Deregulated Gas Savings

March 14, 2010

As reported by Energysop

Deregulation of utilities means that the historical monopolies granted to a few large utilities providing electricity, telephone and natural gas are eliminated. These companies will just operate the distribution systems, the wires and the pipes. Competitors then enter the market with different pricing and service offerings. With the onset of deregulation in all of these industries, it is possible for consumers to realize significant savings by shopping around for these commodities.

 Utility deregulation is complicated since there is a fixed and very expensive distribution system already in place – pipelines, power and phone lines. It’s just too expensive, disruptive and environmentally harmful to construct parallel distribution systems. This is different from deregulation of airlines or financial services where no such fixed infrastructure existed. As a result, only the commodity, gas, electricity or telecom, is deregulated.

Natural Gas Deregulation

Historically, consumers received supply and delivery of natural gas from a single company who had the monopoly franchise for the region in which they lived. These companies bought gas on the wholesale market and sold it to consumers in their jurisdictions according to regulated rates set by the local regulatory agency, an energy board or public service commission.

 Natural gas is being deregulated in many jurisdictions. Examples are, Ontario, Alberta, Maryland, California, Georgia and Pennsylvania. This means that a householder or business can buy gas directly from a supplier at a competitive price — not just from the gas utility. These utilities, however, continue to have the franchise to distribute gas and charge a regulated fee.

Deregulation separates the sale of the gas as a commodity from it’s distribution. The product is available at a competitive price and under competitive conditions but the delivery is a standard regulated charge. This would be similar to a situation where you might buy milk by phone, and it is delivered by a large courier service such as Federal Express. The milk is a commodity, and it would be priced differently between suppliers, but the supplier relies on a distribution system provided by Federal Express trucks. A portion of what you pay would be for the commodity (milk), and a portion for the distribution (Fed Ex). In the case of utilities, the distribution will remain regulated, but the commodity supply will be a free market.

 Experience in Other Jurisdictions

The U.S. initiated deregulation in the gas industry at the wholesale level in the mid 1980s which resulted in gas prices declining about 35 per cent for large commercial and industrial customers, according to a Harvard University study. Prices for residential consumers changed only slightly.

Agents, Brokers and Marketers (ABMs)

Consumers choosing to shop around for their natural gas supplies can benefit from the price swings and variations inherent in a competitive energy marketplace. But where do consumers go to buy natural gas? Deregulation has given rise to a number of sources of gas supply.

 First, you can continue to let your distributing utility purchase gas on your behalf and deliver it to you with no change in the process.

 Or you can look into purchasing it from an agent, broker or marketer. These are independent companies that either sell on behalf of gas producers or purchase supplies of gas and re-sell it to consumers. Securing a long term supply from one of these energy marketers when the gas prices are lower can result in significant savings over the term of your contract.

 Should you choose to buy from a gas marketer, nothing about your service will change. You will still get a bill from your distributing utility which will indicate a regulated Delivery Charge. This is about 1/3 of your bill and a Gas Supply Charge which is the remaining 2/3. The delivery charge will be kept by your distributing utility and the gas supply charge will be forwarded to the gas marketer or supplier you chose. Should you choose some value-added services offered by gas brokers, such as energy cost comparisons, rental gas equipment or an equipment service contract, these will also be added to your bill. If you switch to a gas marketer, there is no interruption of service nor any other additional fee charged.

 This cost split is a key point to remember when you are comparing costs or considering an appeal from one of the gas suppliers or marketers. You have no doubt received promotional materials from one of these either by phone, by mail or from someone knocking on your door. The suppliers, brokers and marketers are only dealing with 2/3 of your bill. The distribution charge, which is 1/3 of your bill, is fixed and regulated by regulatory boards. They have periodic hearings to evaluate and set this rate. The remaining 2/3 is variable depending on which supplier you choose. As a result, when a promotional message claims a 10% saving, it is referring to 10% of the 2/3.

 Take, as an example a fairly typical annual gas bill of $ 1,500. One third of that, $500, is a fixed distribution charge. The remainder, $1,000, is the gas supply charge. A supplier offering a 10% saving is offering a saving of $ 100, which is 10 % of the $ 1000 gas supply charge. The saving on the total energy bill is 6.7 %, ($100 saving on a $1,500 gas bill).

 Gas marketers offer varying contract terms and conditions. In general, however, you have two basic choices. You can sign on for a single or multi-year contract at a fixed price or you can choose a rebate option which means you pay the regulated price set by your distributing utility and will receive a rebate if your marketer can buy the supply for less than that price.

Our Perspective:

I found this article gave a good explanation of the deregulated natural gas opportunity. If your company is spending more than $3000 a month for natural gas, you should be looking at buying natural gas in the deregulated market. Our clients are saving a minimum of 10% to 15% by buying natural gas in the deregulated market.

Currently yor local provider is buying natural gas in the wholesale market and then selling it to their clients for retail prices. Should you qualify, we are able to put your company in a wholesale position and the savings will fall to your bottom line.

Hutchinson Business Solutions provides independent financial solutions in the dereglated energy market. We have been positioning our clients for savings in the deregulated energy market for over 10 years.

To find our more information, visit our website www.hutchinsonbusinesssolutions.com

or email george@hbsadvantage.com  You may also call 856-857-1230.

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One Response to “Deregulated Gas Savings”

  1. I don’t usually reply to posts but I will in this case, great info…I will bookmark your site. Keep up the good work!

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