Natural Gas: Fixed or Floating

October 12, 2006


I cannot count the number of times an energy marketer knocked on our door and suggested that we sign up for a fixed-rate natural gas contract for heating our home. One of the arguments they use in their pitch is similar to the one quoted in this CBC article: consumers “would have been better off locking in to a long-term contract for 47 to 53 of the 60 months ending in May 2006″. That sounds great until you realise that it is only one data point and it might have been an unusually favourable situation for a fixed price contract that is unlikely to occur again.

I find it interesting that marketers are trying to convince us that it is better to buy fixed-rate natural gas when the annual gasoline bill is likely to be higher than the heating bill for most consumers (it certainly is the case for us and we don’t drive all that much). Yet, we are no hurry to sign up for gasoline contracts but marketers try to scare us that natural gas is going to skyrocket.

The Gas Supply Charge portion (which can be purchased from an energy marketer) typically makes up about 60% of the gas bill. As it costs about $1,500 to heat a typical home, the annual gas supply charge works out to about $1,000. The best 5-year rate (according to available now is 35.9 ¢/m³ compared to Enbridge’s floating rate of 22.54 ¢/m³. It would be interesting to track the floating and fixed rates going forward to see which strategy comes out ahead but my guess is that the stakes are decidedly small. If you can bear the risk of your energy bill spiking by $100 or more in the peak of the heating season, I would wager that it is better to go with the floating rate.

Lower Heating Costs

September 28, 2006


Enbridge (TSX: ENB) has announced that it is once again cutting the price of natural gas to 22.54 ¢/m³ starting in October. The new rate is 19% cheaper than the current rate of 27.9 ¢/m³ and well below the 29.47 ¢/m³ rate that Enbridge charged during the same time last year. Note that the new rate includes an adjustment to refund customers because the utility collected more from its customers than the actual costs incurred. Without the adjustment, the new rate would have stayed at the current rate of 34.1 ¢/m³.

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Renting a Water Heater

July 5, 2006


Just the other day, I was browsing the Personal Finance bookshelves at my local Chapters store and leafed through a book titled The Smart Canadian’s Guide to Building Wealth. I almost skipped over a chapter that advised against renting-to-own when I noticed a sidebar titled “A Note to Ontario Homeowners”. The note asked why the vast majority of Ontario homeowners are wasting their money renting their water heaters.

I must confess that we fall in the category of renters and it never occurred to me that we could buyout the rental. The heater in our home is over 15 years old and is likely in its last legs. I found that Direct Energy charges us $13.99 plus taxes for the rental and it would only cost us $25 for a buyout (owing to the age of the heater). I went ahead and purchased the old heater and I am hoping it would last a year or two. If it breaks I will just buy a new heater and have it installed by a professional.

New Heater: Less than $1,000 installed. Rental Heater: $13.99 (in today’s dollars) over 15 years = $2,500. Owing your own water heater: Priceless.