Issue Brief

The Effect of Natural Gas Supply on Retail Electricity Prices

Aug 20, 2012 | Karen L. Palmer, Dallas Burtraw, Matthew Woerman, Blair Beasley

Abstract

Simulation modeling indicates that the recently forecasted increase in the supply of domestic natural gas will substantially reduce retail electricity prices over the next 20 years. The modeling also indicates that the predicted lower electricity demand growth will further reduce retail electricity prices. The changes in natural gas supply and electricity demand also directly affect natural gas prices. The model indicates that with increased gas supply and decreased electricity demand, both wellhead and delivered natural gas prices should fall. These changes are substantial and will have a larger effect on projected retail electricity prices than the suite of new electricity regulations recently released by the U.S. Environmental Protection Agency (EPA).