Choosing is a gas!

Opinion

Hey there, time traveller!
This article was published 29/03/2009 (6016 days ago), so information in it may no longer be current.

Door-to-door salesmen are appreciated about as much as telemarketers and parking ticket officers.

Many of us regret answering the door, realizing we must listen to a breathless sales pitch before we can say, "No thanks."

In recent years, the person standing at your door may have been a natural gas marketer from Direct Energy or Energy Savings Manitoba L.P.

Their pitch: You should buy a four- or five-year contract guaranteeing natural gas at a fixed price instead of buying gas at a floating rate that changes every three months from Centra Gas — Manitoba Hydro’s natural gas division.

Under such a contract, you sign on to pay more for natural gas than its current market price, but you know the price will remain the same despite market volatility for a product with growing demand and dwindling supplies. Gas prices go above your contracted rate and you save. Gas prices go below your contracted rate and you lose.

But the bottom line is you always know what you pay, without worrying about price spikes. Saving money is just an added bonus.

While the sales pitch does make sense, a recent investigation by CBC’s Marketplace found that in Ontario, door-to-door sales agents from many companies, including Direct Energy, engaged in high-pressure, misleading sales tactics to sell their product.

In Manitoba, complaints of unfair sales tactics have always been a concern of the Public Utilities Board (PUB), which regulates natural gas marketers, board secretary Gerry Gaudreau says.

"Unfortunately, that’s done too often," he says about agents making claims that contracts save money for consumers. "Whenever we hear about that, we contact the company and say ‘Hey! You’ve got somebody out there making false promises.’"

That concern was one among many that went into PUB’s decision last fall to allow Centra to begin offering fixed-rate contracts to consumers in Manitoba.

Gaudreau says the main reason for the decision was to increase competition.

More than 15 years after opening the market to retailers, two companies offering contracts for natural gas didn’t represent real competition, he says, adding Manitoba Hydro had made the application after being encouraged to do so by the PUB.

But in effect, the decision has had mixed results on competition. Direct Energy stopped offering residential contracts in Manitoba last fall because it believes Centra has an unfair market advantage, company spokeswoman Lisa Frizzell says.

Energy Savings Manitoba L.P. is still in the market, but the company did not return phone calls inquiring about its choice to continue to offer residential contracts.

What Energy Savings did do, however, is reduce its four- and five-year contract gas prices by four cents to 33.99 cents per cubic metre as of March 9, down from its last price at the end of January. The change happened as Centra rolled out its one-, three- and five-year contract. Centra’s five-year fixed rate is 33.49 cents per cubic metre.

Manitoba Hydro spokesman Glenn Schneider says one-year contracts — at 26.70 cents per cubic metre — have already sold out. (The current floating rate is 27.99 cents.)

While fixed rates offer price certainty in the long-term, similar to a fixed mortgage rate for homeowners, the contracts offered by Manitoba Hydro may offer additional certainty — that the price offered in the contract is fair.

Manitoba Hydro is a non-profit, public utility so it should — in theory — offer the lowest fixed contract rate available because it does not have to make money on the contracts. Still, the public utility has to purchase its gas on the open market, competing with the private energy companies, and it has to be careful not to offer contracts at too low a price or the contracts could end up costing Manitoba Hydro money.

"When the board approved Centra entering into the market, they did caution Hydro that they would have to keep track of their success and failure monetarily," Gaudreau says.

"In other words, the people who didn’t use the fixed-price contract wouldn’t be unduly affected."

Manitoba Hydro’s entrance into the natural gas contract market may be good news for consumers in that they know they’re likely getting a good price, but the question still remains: Is locking into a fixed rate cost-effective?

A Manitoba consumers group says answering the question is a tall order.

"There isn’t a way to determine that except in hindsight," says Gloria Desorcy, executive director of the Manitoba branch of the Consumers’ Association of Canada. And even hindsight is a bit blurry.

Manitobans who signed on to fixed contracts in the past have saved money, but according to statements made at the PUB hearing for Centra’s approval, a little less than 50 per cent saved money.

"If you signed at the right time when they are offering gas at 23 cents and then natural gas jumped to 25 or 26 cents, well, good for you," Gaudreau says. "Others signed in at 39 when the price stayed at 30. Some lost and some won."

