Variable rate vs. fixed rate natural gas and electricity prices
Differences between variable rate and fixed rate
You can buy natural gas & electricity for your home or business as variable rate, fixed-rate or even prepaid.
Fixed rate – The fixed rate gas & electricity prices are sold by energy retailers or alternative gas and electricity suppliers. The fix rate is a gamble because no one knows if the natural gas and electricity prices will go up or down. However, the fix rate contract gives you the benefit of knowing your gas and electricity prices are lock in for the life of your contract. If gas and electricity prices rise above your contract price, you benefit, if the prices fall below your fix rate contract, you lose.
With fix rate you will not be affected by Smart Meters and the Time of Use (TOU), your electricity price will always be the same at all period.
Also fix rate gas and electricity prices sold by alternative gas and electricity suppliers are deregulated, which mean the alternative gas and electricity suppliers can charge you whatever they want for your natural gas and electricity.
Variable rate – The variable rate for natural gas and electricity prices are regulated. It comes from your local gas and electricity supplier, such as Enbridge or Union in Ontario or Nicor in Illinois. They can only profit from the delivery cost. The price of variable rate is determined by supply and demand, just like the fluctuation price on gasoline we use to fuel our cars.
Variable rate is regulated, the utility provider or the gas and electricity providers (Enbridge/Union/Nicor) can not set their rate without government approval.
This is how you get your gas and electricity with variable rate:
[Utility supplier (variable + regulated)] -> [You]
This is how you get your gas and electricity with fixed-rate:
[Utility supplier (variable + regulated)] -> [Energy retailer (fixed-rate + deregulated)] -> [You]
Variable rate vs. fixed rate
The main question regarding variable vs. fixed rate is: Will you save money on variable or fixed rate?
For natural gas, it all depends on when you sign-up for a fixed-rate with an energy retailer or alternative gas and electricity suppliers. Let’s look at the Natural Gas variable rate in Ontario from 1999 to 2009 (see graph below) base on EnergyShop.com (an independent gas and electricity comparison website).
According to EnergyShop.com, they compared the prices from the retailers (fixed rate) against the public utility (variable rate) and found that 44% of the time you will lose money by locking-in your natural gas in Ontario. Watch this video by CBC – Marketplace: 44% will lose money by locking-in your natural gas price
If you lock-in your natural gas price with an energy retailer or an or alternative gas and electricity supplier when the price was high, you will lose money. If you sign-up for a fixed-rate natural gas in the red areas you will lose money (see graph below).
On the other hand, if you sign-up and lock-in your natural gas price with an energy retailer or an or alternative gas and electricity supplier when the price was low, you will save money. The best time to sign-up for a fixed-rate natural gas are in the green areas when the price of natural gas was low (see graph below).
The problem with fixed-price deals are the big premium they charge you over the current market price of gas or electricity. The current fixed rate contract price will always be higher than the current market price.
What about Electricity?
According to EnergyShop.com, if you lock-in your electricity price in Ontario since 2005, you will lose money 100% of the time. Watch this video by CBC – Marketplace: 100% will lose money by locking-in electricity price
Variable vs. fixed rate statistics from Citizens Utility Board’s (CUB)
Now let’s have a look at some statistics from Illinois, US at The Citizens Utility Board’s (CUB) website www.citizensutilityboard.org. The Citizens Utility Board (CUB) is a nonprofit, nonpartisan organization that represents the interests of residential-utility customers of Illinois.
Currently there are no statistics of this kind that we can find for Canadian residents but buying fixed rate natural gas and electricity prices can be done in both Canada and US. For now lets look at some of the statistics of home owners who switch their gas and electricity suppliers from variable to fixed rate at The Citizens Utility Board in Illinois.
As you already know, energy retailers or or alternative gas and electricity suppliers sell fixed-rate gas and electricity. Some of these energy retailers are Just Energy, Integrys Energy Services, MX Energy, and many others, but we will only be talking about these three energy retailers and see how much money people lose or save by switching to fixed rate natural gas plan.
|Just Energy, formerly U.S. Energy Savings Corp.|
|Plans that lost $1259.85, total plans 187, that’s 98% have lost money with Just Energy fixed rate plan.|
|Plans that saved money $122.11, total plans 4, that’s 2% have saved money with Just Energy fixed-rate plan.|
|View Just Energy’s full statistics at www.citizensutilityboard.org, Get full fixed rate statistics of Just Energy (U.S Energy Savings Copr.) at CUB’s website|
|Integrys Energy Services, formerly Peoples Energy Services|
|Plans that lost $758.29, total plans 510, that’s 91% have lost money with Integrys Energy’s variable and fixed rate plan.|
|Plans that saved money $115.14, total plans 48, that’s 9% have saved money with Integerys Energy variable and fixed rate plan.|
|View Integrys Energy Services full statistics at www.citizensutilityboard.org, Get full statistics of Integrys Energy Services (Peoples Energy Services) at CUB’s website|
|Plans that lost $832.98, total plans 244, that’s 98% have lost money with MX Energy fixed rate plan.|
|Plans that saved money $197.58, total plans 6, that’s 2% have saved money with MX Energy’s variable and fixed rate plan.|
|View MX Energy’s full statistics at www.citizensutilityboard.org, Get full fixed rate statistic of MX Energy at CUB’s website|
Will you save money by switching to an alternative gas supplier with fixed rate plan?
Base on the statisicis gather by CUB, you will likely to lose money if you switch to an alternative gas supplier. According to CUB, 92% who switch to an alternate gas supplier lost an average of $650.27, while only 8% saved money (July 2010).
More info here, CUB Gas Market Monitor – An Analysis of Natural Gas Offers
Interesting fact about energy retailers aka alternative gas and electricity suppliers
Each year the Ontario Government release their “Top 10” most consumer complaints report on their website. In 2009, energy brokers aka energy retailers that sell fixed rate natural gas and electricity were rank 9th on the most consumer complaints in Ontario.
Each week the Ministry of Consumer Service received about 100-150 consumer complaints regarding energy broker misleading marketing.
Here is the 2009 top 10 most consumer complaints in Ontario:
- Collection agencies/debt collectors
- Home repairs/renovations
- Motor vehicle purchases/sales
- Credit reporting
- Home furnishings
- Motor vehicle repairs
- Health and fitness clubs
- Energy broker
- Telephone/long distance
For more info on the top 10 most consumer complaints visit Ministry of Consumer Services
Also, on December 8, 2009, the Ministry of Energy and Infrastructure from the McGuinty Government proposed new protections for gas and electricity consumers. This consumer act is called “PROPOSED ENERGY CONSUMER PROTECTION ACT( ECPA), 2009”. If the act passes, this will add new rules to protect Ontarians from gas and electricity retailers. More info on that here.
Watch out for door-to-door energy sales
You might want to stay away from energy retailers or alternative gas and electricity suppliers that sell fixed rate gas and electricity prices going door-to-door. Because most people who sign-up at the door had lost money. If you are not sure of what to do, your best bet is not to sign any long term fixed rate contract and stick with your local utility supplier at variable rate.
Also be cautious for any fixed rate gas and electricity suppliers that do not publish their rates on their websites.
On the other hand, if you understand and keep track of your energy cost. You may benefit by getting a fixed rate plan when the price is low. Just make sure you look around and compare the prices before signing any long term contract.
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