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The Akron Beacon Journal Consumer Column

Posted on: Sunday, 9 October 2005, 15:00 CDT

By Betty Lin-Fisher, The Akron Beacon Journal, Ohio

Oct. 9--The volatility of the natural gas market is like none we've seen before.

Every time I hear a new price, I shake my head in disbelief.

This winter stands to be brutal when it comes to heating costs, especially if you're choosing a provider now. The federal government is predicting natural gas prices are going to increase 71 percent in the Midwest.

For the average Dominion East Ohio customer, that's an additional $700 in heating costs from October through March.

Even if you chose a provider earlier this year and are not facing rates of $14 to $16 per thousand cubic feet (mcf), your costs this winter are going to be higher than last year.

Yes, it feels like we're living on the edge of a knife. There are no longer any clear answers when choosing a natural gas supplier, as I will explain later.

Just know that careful decisions and conservation are your best avenue now.

Some colleagues and I have put together several stories and graphics to help save you money. Read this section carefully.

How did the nation get to this point?

Prices were at record highs even before Hurricanes Katrina and Rita hit a large natural gas production area and sent prices spiraling upward.

Three months ago, when I did my last analysis of gas prices, I lamented that suppliers had broken the $10/mcf price barrier.

Many of us were coming off a two-year, $6.99/mcf rate with WPS Energy Services. Five years ago, thousands of area residents were paying a $4.91/mcf rate with FirstEnergy Services.

Will prices continue to go through the roof?

Or will they come back to our new "normal" -- if we have one?

No one has a crystal ball. Natural gas prices are based on the laws of supply and demand. A lot of what happens in the short term will depend on repairs in the Gulf of Mexico. Some in the industry also say there are longer-term solutions, such as increased drilling for natural gas and importing more liquefied natural gas.

Others are predicting increases, or small decreases, to pre-hurricane levels -- around $10/mcf.

One thing is clear: The most dependable way to save is going to be to use less gas.

Energy efficiency has multiple benefits, said Ronnie J. Kweller, deputy director of communications for the Alliance to Save Energy, based in Washington, D.C.

Energy efficiency saves money and can increase indoor comfort. As a whole, it will reduce demand, which then hopefully will be reflected in lower prices.

Now, let's dive into current gas pricing. But be forewarned, the waters are chilly.

I know you want a straight answer. But it's not that easy.

As I've said in the past, which provider you choose really depends on how much risk you're willing to take.

If you think prices are only going to go up, then find the best long-term rate you can.

If you think prices can't stay this high, you might consider riding out the market with a monthly variable rate, then locking into a fixed rate if prices come down.

One marketer made a good point: If your budget can sustain higher gas prices, ride out the market with a monthly variable and take the risk.

But if you are worried about whether you can afford higher prices, lock in.

I locked into a rate in July with WPS for its $10.35/mcf cap, meaning the price can only adjust down. If I had to choose now, I'd probably go with a one-year fixed rate with a cheap cancellation fee or a cap I can live with and hope that prices come down.

The answer for you may be different.

You have to crunch some numbers and consider both price and cancellation fees.

Take Dominion East Ohio Energy's offer of a $12.75/mcf fixed rate for five years with a $100 cancellation fee.

I don't think locking into a rate for five years when we are at all-time highs (even if that price compares favorably with current prices) is the way to go.

But the five-year rate for the subsidiary of Dominion East Ohio is much cheaper per year, even with the $100 cancellation fee, than all of the other rates. If you canceled after one year and paid the fee, you'd still be $281.55 ahead of the best one-year fixed offer.

Dominion East Ohio Energy Spokesman Dan Donovan said the offer has a limited supply, and it may be sold out by Monday.

Here are some details on my recommendations:

If you want a one-year price cap: Each of the offers is slightly different in the details of how prices will fall, but I chose Vectren's $15.35/mcf cap because it's the lowest overall cap.

If you want a one-year fixed rate: Both Shell Energy and Vectren have a $15.90/mcf fixed rate for one year, with a $25 cancellation fee. I chose those over Interstate Gas' $15.29/mcf because the savings comes out to $73.89 a year for the average user. It's not worth Interstate's $150 cancellation fee.

But if you're determined to stick with IGS, then you don't have to worry about the $150.

If you want a multiyear fixed rate: Go with Dominion East Ohio Energy's $12.75/mcf rate for five years. If you're going to go with a multiyear rate, it's cheaper to go with this one, even if you cancel early and pay the $100 fee.

If that rate is not available, then I'd go with MXenergy's $14.49/mcf three-year fixed rate with a $25 cancellation fee.

If you want to ride the market with a monthly rate: Go with the company whose current rate you're happy with. But since it takes 30 to 60 days to switch suppliers, you have to make your decision about a company based on its current monthly charges, not what you will be paying.

Richard Lubinski, a Silver Lake independent energy consultant, makes the case for going with a monthly variable rate.

"It's the wrong time in history to lock in," said Lubinski, president of Think Energy Management LLC. "It's a poor time to try to beat the market."

Personally, I'd find it hard to budget for heating costs with the price changing monthly.

If you are considering a marketer's variable rate, also understand that you can't compare it against Dominion's monthly Gas Cost Recovery (GCR) rate -- the price people who don't choose another supplier pay. Dominion's price, currently $13.22/mcf, is a month behind. Competitors' monthly prices are current market prices.

Also, if you've had a supplier other than Dominion for more than 12 months and are considering going with a monthly rate, choose a marketer and don't return to Dominion.

You started saving money after being away from Dominion for 12 months. State law allows Dominion to collect something called "unrecovered gas costs" for a year to cope with market volatility. These costs are part of the delivery charge that everyone pays. But after you've been away from Dominion for 12 months, you no longer pay that portion.

While the current "unrecovered gas cost" is only 4 cents/mcf, it changes every three months and will change again in November. It has been as high as $1.89/mcf in the fall of 2003.

If you haven't chosen another provider in the last 12 months and are still buying your gas from Dominion East Ohio: Consider sticking it out with the monthly GCR to see whether prices come down. But if you're nervous, then pick a marketer's rate.

Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@thebeaconjournal.com. Because of heavy call and e-mail volume, she may not be able to return your message, but she may answer commonly asked questions in future columns.

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Source: Akron Beacon Journal (Akron, Ohio)

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