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Local programs make it easy to get natural gas contract, but in some years price is high
Published on Sunday, Sep 16, 2007
Local government natural gas aggregation groups, or buying groups, have had mixed success in recent years. Some years, they've had competitive prices compared with public rates that you and I have been able to shop for on our own.
But other times, like last year, many in the aggregation groups ended up paying much higher rates.
This year, however, if you live in a community that has aggregated for its natural gas contract, you're most likely going to come out ahead with prices ranging from $9.24 per thousand cubic feet (mcf) to $9.90/mcf at least if current public pricing stays the same.
But then again, in this world of volatile natural gas prices, none of us have a crystal ball and instead must try to make educated decisions.
To put the aggregation rates in perspective, the cheapest one-year fixed rates I found when I analyzed prices last month were $9.95/mcf and $9.99/mcf. Next Sunday, I'll be doing an updated analysis and chart of current public prices for natural gas in a special Beacon Journal home section. (For instance, I have heard of one marketer who has a $9.75/mcf rate.)
Then you can take a look at all of the latest public rates and weigh them against the aggregation rate, if you have one, in your community.
Marketers interviewed this week who have the cheaper aggregation prices said their group rates were lower because of bulk buying and they didn't have immediate plans to lower their public rates. But as consumers know, prices can always change, depending mostly upon the weather and supply.
Last year's high
In previous years, some of the communities have received competitive aggregation rates when compared to public ones, but frankly, they were only OK. In some cases, people who participated in their community aggregation paid much higher rates than those of us who shopped on our own.
For instance, several communities last winter paid rates in the $11.70/mcf range while the cheapest public rate I settled on after a few switches when the market softened was $9.99/mcf. That means that over the last winter, people who had the $11.70/mcf rate paid about $124 more than I did.
This winter, people in the communities with the $9.24/mcf aggregated rate will save about $55 over the cheapest $9.99/mcf rate and $75 over the year.
Officials with many of those communities that are coming off high rates acknowledge that they didn't fare well last year. Prices softened after the hurricane season, but because the aggregation contracts were already set and gas had been purchased, they couldn't renegotiate.
From a consumer standpoint, an added benefit to a community aggregation is that most of the contracts don't include a cancellation fee to leave the group if public prices were to drop further. Some have a $25 fee, but that's the highest I've seen, compared to some public rates that have cancellation fees ranging from nothing to $25 and a high of $150.
So you could get the benefit of group buying, but then if public prices drop, you can also leave to shop on your own.
Community officials have told me that they offer an aggregated rate as a choice for customers who don't want to make their own decision often seniors. While they hope they get competitive rates, they don't guarantee that it'll always be the best price out there.
''We are the safety net,'' said Cuyahoga Falls Service Director Valerie Wax Carr. ''We do not tell people to come to our program unless they want to. We encourage people to shop around.''
Group buying is like anything in bulk it should be cheaper.
For the marketers, it's attractive to get a large number of new accounts at once.
''We can charge a lower markup because our acquisition costs aren't as high,'' said Doug Austin, vice president of IGS Energy Services, which has an aggregation with Wadsworth, Orrville, Doylestown and Dover. That group has the cheapest one-year fixed rate I've seen for a public or aggregated rate starting Nov. 1, at $9.24/mcf with no cancellation fee.
Senior rate
Another new trend I've seen this year with some communities that negotiated with marketer Direct Energy is an additional 10 cents/mcf discount for seniors.
Senior citizens in several area communities can take the additional savings off their one-year fixed rates, with no cancellation fee, including:
Cuyahoga Falls ($9.85/mcf for nonseniors);
Tallmadge ($9.74/mcf);
Barberton ($9.75/mcf);
Canal Fulton ($9.63/mcf);
North Canton ($9.76 from December through May);
And Ravenna ($9.80/mcf from November through January and $9.57/mcf from February through April).
Fairlawn negotiated its rate of $9.86/mcf before Direct Energy came up with the senior rate, so there is no senior rate offered in that community.
Timing is key
So why is it that sometimes the group buying comes out with higher prices than public rates and other times they're lower? And why do some communities or groups get what seems like better deals than others?
Aggregation rates aren't just about negotiation or the size of your buying group. One community doesn't get a better rate than another because, for instance, their mayor or service director or person in charge of working with the marketer is a better negotiator than another.
The real answer is timing.
It has to do with when that community chose to lock in their price for the volatile price of natural gas. For some communities, they do it on one particular day. Others average out their purchases of gas over a few months to come up with their price.
Unlike natural gas rates that are available to the general public, which are available on two state agencies' Web sites http://www.puco.ohio.gov and http://www.pickocc.org there isn't a central clearinghouse to find out whether your community has an aggregation or how it stacks up to another community's rate.
Since there are so many municipal natural gas aggregations around, I'm not able to list all the prices here, though I'm highlighting most of the ones I know about. Some communities and marketers have done a good job of notifying the Beacon Journal of their aggregation rates while others haven't.
It's best to check with your local government (many of them have the information posted on their Web sites) or if you know the community's supplier, you can check with them for specific prices and deadlines for signing up. Usually, special phone numbers are set up for each community's aggregation with the marketer, so you'll have to get that information, too.
Contract length varies
Communities, usually working with an energy broker, also have different philosophies. Many lock in for one-year fixed rates (Twinsburg has a rate of $9.35/mcf with Vectren Source with a $25 cancellation fee). But some, like Green ($9.90/mcf), Stow ($9.59/mcf) and Silver Lake ($9.59/mcf), have locked in only for six months with Vectren, to get them through the winter months.
Still others, like Summit County, are opting to ride the market with a monthly variable price, but officials said they're watching the market closely and might later decide to fix a long-term price. The county's aggregation group, which includes all townships in the county except Sagamore Hills Township and also includes the village of New Franklin, this week locked in a price only for the month of November at $8.94/mcf with Direct Energy with no cancellation fee.
Personally, I've always looked for stability in the one-year fixed rates, though monthly rates can get you some savings with risk. If the county decides to stay on a monthly rate, you'd probably be just as well off shopping for a monthly rate on your own or fixing a rate.
The organization called NOPEC, which is a large municipal aggregator of more than 94 communities in Northeast Ohio, including many in Portage County and a few in Summit, has a fixed price of $9.99/mcf starting in November through March.
One community that doesn't aggregate for gas is Akron.
The city had a natural gas buying group in 2004 and 2005, but decided not to offer it anymore after officials decided the city couldn't necessarily beat public prices and guarantee the best price for its members, said Akron Assistant Law Director Dave Muntean.
The city continues to have an electricity aggregation because it is a contract that guarantees a percentage savings off public rates and there is no competition in the electricity market.
Akron's gas group had just 2,000 customers because the city only wanted an ''opt-in'' group. City officials weren't comfortable creating a pool of all city accounts automatically, which could give it better buying power, without people actively choosing to participate, Muntean said.
If there's a demand, he said, the city might look into a natural gas aggregation, but it's too late for this winter.
Other groups?
With the popularity of municipal aggregations, its begs the question of whether there might be other types of groups other than governments that can pool together their resources for residential service. For instance, what if all Girl Scouts' parents grouped together?
Marketers said while there are already groups such as school districts and churches that aggregate their accounts, they haven't seen a trend of groups of residents or other groups aggregating because of the complexity of the process. Also, the groups would have to be large enough to merit bulk rates.
Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@ thebeaconjournal.com.
Local government natural gas aggregation groups, or buying groups, have had mixed success in recent years. Some years, they've had competitive prices compared with public rates that you and I have been able to shop for on our own.
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