In Texas Natural Gas is currently at a 12 month historical high. You may also notice that oil is at $100 a barrel and electricity rates are about as high as they have been all year. It would seem that there is a high correlation with these energy commodities. There is quite a bit of reality to this. Oil doesn’t always correlate strongly with Texas electricity or natural gas but when it starts getting up into the $100 a barrelÂ then we sometimes see the rest of the energy sector follow.
In difference to how oil and natural gas generally correlate there is about a 90% correlation with the price of natural gas and Texas electricity. A line graph like the one below helps to show just how close this correlation is over the span of a year starting from last February 2007 to this February 2008. If you wanted to keep an eye out on what electric rates are doing after you lock into an electric rate then I would suggest going to www.nymex.com and following natural gas. When natural gas prices come down you can bet that electric rates will have come down along side of it.
The reason electric rates follow natural gas in Texas is because of the many natural gas generation plants we have in Texas. These power plants produce electricity which then goes into commercial businesses and homes. Once we start building more nuclear and other alternative power plants we will have less volatility in power prices and see some cheaper electric bills. Until that time we need to increase our natural gas infrastructure and power plants to provide the needed supply.