We at Brakey Consulting have been receiving a lot of questions regarding what residential customers should do about purchasing natural gas this winter. Should I lock in prices now or remain on the fixed contract I’m currently on? Should I stay on Dominion’s variable SSO (standard service offer)?
In the Halloween edition of the Plain Dealer, John Funk’s article Latest E. Ohio gas rate up 52% provided a good timeline showing what has happened to Dominion’s variable natural gas rates in recent history. “Dominion’s retail rates peaked last November at $13.78 per Mcf. Wholesale prices kept going up, spiking in December at $15.38 per million BTUs. Rates on the wholesale market then began a long decline as the weather turned mild, reaching the low point of $4.20 at the end of September.” This $4.20 wholesale NYMEX price translated to a SSO price of $5.64. In one month’s time, that rate increased 52% to reach a SSO price of $8.59 per Mcf for the period Nov. 10 through Dec. 12. Although this price increase seems staggering, when put in the perspective of last year’s sky high prices compounded with last month’s abnormally sharp price decline, it is far more palatable.
As a price comparison, PUCO’s apples to apples site will show what other gas marketers are offering including fixed prices. As one would expect, these prices are all above the current variable market rate. Logically, this is because these prices need to reflect the risk premium that accompanies a longer contract. This site will allow you to find the contract that is offering the best price with the fewest strings attached.
Before locking into a gas contract, be sure to note both the time period the contract is for, and the cancellation fee if you want to end the contract before the term is up. Contract terms usually range between one and three years. Most contract cancellation fees are $25 but be careful. Some contracts we have seen have seen can cost consumers upwards of $125 to leave prematurely. One tip for customers who are currently on a fixed rate: often times a phone call to your gas marketer requesting a lower rate will work. This would be especially true if you’re currently paying anything north of $11 per Mcf. This can insure a price more in line with current offerings without having to pay a cancellation fee.
So where does this leave us? Which is better, a fixed rate or a variable rate? Unfortunately, there is no right or wrong answer. It ultimately lands on the shoulders of the consumer and the amount of risk he or she is willing to accept. Old man winter will ultimately have the final say where prices will go. Assuming there are no unforeseen disruptions to natural gas production or delivery, a colder than normal winter will drive prices up and a warmer than normal winter will drive prices down. Most meteorological organizations such as NOAA are predicting a warmer than normal winter but for us to make any sort of definitive prediction would be pure speculation.
As was discussed at the Akron CES/Magnet energy conference by Jeff Murphy, director of pricing for Dominion East Ohio, if we have a warmer then normal winter and prices remain low, the amount of gas you use in your household will likely be nominal compared to past years. Any savings or losses resulting from choosing a fixed or variable rate will probably be marginal. However, if we have a colder than normal winter and prices reach levels similar to where they went last year, the savings for those who locked in rates could be substantial and customers who chose to remain on a variable rate could be in for a bloodletting simply due to the large volumes of gas consumed.
Matt Brakey
Vice President
Brakey Consulting, Inc.
