Natural gas may be at its high now; Should homeowners go for a 12-month contract of set prices? Perhaps not, experts say.

The Atlanta Journal-Constitution
August 17, 2006
Margaret Newkirk

With gasoline prices soaring and more monster power bills on the way, Georgians aren't likely to be paying much attention to natural gas prices right now.

They should be.

The same brutal heat that kept air conditioners running in late July and early August pushed up the price of natural gas across the country as power companies fired up their natural gas-fueled plants to meet the extra demand.

Those wanting to lock in 12-month contracts will pay more to do it this month than they would have in June or July.

So what should consumers do?

Conventional wisdom in the gas business says they should wait—although that wisdom rests on some assumptions that could prove false.

The first and most important assumption: No repeat of last year's Gulf of Mexico hurricane season and its devastating crimp on gas supplies.

Barring that, customers should see lower prices in September or October. The cooling season will be over then, and the heating season won't have begun. And marketers will have a better idea of what the hurricane season is bringing --- although storms hit in the fall, too.

Under that scenario, even customers with fixed contracts that expire this month might want to float a month or two on variable plans before locking in again.

That's assuming customers decide to lock in at all.

The newest company to enter the Georgia gas market, Stamford, Conn.-based MXenergy, has an opinion about that decision.

Jeffrey Mayer, the chief executive of MXenergy, which bought the gas operation that belonged to Shell this summer, says the opportunity to lock in gas commodity prices is the one major benefit consumers gained when Georgia went from a regulated to a deregulated gas market.

But he said customers shouldn't see long-term contracts as a way to actually save money over the contracts' term. They can cost more than variable plans over time, the same way a fixed-rate mortgage can cost more than an adjusted-mortgage rate.

In marketing its products, MXenergy is "very, very careful not to project savings, because nobody knows. Our crystal ball is broken. Nobody can predict the future of energy prices, any more than they can predict the future of interest rates."

Long-term contracts, he said, are about security, not savings.

"Our customers are similar to buyers of fixed-rate mortgages," Mayer said. "If they would be adversely impacted by higher prices, they should lock in. If they are indifferent to price movement, because they can pass the cost on to customers, say, then they should not."

Residential customers, who use the most gas when the prices are highest, have a greater exposure to price spikes than commercial customers, he said. "So a homeowner who wants to watch his budget is more likely to lock in his energy prices, just as 80 percent of homeowners lock in fixed-rate mortgages."

MXenergy is one of two companies in the Georgia market that sell three-year fixed contracts, at roughly the same price as their one-year contracts.

As for what consumers should do now, Mayer isn't saying.

"There are those who think the prices might come off in the fall," he said, referring to predictions of an October price drop.

"I happen to be one of them. But my opinion doesn't matter."

"Nobody knows," he said.