January 29, 2017
Something unusual has been happening in Ohio’s competitive market for natural gas: actual savings.
Customers who signed up for fixed-rate gas contracts last year are probably paying less for home heating this month than the people who are paying the standard price from Columbia Gas of Ohio.
But experts urge residents not to overreact to results that are far from typical. Most of the time, customers on fixed-rate contracts end up with bills that are higher – sometimes much higher – than the standard.
The situation is different this winter because prices were unusually low last year: Columbia’s monthly price hit a 20-year low in March. That led to low prices for natural-gas contracts. Columbia’s price has risen since, hitting a two-year high this month.
Industry officials and consumer advocates say the primary benefit of a fixed-rate contract is predictability. If a customer wants to get the lowest price possible, then the best option is usually going to be the Columbia standard price, which is called the “standard choice offer.” This is the default price for consumers who have not signed up with an outside supplier.
“Unless the consumer will continually monitor whether the rate from the marketer produces savings, a conservative approach to saving money would be to choose the ‘standard choice offer,'” said Dan Doron, spokesman for the Office of the Ohio Consumers’ Counsel.
Since the late 1990s, Ohio has allowed consumers to shop for gas contracts on the open market. In Columbia territory, about six in 10 households have the standard offer or some other state-supervised price. Everyone else has a contract with a supplier. The most common contract is a one-year fixed price, according to leading suppliers.
A persistent problem is that many consumers do not understand the market. Their knowledge often comes from pitches made by suppliers.
Spencer Hackett, 30, of Merion Village, said of door-to-door gas-marketing pitches, “It usually seems little suspicious to me. It doesn’t seem concrete or a solid plan.”
Hackett pays Columbia’s standard price and has no intention of switching, he said.
With a fixed-rate deal, customers might see savings if they buy before a sustained increase in market prices. That is what has happened now and is the reason that Columbia’s price is higher.
“A fixed rate is not all about savings. It’s about the certainty,” said Teresa Ringenbach, the Ohio-based manager of government affairs for Direct Energy, a company that sells gas and electricity contracts.
The current savings are just an added benefit, she said.
Some suppliers describe a fixed rate as a hedge against the volatility of variable rates. And yet, with the exception of the past month, Columbia’s price has not been high or volatile for years. This is because of the plentiful supply of gas from U.S.-based shale formations.
The Columbia standard offer is a variable rate, which means it changes each month based on ups and downs in the market price of natural gas.
This month, Columbia’s price is 53.6 cents per 100 cubic feet of gas, up 46 percent from a year ago. The price leads to a total average monthly bill of $131.54, including all taxes and fees.
With the benefit of hindsight, marketers’ fixed-rate offers from last spring and summer look pretty good.
The lowest one-year offer last summer was 37.99 cents per 100 cubic feet of gas, which was available from February to July from Ambit Energy, a marketer based in Dallas. This is according to an archive of offers maintained by the Public Utilities Commission of Ohio.
Someone who signed up for Ambit’s offer would have saved money every month since July compared with Columbia’s price, peaking at $12 worth of savings this month.
Consumer advocates point out that these savings are relatively small in addition to being rare. If a customer had signed up with a marketer for a fixed-rate contract before achieving these few months of savings, he or she has probably had years in which they paid more than the standard price.
Last year, The Dispatch reported that, since 1997, customers who choose alternative gas suppliers have paid a total of $1.36 billion more than those who remained with Columbia’s standard prices. The figures, based on filings in a regulatory case, also showed that customers who choose suppliers were on a protracted losing streak, paying more than Columbia’s price every month since 2005.
This disparity exists in part because many customers do not have the background to select the best offers. And, there are many offers that have high prices but are still marketed with implications of savings.
For example, while Ambit was selling its 37.99-cent contract, Spark Energy of Houston was selling an equivalent contract for 64.9 cents, which was the highest listed in the PUCO archive for that period.
Despite the high price, Spark had this in its tag line: “Enjoy peace of mind with a fixed rate and more money in your pocket.”
A Spark spokesman did not respond to a request for comment.
The lesson is that consumers need to understand their options and know how to distinguish a good deal from a bad one.