Key Fact: Natural Gas Price Increase Jumps Wholesale Electricity Prices By Up To 101%

The price of natural gas impacts heavily the 51% of households who use gas to heat homes and the many businesses that use natural gas as a feed stock.  But even if consumers do not directly buy and use natural gas, consumers energy costs are substantially determined by the price of natural gas.  Why?

In most markets, the price of natural gas determines the wholesale price of electricity, and all consumers use electricity.  The EIA says about the main cause of the recent, big jump in wholesale electricity prices:

"Average on-peak, day-ahead wholesale electricity prices rose in every region of the Lower 48 states in first-half 2013 compared to first-half 2012. The most important factor was the rise in the price of natural gas (the marginal fuel for generation in much of the nation) in 2013 compared to 10-year lows in April 2012. However, the increase in power prices was not uniform across electric markets as regional natural gas supply issues drove larger increases in the Northeast and Pacific Northwest."

http://www.eia.gov/todayinenergy/detail.cfm?id=12211.

In just about every market, the marginal power plant that establishes the market clearing price in most hours of every day is a natural gas power plant.  And that natural gas power plant bids a price into the market that is based on its fuel cost.  When the price of gas goes up, the plant submits a higher bid into the power market, and market clearing prices typically reflect that higher bid.

As a result of the key role natural gas plants play in wholesale electricity markets, whether consumers use gas directly or not, the pocket books of all consumers are significantly impacted by the price of natural gas.  Like it or not, that is an energy fact.