And while gas prices have moved upward over the long term, market analysts say that’s over-simplifying matters.

Wild card factors — unusually cold weather and natural disasters such as hurricanes that disrupt production — can greatly affect gas prices in the short term, Simon Mauger, director of natural gas services for Ziff Energy Group, says.

At present, gas prices have been unsustainably low because of a two-year slump in drilling, even though conventional (easy to access) gas supplies are declining and demand climbs.

And the economic downturn has only put more downward pressure on prices, further deterring drilling.

"We have seen a massive slowdown in drilling, which will set up a stage for next year to see a price increase," Mauger says.

Just don’t count on prices to trend upward in a straight line, he adds. You can expect manic swings in price for a variety of reasons, including an increase in liquefied natural gas imports from the Middle East and development of unconventional gas deposits.

In other words, if you hope to save money with a fixed contract, you may be heading for disappointment… or not.

giganticsmile@gmail.com

Know your rights

 

Last September, the Public Utilities Board developed a bill of rights for residential customers.

Here’s a brief rundown.

Identification: Sales agents must identify themselves with written ID that indicates their employer. They must give you a business card at the door.

Knowledgeable and courteous: Agents must be able to answer your questions clearly and satisfactorily. Use their business card to call their employer if you have concerns.

True and clear disclosure: They must tell you the truth. Contracts and sales pitches must be in clear, plain language and properly explained without making any misleading claims, such as you need to sign up or you will be paying too much for your natural gas.

Understand your contract: It goes without saying that you shouldn’t sign anything you don’t understand. Read it over and ask questions. If you still don’t understand it, take more time to ensure that you do before signing a document that can be legally binding.

If you do sign, you have 10 days to cancel after receiving a confirmation letter: Call the marketer to cancel or send a letter by registered mail. You can also email your cancellation, but be sure email a copy to Public Utilities Board just in case.

Concerns and questions: Contact the marketer first to see if your issues can be resolved. If they can’t, contact the Public Utilities Board at 945-2638. Have your gas contract and any other material of concern ready in both instances.

 

Centra’s role vs. natural gas marketers’ role:

Typically, Centra is your supplier of primary natural gas and is also responsible for delivering the gas to your home and other related services. It also provides supplemental gas when demand exceeds primary gas supplies. Primary gas, which is what you mostly use to heat your home, accounts for 60 per cent of your bill. Natural gas marketers sell contracts to provide you with primary gas at an unregulated rate as opposed to a regulated rate from Centra.

 

A note about the long-term view of natural gas in Canada: When NAFTA was ratified in the ’90s it opened up many markets to free trade, including the natural gas market. The open market has been profitable for Canada, which had substantial amounts of conventional natural gas deposits in Western Canada. Those are mostly in decline now, with unconventional deposits such as shale gas expected to make up the bulk of supply in the future. So far, the federal government has been unwilling to regulate the industry on the basis it would violate NAFTA, says Cameron Gingrich, of Ziff Energy Group in Calgary. "Currently, there’s enough gas to go around for everybody, but when Western Canada’s decline occurs and increased demand across Canada, pinpointed in Fort McMurray, increases going forward, the federal government will have to come out with a strong energy policy rather than just pointing to NAFTA."

 

Tracking gas price rates

Natural gas contracts can save you money over the course of the contract, but that’s only if you’re lucky enough to lock in at the right time and the right price, which is impossible to determine when you sign the contract. Based on pricing history listed on the PUB website, here are two different scenarios of actual contracts where you might have saved or ended up paying more. (Listed contracts only went as far back as 2004.)

 

Direct Energy’s five-year contract, Aug. 1, 2004 – 27.7 cents per cubic metre. At the time of the contract, Centra Gas’s floating rate was 25.87 cents per cubic metre. Consumers who signed a contract would have saved on their gas bill on nine out of the 15 three-month rate periods set by the PUB.

Direct Energy’s five-year contract, Nov. 1, 2005 – 34.6 cents per cubic metre. At the time of the contract, Centra Gas’s floating rate was 32.07 cents per cubic metre. So far, the floating price set by the PUB has not gone above 32.97 cents per cubic metre.

 

— Public Utilities Board