My Natural Gas Woes

I just love the way “free markets” work. Here is a classic example of  price “stickiness.”

In Ontario I have the privilege of purchasing my gas from an independent supplier under a fixed term/fixed price contract, or at a fluctuating price from my distributor, Enbridge.

The rational economist in me tells me that it should make no real difference whether I go for a fixed or floating rate, but I did sign up for a soon to expire 5 year term and may have saved money. (They tell me that I did but I’m not so sure.)

I’m currently paying 26 cents (per cubic metre), about the same as the 27 cents Enbridge will charge me if I move from the fixed to the floating rate.

My current supplier offers to renew for 5 years at 38.9 cents, a pretty big price jump but perhaps attractive if gas prices were to increase dramatically more than futures markets seem to suggest.

However, if I cancel my current contract, and then renew with my current supplier as a “new customer”, I can get a 35.9 cent rate, and an even lower rate from the competition. And, the way they have structured things, if I do nothing at all, I get automatically renewed for a year at 42.9 cents – definitely a rip off.

I’m cancelling with my supplier just because they are structuring their offer so badly – if they’d just offered me their new customer rate on renewal I might have just signed up.

Question is – do I sign up with someone for a new term after the current contract expires?  And how do I find a supplier who isn’t going to treat me like an idiot?

8 comments

  • But it’s not a real market.

    The price from the independents is based on a the government-approved rate: they have to beat it. That rate is periodically reviewed. A real free market would not allow any kind of government intervention and let the gas companies charge what they want, according to their economic imperatives, not the government’s.

    Just sayin’.

    Personally, I would personally rather have the one fixed rate than this game of playing stock market with the independents. I don’t think 90-year-olds should have to “guess” whether gas prices are going to go up or down. Either go to a true market price, or fix it for every one. Pinning people to a five-year price when the average person doesn’t know where it’s going to go in 6 months is immoral in my opinion.

  • It’s immoral for sure when the gas companies and the independents have a swath of analysts helping them figure out (and lobby government with a continual cry for more money and rate raising pressure tactics) how to make money off this home heating roulette. It is all a game for these “free marketeers”, but for the rest of us, it is home heating, hot water, cooking and clothes dryer costs. ( I converted just about everything last year), which comes to a fairly substantial amount each month.

    So, yes for those 90 year olds like Andrew, it is most likely even a larger component of monthly income.

    I am having visions of these funked out pricing strategies as some kind of bewildering neural networked random walk through the traveling salesman math problem by a corporate super computer versus me sitting in my rocking chair scratching my head and signing some form after a few googles on the internet searching on “natural gas price futures”.

    paul

  • Today’s Toronto Star suggests that natural-gas prices are set to rise.

  • … but what will next week’s Star suggest?

  • I’ve been considering signing-on to a new Gas plan for about 2 years now. I did save some money on my last 5 year contract — but it was a gamble. I’m very glad I didn’t renew my old contract as I believe I was offered a rate of 49.9 cents at the time!).

    Besides avoiding their tricky instant renewal prices (I think they simply count on most people renewing without question) beware of dealers who send you “rebate cheques”. I cashed one on my very first contract only to discover that I had thereby unwittingly agreed to a new higher rate.

    The best place to do a price comparison of Canadian (and British) Gas contracts is at http://www.energyshop.com . The site also has some good info on “price forecasting”. Their forecasts helped me decide not to sign-up awhile ago (although, it now seems that it may be time to sign-up again).

    Cheapest contract as of Feb 29th 34.4cents for 5 years. Price forecast for Fall 2008: 35 cents.

  • If you are considering locking in your natural gas costs, it is worth having a look at the Ontario Power Authority (OPA) power system plan currently before the Ontario Energy Board for approval. A key ingredient is a significant amount of natural gas fired power generation – about 12,000 MW by 2017. This, in spite of the OPA’s acknowledgement that natural gas prices will rise by middle of next decade due to declining supplies of natural gas in the Alberta Basin – where most of Ontario’s gas comes from. It is further acknowledged that LNG (liquefied natural gas) will be an important component of future supplies to Ontario to fuel our homes, industrial feedstock and lots of power generation. Concerns regarding supply, resultant cost increases, competition for supply, and geopolitical ramifications are being ignored. The public is not aware of this.
    A CIBC World Markets Inc report of last year indicates that electricity costs will rise 60-70% as a result of using this much gas for electricity. The price for home heating will likely follow suit.

  • hello,
    i think its a great idea to lock in i have studied the market for 15 years now ,if i renew a year ahead i reserve my prices at least a year in advance,i have always benifieted from it big time from it 🙂 ,everyone should do it ,its a no brainer:-)

  • It’s a game of averages, folks. The rates constantly change according to time of year. For example, my highest rate was in January, at 49.9c . Right now it’s at 23c. Later in summer it may even be lower. 49.9 + 23 divided by 2 = 36.5. That’s how they offer fixed rate. It’s an average that works out to be the same.

    The fixed rates aren’t a rip off, but they aren’t a savings either. Nothing is ever free. Businesses exist to make money.

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