Third Party Electric and Natural Gas Suppliers Are Likely to be More Expensive Than Your Local Utility in the Long Run
We learned from a previous program that congregations generally do not examine their invoices to determine if they are being billed according to the least expensive electric and gas prices.
During deregulation, the Pennsylvania Public Utility Commission forced electric utilities to randomly make a number of their customers purchase electricity from other suppliers. It is called the MST program, for Market Share Threshold. As of As of October 1st, there were 19,681 PECO Energy small commercial customers in this program today because they did not choose to return to PECO, down from 62,000 in 2004. At the time MST was ordered, the cost of electricity for the first year may have been lower from some suppliers compared to PECO prices, but that changed. Those suppliers are now charging as much as three times as much as PECO would charge.
ICE Board member Larry Spielvogel asked PECO if they have any responsibility to tell the MST customers they are paying more than necessary. To date, PECO says no. Ask ICE to determine if your PECO accounts are among the 20,000 paying too much.
One of the lower cost suppliers was Electric America, now called Commerce Energy, claims that high prices for residential customers are justified by claiming they are selling ‘green’ electricity… electricity from renewable resources to residential customers. This electricity costs more.
Almost no suppliers own the commodities they sell
Almost no generators sell their output to consumers.
Most consultants get kickbacks and commissions from suppliers
Suppliers and consultants never lose.
Beware of automatic renewals in contracts.
Beware of complicated banking clauses which let the supplier set prices on consumption overruns and under usage.
Make sure that all fees, taxes and transmission losses are included in the contract.
Make sure the contracts cannot be transferred to other suppliers without your consent.
Read the contracts carefully. If a lawyer is a member of the congregation, ask him or her to comment on third party proposals.
As of October 1, 2012 less than 30% of PECO Energy customers were purchasing deregulated electricity.
What about Third Party Natural Gas Prices?
With the worldwide economic depression, natural gas prices are low and will likely be lower in the near future. New Jersey’s Public Service Gas and Electric announced a significant price reduction in early February 2009, for example.
Reduced gas costs provide an opportunity for gas marketers as well. Larger Catholic parishes and other larger gas users may have received phone calls and faxes from these marketers. They make deals on the spot market to purchase gas at a lower cost at the wellhead. They then re-sell the natural gas to customers of gas utilities, hoping to make a profit.
There is a lot of risk in signing contracts with these marketers. You must read the contract thoroughly. Let a lawyer examine it as well. Why could the prices from one of these marketers be higher than that from your natural gas utility?
1. If your congregation signs a contract for a year based on the prices for, say, April 2009, the price from the natural gas utility may decrease to a lower cost than that from the marketer. Usually, natural gas utilities adjust their prices every 3 months or more often, whereas your contract with a marketer may have a fixed price for 12 months.
2. The contract is likely written in the marketer’s best interest:
a. There may be no definitions for important terms. One contract we reviewed allowed the marketer to charge additionally for (a) any increased gas supply charge, whatever that is, (b) liquidation loss, whatever that is, and (c) LDC penalty, whatever that is.
b. There may be unilaterally added costs, such as for losses of 5% to 10% or more to the metered quantities of gas, skewing their price.
i. Supplier natural gas cost can contain a volume gas adjustment called “shrinkage” for lost volume through the system or process.
ii. If the church is part of a “pool” there could be a pooling charge.
iii. Some contracts have “swing provisions” that may penalize you for using more or less than estimated.
c. Additional costs may not be specified sufficiently. For example, if they add Gross Receipts taxes, that could add as much as 5% to their price.
d. The contract renewals may be automatic, without the marketer specifying price changes.
e. The contract may specify an annual or monthly gas volume, but does not say what happens if more or less gas is used, and what price implications there will be.
f. The marketer may excuse itself from performance under “causes beyond its reasonable control,” whatever that means.
g. More importantly, should that happen and one returns to their incumbent utility, there could be substantial premium costs and penalty charges.
h. The customer may be also exposed to any cost increases by the Government or Local Utility, at whatever price the marketer chooses to charge, but is not credited for any reductions.
i. If the contract is terminated for any reason, the marketer may charge or credit for unspecified amounts when they sell the remaining amount of gas contracted for.
j. You may find it difficult to determine whether there are any savings. Your local natural gas utility sells gas by the therm (100,000 Btus) or by the CCF (hundred cubic feet, or 103,000 Btus). Marketers sell you gas by the decatherm (one million Btus). The volumes described by the utility and by the marketer will likely be different.
k. Bear in mind that public utility commissions in each state carefully watch and review how natural gas utilities change their fuel cost adjustment. In many states, such as Pennsylvania, gas utilities are not allowed to make a profit on the gas commodity. If the fuel cost adjustment is not in the end users’ best interests, the PUCs will force the public utilities to make good. The PUCs have no such jurisdiction over natural gas marketers. When you deal with them, you are on your own.
If your congregation is considering the purchase of unregulated natural gas, prices and contract terms should be solicited from multiple responsible suppliers.