If you choose a private supplier, whose prices are not regulated by the government, you'll often get a fixed-rate plan. These plans are often sold door to door, and aggressive and unethical practices abounded in the early days of deregulation. "One of these was called slamming," says Greg Scott, president of Energyshop, a web-based energy broker that compares prices of the various natural gas suppliers.
"This was where a salesman at the door asked to see your gas bill, then used the account information to write up a contract. They would hide most of the page from the customer then ask them to sign as proof the salesman had called on them. Without even realizing it, the person had signed a five-year contract locking in their natural gas supply rate."
This doesn't happen as frequently any more, says Scott, because of what's called a reaffirmation regulation. This means that in most cases, except for when you take the initiative to sign a contract yourself, the consumer must be contacted within 30 days of being approached by a salesman and has to state that he still wants the contract.
Supply companies and utilities all buy their gas on the market and pay the going rate. Note, however, that the distribution portion of your charges still comes from your regulated utility, whether you choose a supplier over a utility or not. The difference is that suppliers are also allowed to hedge their bets by buying and selling on the commodities market, something utility companies aren't allowed to do. "Natural gas is a volatile market. It's a commodity market, and as with all of these, there can be wide fluctuations in pricing."
Zarzeczny says the industry predicts a five-per cent to 10-per cent increase in natural gas prices over the next five years.
"Competition, generally speaking, is good for consumers, but you have to put everything in perspective and look at what are the potential savings over the long run," he says. "If you estimate the average consumer spends $1,500 a year on natural gas, supply (the portion that can be purchased separately) represents about one-third of the cost to the consumer. Assuming a savings of 10 per cent, that represents $50 a year."
Energyshop has a five-year comparison of natural gas savings that shows that your savings with a fixed-rate plan over paying the market rate varies dramatically depending on when you signed a contract and at which rate. For example, as of May 2006, savings were $1,200 if you signed a contract in May 2002 but only $120 if you signed in August 2003. This analysis assumes you locked in at the lowest rate available on the first of the month, so these savings don't apply to all fixed-rate customers.
But timing is everything. Since fall 2005, consumers who locked in at the lowest fixed-rate price have actually paid more than those using the fluctuating market rates offered by their utility company.
Canadian RiteRate Energy, a no-frills, web-based gas supplier, also offers a calculator on its website to estimate your savings with its five-year fixed rate contract. I plugged in my postal code and usage last year: 2,797 cubic metres, lower than the Canadian average of 3,000. It found that over five years, I would save $62 per year compared to their closest competitor or $98 per year compared to their second-closest competitor.
Buying peace of mind
Wikant says that for comparison purposes, consumers should focus on the utility rate before any rebates are given since these aren't guaranteed and can fluctuate up or down.
LaBarge says he decided to lock in "because I just assume the prices are going to go up" and he wanted "no surprises." Experts say budgeting is one of the main reasons consumers choose fixed-rate contracts.
LaBarge says he doesn't know about penalties if he wants to get out of his contract, but this is something consumers should check out. Information about contracts is available on provincial regulatory agencies' websites. You should also read the fine print in your contract, because cancellation charges can be substantial.
For those who want to understand the vagaries of the energy commodity markets, there is no shortage of information out there. Consultants and market-watchers regularly issue pricing information, including forecasts, and investigate conditions that have or might affect prices (these include such things as hurricanes, heat waves, oil prices, political events).
But for those content to budget a manageable amount each month for home heating, it can be as simple as the bottom line. "In the short run, people panic when they see a rate increase because of the volatility of the market," says Zarzeczny. "In the long run, there's no reason not to go with a plan, and the biggest reason is that people are buying peace of mind."
Diana McLaren is a writer in Toronto.
|-- Posted: Aug. 21, 2006