that provides energy to more than 1 million customers. “Our customers feel the real-time impact of changing fuel costs.”
The hike in utility bills comes during difficult financial times for many Texans, who have also been facing high prices at grocery stores and the fuel pump due to growing inflation.
How long will Texans see higher utility bills?
With the war in Ukraine dragging on and upending the world energy market, Texas electricity providers are cautioning customers that the high rates could linger for months or longer.
The higher prices will, however, benefit some Texans. As a major gas producer, the state typically benefits from high oil and gas prices in the form of jobs and state taxes on oil and gas production. Cities located in the state’s oil fields usually benefit even more.
“I grew up in Odessa in the middle of oil and gas, and there’s always been this inverse relationship,” said Carrie Collier-Brown, lawyer for the Alliance for Retail Markets, a trade group for Texas electric providers. “For folks out there, it’s better for their economy when gas prices are high.”
But despite the spike in demand, the oil and gas industry isn’t seeing major production growth because of a backlog of orders for vital equipment due to supply chain issues stemming from the pandemic, said Garrett Golding, energy economist with the Federal Reserve Bank of Dallas.
“There’s also a shortage of labor across most of the oilfield services,” Golding said, noting that companies are trying to hire aggressively. “But we’ve seen it for several quarters now: It is a struggle to get qualified people into the positions (companies) want right now.”
Is the price of natural gas the only cause?
While they agree the price of natural gas is the primary driver behind Texas utility bills, energy experts say there are other factors at play.
The state’s main power grid operator, the Electric Reliability Council of Texas, has been managing the grid more cautiously since last February, when millions of people were without power for days in subfreezing temperatures after a combination of cold weather across the state and skyrocketing demand for energy shut down power plants as well as the natural gas facilities that supply them with fuel. Hundreds of people died.
Public Utility Commission chair Peter Lake, appointed by Gov. Greg Abbott after the winter storm to lead the agency in charge of ERCOT, has said the grid operator is no longer prioritizing providing Texans cheap power. Instead, Lake said, its main focus is the grid’s reliability, especially during extreme hot or cold weather. But that has a price.
“Conservative operations add costs,” said Cathy Webking, a longtime Texas energy lawyer.
ERCOT’s new approach to operating the grid means asking power plants to be online and available in case they’re needed, and that means paying generators a prescribed price to operate no matter what happens. Before the 2021 winter storm, power plants ramped up or went offline based on market demand.
Golding, with the Federal Reserve Bank of Dallas, said Texans are paying for last year’s grid disaster — and will for years. Texas lawmakers last year approved roughly $7 billion in ratepayer-backed bonds to deal with the financial fallout from the storm. Some electricity utilities were strapped with billions in new debt after paying exorbitant prices for electricity set by ERCOT during the storm — the high prices were an incentive for power plants to provide more electricity — and the debt drove some utilities into bankruptcy.
“On everybody’s bill, there are also these surcharges for paying for what happened in 2021,” Golding said.
Disclosure: CPS Energy has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.
Photo: A pumpjack next to a home in Gardendale. Texas is the nation’s top natural gas producer but the state has started exporting more of it to other countries, which contributes to rising utility costs for Texans. Credit: Eli Hartman for The Texas Tribune
BY MITCHELL FERMAN with Texas Tribune.
