Caveat emptor: natural gas deregulation

Around lunchtime I got a knock on the door, and a good-looking young woman was there to make a sales call for Univeral Gas. She was seeking to convert my natural gas supply under a newly deregulated market. I asked her if she would leave behind materials so that I could think about it. No dice. She wanted me to sign up on the spot to a five year commitment with a promise that my rates would not go up.

The pitch was well-made, and perhaps it would indeed save me some money. But the lack of information about what their prices were and how this deal would really work had my spidey senses tingling. After the sales call, I went to their website, and poking around I cannot find any information that tells me exactly what their price is, and what the base monthly fee is, nor whether there would be high fees for disconnecting with their service if I felt unhappy about it later (they bulk purchase and deliver through Terasen).

It is all predicated on a sense that prices are bound to go up so you should lock in now. Given a limited supply of natural gas, that may well be the case, but is their price actually a good one to lock into. I asked, what if prices go down? “Oh, the law of inflation, prices always go up, supply and demand, you know.” I did not tell her I had a graduate degree in economics.

From the website, here is the graph I was shown to prove that prices always go up, so that is why I should lock in with them:
gas-history-graph-apr2407.jpg

Note the dates: if I were to plot just Jan 2003 to Jan 2007, the red “trend” line would look rather flat. If I were to include data back to 2000, when there was also a spike in natural gas prices, the red line would also look flat. And the blue “actual” line at the moment is quite a bit below their trend. In fact, apart from a couple price spikes at the beginning of 2003 and the second half of 2005, most of the blue line is below the red trend.

Talk about a hard sell. When I said I could not commit on the spot, she spun around and left rather quickly. I wonder what her cut of a sale is? Back when I did some door-to-door sales when I was about the same age, I got 25% of the sale.

All of which makes me question the benefits of competition in this market. BC used to have a publicly-owned natural gas monopoly that was privatized in the late 1980s. Since then the company has been flipped a few times and is now owned by an outfit operating out of Texas. And now we pile on with deregulation, which I suspect will only confuse most consumers, especially with these deceptive hard-sell tactics. Would we not have been better off as consumers with a public natural monopoly who could purchase in bulk on our behalf and pass the savings on through lower prices?

4 comments

  • Should have pointed her to this page. The futures market doesn’t seem to think that natural gas prices are going anywhere over the next five years…

  • Yes these door-to-door salespeople are unscrupulous. The inside scoop is that there have been salespeople passing themselves off as Terasen employees calling to confirm existing arrangements, or announcing that nautral gas “will no longer be subsidized.” Imagine the difficulty of making a good decision if there is a language barrier. After all, these people are official-looking and talk a good line.

    I recommend that if you live in BC, you just stick with Terasen as your provider. They also offer a service where you can lock-in gas prices, but unlike the energy marketers they don’t charge a mark-up on the gas itself. All of Terasen’s profit comes from the transportation charge, typically one-third of your bill. And you will pay the transportation charge regardless of who you choose as your gas supplier.

  • In regards to above comment, Terasen does not offer fixed rate for any term. If you read what they say in the website….you pay what they pay. Although the futures market for NYMEX Henry Hub predicts there will be not too much change over the next 5 years, eg from 2009 to 2014, the estimated rates are going to be above $10.00 per GJ, and going as high as $13.00 per GJ, with only 7 or 8 months at $9.00. NYMEX Henry Hub is the pricing point for natural gas futures contracts traded on the New York Mercantile Exhange. Marketers in the Vancouver/lowermainland are offering around $9.00 – $11.00 now. Bearing in mind, futures market is just a prediction, but seems like we are getting good deal if we lock in……anyhow, you can do more research. From what I have read, every province that has been deregulated, have seen prices rise over 300 per cent. Someone also mentioned Terasen was bought by Fortis, and Fortis is in it for profit, so that person’s advice was, ‘don’t expect prices to drop”.

    Good luck to everyone..the best choice is an informed choice.

  • I love it when I was right:

    “Switching from Terasen costly for B.C. homes:
    Customers who opted for private sellers paid nearly 50-per-cent more for natural gas, documents show”

    http://www.vancouversun.com/business/Switching+from+Terasen+costly+homes/4168663/story.html#ixzz1CBLNHJXr

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