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moneysense.ca, 28/09/06
Lower Heating Costs
Current issue:
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.
Related Posts:
- Soaring Heating Bills? Not So Far
- Soaring Home Heating Costs
- Enbridge Cuts Gas Prices
- Enbridge Cuts Gas Prices Again
moneysense.ca, 28/09/06
You can get a 5-year fixed price contract right now for 35.9 ¢/m³ (in Ontario at least). I am seriously considering making the leap on this even though it looks really stupid to do that right now. I think that in a year we aren’t going to be looking at 22.54 ¢/m³ still. The big question is whether this winter is going to be a real cold one or another very mild one like last year. If we have an average or slightly cooler than average winter I really think that gas prices are going to be more than 30 ¢/m³ at this time next year. My crystal ball is in the shop right now so I can’t tell whether locking in now is a good idea or not.
I have started tracking both Enbridge market rates and 5-year fixed rates. I have a feeling that just paying market rates puts you ahead but I need numbers to back that up. My opinion is as long as you can absorb a few spikes, market rates are the way to go.
Your right about keeping to market rates.
I’m always leering about fixed price contracts, afterall, the companies that offer them don’t have a big container with 5 years worth of natural gas sitting in their backyard. They buy from the market, although they do have some amount of storage capacity, definitely not 5 years worth. That means that they will set up their contracts so that they can make money over the average cost of natural gas over those 5 years.
The only advantage of a fixed price contract is that you know how much you will pay every month and therefore no “bill shock”. Enbridge has equal billing which basically does the same thing. Lately, it has meant that I have had smaller bills as I had built up a surplus with Enbridge.
Rather than spending time try to figure out natural gas prices, do improvements to your heating systems and your home. Simple improvements like new windows, programmable thermostats,weatherstripping, insulation and replacing your old furnace (even paying the extra for a High Efficency furnace) will save more on your gas bill then trying to figure out what direction natural gas prices will be going.
Remember the American hedge fund Amaranth Advisors had their butts handed to them when they tried to figure out the natural gas market (they lost something like 35% of the fund’s investment value) and supposedly they are smarter then us little guys !! LOL
The energy marketers actually have no storage capacity at all. They simply arrange agreements with gas providers(union gas/enbridge etc) to buy natural gas at set rates for a certian period of time, generally 3 or 5 years, and then mark that rate up a little and sell to you. You aren’t getting a new supplier when you go with a fixed contract, just a new name on the bill. Incidentally, locking in to a five year rate is the way to go about 55-60% of the time. much like a mortgage, its a slightly educated guess as to which way interest rates are going…up and you lock in…down and you go variable.
my last thought….natural gas is likely to continue to fall for a while longer. I figure I’ll be locking in to a five year rate in 3-6 months
I agree with James. The energy resellers just buy forward contracts and sell it at a profit to consumers. I do think that it is better to just pay market rates. I think that the market’s guess on the price of natural gas is likely to be more correct than mine.