Getting the real deal

Shopping around for gas, power contracts
By SEAN McKIBBON, Ottawa Sun
Tue, November 16, 2004

IT'S MIND-BOGGLING. People will drive to four or five stores to compare prices on a DVD player, but they'll sign on with a new gas company after just one salesman knocks on their door. "If you're making this decision to get into a long-term contract, it's about a $5,000 decision for a homeowner," says Wayne Beamish, manager of consulting for Energyshop.com, a Web-based energy broker that provides price comparisons on products offered by natural gas and electricity resellers.

While that $5,000 isn't all up front, it's not a a decision to be taken lightly. Unlike a phone contract, early termination fees abound in the gas and electricity industry. What may seem like a deal at the time can turn into a lemon.

"You shouldn't sign with the first guy at your door. Not that they may not be the best one for you, but how do you know until you've shopped around?" asks Beamish.

SECRET SWITCH

Almost every homeowner has experienced the knock at their door followed by the earnest -- but often pushy salesperson -- asking to see your natural gas or hydro bill. The honest ones will give you a pitch and thank you for your time if you say no. The dishonest will copy your account number and switch you over without your consent.

Gas companies say they don't want any part in such dishonest business practices. But Beamish says that for door-to-door sales people paid solely on commission, the temptation of a fast buck can be too great.

"The stories we've heard, they make us shake in our boots, how they get those contracts signed," Beamish says, explaining that his firm was launched in an effort to present gas contracts in a more consumer friendly and balanced way.

"Most people know there's shady sales practices. Are they because of the individual sales person? Probably."

But it doesn't take shady practices for homeowners to feel like they've been shafted. It pays to shop around and do a little research -- just like when you shop for a stock or mutual fund. Natural gas prices rise and fall like any other market.

"In January 2001, where the spot market with Enbridge climbed to 33-36cents (a cubic metre) a lot of people signed door-to-door contracts right then and the peak only lasted for about three weeks," says Beamish.

"So, all of a sudden these guys are coming door to door and they're saying, 'okay, let me see your bill.' They show the bill. 'They say, okay yeah you're paying 36cents, gee I got a great deal for you -- 32.5cents for the next five years.' "

Of course, natural gas prices fell back considerably and created one of those rare times it actually made sense for people to pay a penalty and terminate a contract early in favour of a cheaper one.

Last winter, customers could sign up for long-term contracts at 24cents per cubic metre, Beamish says. The cheapest current contract on the Energyshop website is about 27cents.

"We actually have times when we're telling clients it's not a good time to get into contracts because the futures market says prices are coming down."

CANCELLATION FEES

Most natural gas contracts carry a penalty for early termination, usually a certain number of cents per cubic metre of gas left on the contract, says Beamish.

For example, if you use 5,000 cubic metres a year and have two years left on the contract and have a 3cents penalty, you'll have to pay $300.

"The only time it really makes sense (to cancel early) is if the price has dropped so drastically," he says.

But the penalty can be a nasty shock for consumers. "Most customers don't even read all the fine print on the backs of the contracts before they even sign the things."

Similar shocks came to people who signed electricity contracts, but didn't read the fine print about government rebates.

Beamish says some companies have changed their policy of having customers forfeit rebates because of the backlash, but he cautions that everyone should read the contract before they sign and look around to see if the competition has better terms.

Energyshop's former vice-president of marketing, Ian MacLellan, says electricity contracts will likely be of little concern for most Ontario homeowners for the next few years, because of price caps put in place last spring by the government.

The government has committed to putting in a new electricity-pricing structure that more closely reflects the open market price by May 1, 2005. While MacLellan expects electricity prices to rise, he predicts a block pricing structure similar to the current scheme -- 4.7cents per kilowatt hour for the first 750 kilowatt-hours used in a month and 5.5cents for additional hours -- will remain in place.

"None of the marketers will be able to come anywhere near the subsidized price that will likely remain in place for homeowners," he says.

That means the only market to watch for now is the fuel market. Where are heating fuel prices going?

Up, says MacLellan.

"Over the past five years those who have signed contracts have actually done pretty well because the overall market price has gone up," he says. "Supply is slack, while demand is going up in leaps and bounds because natural gas is used for electricity generation."

WEATHER UP IN AIR

Martin King, a commodities analyst for FirstEnergy Capital Corp. of Calgary, says there are lots of fundamentals to suggest MacLellan is right about where prices are heading in the short term.

King predicts wholesale gas prices would be in the range of 25.6cents-26.5cents per cubic metre this winter, but added weather remains a wild card with no consensus on likely temperatures.

"It's tough to see a price implosion especially with oil flirting with the mid-$50s," he says "If one is bullish on energy prices then perhaps it might be wise to lock in now and stave off those prices that might be coming five or six months down the line."

AVOIDING NASTY SHOCKS

Tips for avoiding contract pitfalls:

- Make sure you aren't forfeiting any electricity rebates to your reseller. Always read the fine print.

- Check out early cancellation penalties.

- Find out the renewal scheme. Most are negative option. If you don't cancel before a set number of days, you could be renewed for a year.

- Compare prices and terms.

- Protect your gas or electricity billing account number the way you would your credit card. Only disclose it to firms you want to do business with.