What to Look for in Natural Gas Retail Contracts

Posted: September 05, 2018
Tagged As: Energy, Natural Gas, Public Procurement

We’ve all been there before, whether at home or at our place of business…a knock at the door and a promise of energy “savings,” all wrapped up in a 5-year contract. But are these offers as good as they seem? Here are some tips regarding retail natural gas contracts should you ever find yourself in a similar situation.

Wholesale Vs. Retail

In Canada there are an abundance of “suppliers” that can provide natural gas hedging options to end users, but there is a difference between wholesale suppliers and retailers. Wholesale suppliers generally hold direct natural gas supply assets themselves and have a wide range of coverage at multiple delivery points across Canada. Retailers, on the other hand, act as the “middle man” between the supplier and end user. They are ultimately a re-seller of natural gas, who often have limited ability to supply multiple delivery points across Canada.  They also tend to be regionally-focused or specialize in smaller customers. This can ultimately translate into higher margins/administration fees to the end user. The LAS Natural Gas Program primarily deals with wholesale suppliers.

Savings are Not Guaranteed

No matter what an energy retailer may tell you, entering into a long-term, fixed priced contract does not mean that you will beat the market or the regulated utility price. It is a stable, fixed price solution for natural gas costs, most likely at a premium to the wholesale market due to the length of the agreement and the retail administration fees incorporated into the price itself. An energy retailer must provide you with a price comparison sheet (see example below), approved by the OEB (Ontario Energy Board), showing how their rates compare to that of the local utility.

Understand What You Will Pay Under the Contract

A natural gas contract offered by an energy retailer only applies to a portion of your gas bill, most often the actual commodity itself and the deregulated transportation to move the gas into the utility franchise area. You are still responsible to pay the other regulated charges to your local utility to move the gas to the meter. Often energy retailers will not specify the breakdown between the commodity and deregulated transportation charges, or even specify the delivery obligation (i.e. Empress vs Dawn) making it difficult to do a fair “apples-to-apples” comparison when looking at similar pricing in the market. Look for language, such as the following, throughout the contract when it comes to gas pricing.  Specifically, look for the inclusion or exclusion of transportation in the quoted price:
Example 1
Example 1 image showing additional costs for transportation
Example 2
Example 2 image showing additional costs for transportation
Example 3
Example 3 image showing additional costs for transportation

Another key item to note is that energy retailers usually do not disclose their own administration fees that are part of the price quoted. These are usually blended into the quoted price as an “all-in” cost.

You are Entering into a Legal Agreement

An energy contract is a legal, binding agreement between the end user and retailer. While the OEB has some rules and guidelines in place to help protect consumers, note that they cannot protect you against the cost associated with liquidating a transaction mid-contract. Typically, if consumer makes the decision to terminate the natural gas agreement early, the retailer will do a “mark-to-market” to determine the cost for liquidating the contract.  The volume profile, term remaining, and value to sell the gas back to the market determine the liquidation cost, and often results in a price below the original contracted price.
The LAS Natural Gas Program is designed to centralize commodity management and prevent members from entering into separate, potentially crippling, commodity contracts that may not align with the members risk tolerance and strategic goals for natural gas purchasing. For more information on the program, or inquires as it may relate retail energy contracts, please contact Eleonore Schneider at LAS.

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