Ponder winter's gas-heat bills
Here's help picking a rate plan based on your risk tolerance

Akron Beacon Journal
August 6, 2006
By Betty Lin-Fisher

It's tough to think about your natural gas heating bills during the dog days of summer.

But as we all are painfully aware, our heating bills last winter were a strain on the wallet. For those of us who were able to lock in fixed rates before hurricanes Rita and Katrina, it still hurt, but not as much it did for people who had to pay record market prices for natural gas.

Dominion's Gas Cost Recovery rate, also known as the GCR, which is paid by those who do not choose another supplier, was at its highest in history at $14.78/mcf in November.

After the hurricanes last fall, a comparison of natural gas rates I did in October had rates for one-year contracts as high as $15.90/mcf for a one-year rate and a capped $21.50/mcf rate from another marketer.

Last year was an anomaly that hopefully won't be repeated, said Jeff Murphy, director of regulatory affairs and pricing for Dominion East Ohio.

Rates remain high compared with "the good old days'' of $5/mcf to $8/mcf, but forecasters in the industry and the government's Energy Information Administration see lower prices this winter—compared with last winter. But again, we have to keep in mind that their comparison is with last year's post-hurricane prices.

Short-term prices this summer started to come down because of a record level of natural gas storage, but industry types warn that short-term price declines don't mean long-term prices are coming down as much. And just in the last week or so, the national heat wave and threat of tropical storms that might turn into full-blown hurricanes sent prices on another roller coaster. That will continue as we get further into hurricane season and because the market is sensitive to oil prices and tensions in other parts of the world.

What does this mean for you?

Make an educated choice after reading my analysis, and hope for the best. No one has a crystal ball, so no one knows what natural gas prices—which are set on the open market—will do.

It comes down to your tolerance for risk. Are you the type who just wants to find the best fixed rate out there for one year and be done with it? Or are you worried that prices will only continue to go up beyond this year, so you want a multiyear rate? Or maybe you think prices will drop, and you want to ride the market and go with a short-term contract or variable monthly rate.

That's the beauty of having so many offers in the Energy Choice program. The suppliers have figured out that there's no one plan out there for everyone.

If you're in the market for a new natural gas rate, find the scenario that best describes you below for my recommendations. If you're in a contract, and you're not sure when it ends, the most important thing do is call your supplier (its number is on your gas bill) and find out your rate, how long your contract lasts and whether any fees are charged if you cancel your contract early. Then you need to decide whether switching would be worth any fees incurred.

On to the choices:

Betty's followers

• If you followed me in choosing WPS Energy Services' $10.35 per thousand cubic feet (mcf) capped rate in July 2005, our contracts end next month. That means we need to make our decisions now.

This contract has done very well for us. WPS says we saved more than $200 in the first eight months of the contract compared with people who stayed with Dominion as their supplier. By the time we finish our contract with our September bills, we will have had four months below the $10.35/mcf cap at $9.85/mcf. Our final two bills—the ones arriving in August and September—will have a $9.67/mcf rate. (For those of you who are sticklers to detail, as I am, about 300 of us were accidentally not given the $9.85/mcf rate in May, but the company gave us a credit in the next bill.)

For the next year, I'm renewing with WPS. After seeing prices rise because of the national heat wave and the threat of hurricanes, WPS' new renewal rate -- a cap of $11.30/mcf for one year, with the possibility of the monthly rate coming down, is the best rate for us. So that means you should do nothing. You will automatically rollover to the renewal rate.

The first month will start at the $11.30/mcf cap. I'm hoping that prices will come down over the year, and we'll enjoy lower rates.

Because prices are getting so volatile, WPS is not offering this renewal rate to everyone; it's only available to folks who had the $10.35/mcf rate for the past year. WPS Vice President Darrell Bragg said the company is carefully watching the market and hopes to have a new one-year fixed rate to offer the public soon.

Although we have another month on the old rate, WPS will begin automatically renewing folks starting with your billing cycle this month unless you choose another provider. If by chance your account renews, but you decide you wanted to go with another provider, WPS will waive the $25 cancellation fee, Bragg said.

Note cancellation fees

• If you're a member of the general public looking for the best one-year fixed rate, I've ranked them in the accompanying chart by price in descending order. The first three choices -- Interstate Gas Supply (IGS) at $11.29/mcf, Direct Energy at $11.49/mcf and Peoples Energy Services at $11.70/mcf -- differ for the average customer by only about $50 over the year from the cheapest to most expensive. But each has a different cancellation fee. IGS, which has the cheapest rate, also has a hefty $150 cancellation fee. Direct Energy's fee is $50, and Peoples' is $25. Those cancellation fees could mess up your savings if you decide to switch.

So what I'm saying is this: go into your choice with your eyes open. If you want the cheapest price because you intend to pick a company and stick it out for the year, go with IGS. But if you're not quite sure, you might consider paying a bit higher rate but have a lower cancellation fee.

Locking in for years

• If you want a multiyear rate, go with MXenergy's $11.99 fixed rate for three years, with a $25 cancellation fee.

I've never been a fan of multiyear rates, especially in this time when gas prices are volatile. But, having said that, I know plenty of people have taken multiyear rates in the past and are locked into comparatively lower rates.

Bigger gambles

• If you want to ride the market with a short-term, or what I'm calling hybrid rate, go for WPS' summer monthly variable rate with a fixed winter rate to be determined. For August, the rate will be $7.96/mcf. The winter rate will be set by mid-September, at which time you can figure out whether you like it or want to go shopping again. Look through the chart for other options, too.

• If you don't mind riding the market with the monthly variable rate, which changes every month, WPS also has the cheapest monthly rate: $7.96/mcf for August. But depending on the month, any marketer could have the cheapest rate. You'll just have to find a company you're comfortable with.

• If you haven't chosen a supplier and still get your gas from Dominion, consider switching. The Energy Choice Program, which allows us to choose a provider other than the regulated utility, Dominion East Ohio, has been very successful; 70 percent of Dominion's 1.2 million customers buy their gas from another supplier. But 360,000 customers continue to pay Dominion's GCR, which changes monthly. For whatever reasons, you've chosen not to choose another supplier. I strongly urge you to consider choosing a supplier this time.

Here's why: Dominion is getting out of the gas-buying business. It will continue to deliver the gas to your home, regardless of your supplier. That's where the company makes its money. It buys gas for its GCR customers, but by law, the company is not allowed to make a profit, so its cost is just a pass-through.

Earlier this year, the Public Utilities Commission of Ohio gave Dominion permission to stop buying gas directly for its GCR customers and instead set up an auction of suppliers to provide gas based on monthly market prices. For the average consumer, you really won't notice a difference Oct. 1, the start of the first month Dominion is scheduled to switch the system. If you don't want to pick a supplier for yourself, you will still get gas through Dominion at market prices. But the point is this: if you don't proactively pick a supplier for yourself, one will be essentially chosen for you by Dominion at potentially higher market prices.

Note: To choose another supplier, you must be current on your account, meaning paying your amount due each month. If you don't pay your bill, you will get bounced back to Dominion. Also, Dominion East Ohio Energy, which has a fixed one-year rate offer, is a separate subsidiary of the gas company and will continue to have separate contracts for consumers.