Locking in Gas Prices Can Be a Tough Call

Locking in gas prices can be a tough call

November 10, 1999 - Toronto Star - By Ellen Roseman Toronto Star

THE MARKET "is going up and I want to protect myself from future increases. Should I lock in for three to five years?"

I used to get this question all the time about mortgages. Interest rates have been volatile, so cost-conscious homeowners follow market trends and make educated guesses about whether to go short or long. These days, interest rates are tame but natural gas prices are wild.

I'm starting to hear from homeowners who want to know whether to go short or long on their gas bills.

The question is especially confusing now that natural gas is deregulated. You can choose among many suppliers, including unregulated affiliates of the gas utilities.

Independent marketers have been supplying gas to Ontario homeowners since 1997. Many offer fixed prices for one, three or five years. But 50 per cent of consumers don't even realize they have a choice of gas suppliers, according to a survey done in June by the Angus Reid Group for the Public Interest Advocacy Centre in Ottawa. And 75 per cent don't think they have enough information to make a decision on switching suppliers.

If you haven't switched yet, don't despair. You can get up-to-date gas prices at www.energyshop.com, which offers a wealth of useful information. Energyshop.com lists both regulated and unregulated rates.

For Enbridge Consumers Gas, the rate is 12.196 cents per cubic metre, up from 10.471 cents in the year ended Oct. 1, 1999. For Union Energy, the rate ranges from 11.228 cents to 11.912 cents.

One thing to know when comparing costs: The gas supply charge is only about one-third of your bill. That's what goes to the gas marketer.

The other two-thirds, the distribution charge, is fixed and regulated by the Ontario Energy Board.

How do rising prices affect a typical homeowner? Here's an example from Janet Holder, vice president of market development and supply for Enbridge Consumers Gas.

The average Ontario household spends $1,100 a year on gas heating. One-third of that, about $360, is the commodity cost. (If you don't know how much you spend on gas, check with your supplier.)

So when you hear a promotional message promising a 10 per cent saving on gas, remember it refers to 10 per cent of the one-third of your bill controlled by the gas marketer.

For a typical homeowner, saving 10 per cent on gas means just $36 a year, or $3 a month. Is that worth enough to you to switch suppliers?

"I'm hesitant to use the mortgage analogy when talking about heating," Holder says.

If mortgage rates go up 1 percentage point, that has a major impact on people's budgets. But rising gas prices are less significant when it comes to the cost of living. The average household uses 3,000 to 3,300 cubic metres of gas a year. If the price goes up 1 cent a cubic metre, that's an annual increase of $30 to $33.

Deregulated gas prices tend to be higher, since the companies are letting you lock in a long-term fixed price. Sunoco Inc. is charging 13.9 cents for three years, while Enbridge Home Services is charging 14.9 cents. For five years, you will pay 16.5 cents at Apollo Gas; 16.6 to 16.99 cents(depending on where you live) at Direct Energy; and 20 cents at Ontario Energy Savings Corp.

Energyshop.com will contact up to three suppliers on your behalf and get back to you right away by e-mail with an individual price quote. It also lets you sign up online.

Ian MacLellan, vice-president of marketing for M3 & W Inc., which runs the six-month-old Energyshop.com site, says it's tricky to compare regulated and unregulated gas rates. "In a rising market, regulated rates always look lower," he says. That's because if rates go up more than the utilities predict, they apply a retroactive increase. On the other hand, if rates fall more than they expect, they put through a refund of the difference.

Has MacLellan locked in a long-term gas price? "I did one year ago and I got a good deal," he says.

"Would I lock in now? Not for five years - that's too long. But some of the fixed rates for one to three years are not bad."

If you can't use the Internet, Energyshop.com provides the same excellent comparison of gas prices by telephone. Call toll-free to 1-877-331-1141 to have the information read to you, or give your address to get a copy in the mail. Or call 905-737-2683 to get a fax-back version.

Ellen Roseman's column appears Monday, Wednesday and Friday. You can reach her by writing Your Business c/o The Toronto Star, 1 Yonge St. Toronto M5E 1E6, or by phone at (416) 945-8687 or by fax at (416) 865-3630 or at erosema @ thestar.ca by e-mail.