Should you lock in your price for natural gas?

Ellen Roseman, The Toronto Star

Wed 27 Oct 2004

The price of oil is hitting record highs. And natural gas seems to be following suit, despite ample supplies. If you use gas for heating, you may be wondering what to do. Should you buy from your local utility or lock into a long-term contract? Oil and gas are two different commodities, but prices are connected. That's because large industrial customers can switch from one fuel to the other, depending on market conditions.

Natural gas prices last took off in the fall of 2000. Customers who hadn't locked in their supply were paying 36 cents a cubic metre by the spring of 2001. Could gas prices revisit the peak?

"There's a possibility of that," says Dave Charleson, director of energy policy and analysis for Enbridge Gas Distribution Inc. "We're seeing significant prices in the spot market, and we'll see higher prices in the winter."

Enbridge currently charges 28.57 cents a cubic metre for gas, while Union Gas charges 29.4 cents. The commodity charge is about half of your total gas bill. If gas prices went back to 36 cents a cubic metre, an average household using 3,000 cubic metres a year would pay an extra $180 to $210 for heating. About 40 per cent of Enbridge's residential customers have fixed-price contracts with gas marketers, Charleson says. This is down from 50 per cent a few years ago.

"Many people were coming off contracts at 9 to 10 cents a cubic metre and were getting renewal notices at 28 cents. It was a bit of a shock."

Suppose you stick with your local utility. This means you ride the ups and downs of the market, hoping prices will stabilize at a reasonable level. For stability and peace of mind, you can sign a fixed-price contract with an independent gas marketer. Although you pay more at the outset, you hope to save over the long run.

Energyshop.com provides information on gas marketers' prices and acts as an intermediary for those who want to switch. (I'm a customer myself, having locked in for five years at 21.5 cents in the fall of 2000. My contract has another year to run.)

Customers in the Enbridge area - Toronto, eastern Ontario and the Niagara Peninsula - have several fixed-price choices. If you want to lock in for three years, MxEnergy (Canada) Ltd. charges 29.9 cents. Superior Energy Management charges 32.3 cents for three years and 31.9 cents for five years. Ontario Energy Savings Corp. charges 32.5 cents for either four or five years, while Direct Energy Essential Home Services charges 32.4 cents for five years. That company also has a declining-price deal, which starts at 33.9 cents in the first year and goes down 1 cent a year to 29.9 cents in the fifth year.

Meanwhile, a new player is on the scene. Canadian RiteRate Energy Corp., based in Aurora, wants to do things differently. Customers who prefer more flexibility can opt for a blended rate, in which half your gas cost is fixed and half is variable.

"We like to compare it to the Scotia long and short mortgage," says Brian Wikant, a RiteRate partner.

You'll pay a fixed rate for half your gas supply. The other half will have a variable rate and will be adjusted every three months, reflecting gas-market conditions. RiteRate won't start delivering gas until Jan. 1, 2005. If the blended rate were set today, it would add up to 31.2 cents a cubic metre for the first three months (if you choose a three-year term) and 30.45 cents for the first three months (if you choose a five-year term).

If gas prices start falling, you can lock in the variable-rate portion at the current fixed-rate price. Customers also have the option of locking in their entire gas price. The current fixed rate is 30.9 cents for three years and 28.9 cents for five years.

"Most people take the fixed rate. That's what they know, and they want the security," Wikant says. He chose the blended rate for his own household. "I may pay a little more for the next few months, but I'm buying for the long term. My philosophy is to balance the risk."

RiteRate has attracted 2,000 customers since August, better than expected. The company spread its message through paid advertising. RiteRate promises never to sell gas contracts door to door, as larger rivals do. This helps keep costs low.

To reach RiteRate, call 905-726-8056 or toll-free 1-877-866-8056. (Don't be surprised if one of the owners picks up the phone.) You can also sign up at www.riterate.ca online.

Ellen Roseman's column appears Wednesday, Saturday and Sunday. You can reach her by writing Business c/o Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8687; by fax at 416-865-3630; or at ellen @ ellen roseman.com by email.