What Choice Do I Have?
By: Jim Isenhour
Most people receive their monthly natural gas bill from their local utility, open it up, look at the total cost, get mad about it, and then write a check for the total amount. Since most of you have always relied upon your local utility to supply the natural gas for your business, you do not believe that you have a choice. WRONG! In most locations around the United States you do have a choice.
In the late 1980's, Public Utility Commissions and utilities around the United States began to deregulate the natural gas markets for "end-use" customers such as yourselves. Deregulation gives you the option to pick a supplier, other than your utility, for your natural gas supply. In some areas, you can even do this for your home. The parties that can supply the natural gas to you are called Third Party Suppliers or Energy Service Providers (ESP).
Unfortunately, the rules are different in every state and behind every utility. Almost all of the utilities in the United States have some form or level of deregulation for natural gas supply. While these utilities allow ESP's to supply the natural gas, the rules, or tariff, are different behind each and every one. In all areas, the ESP is required to use the existing utility's pipelines and meters to get the natural gas to you. All that the ESP provides is the natural gas itself.
California is one of the most progressive states when it comes to deregulation of natural gas. The three (3) major utilities in California: Pacific Gas & Electric Company (PG&E), Southern California Gas Company (SoCal) and San Diego Gas & Electric Company (SDG&E), allow unrestricted access by any commercial, industrial or manufacturing business to deregulated natural gas supply. Behind PG&E, you also have the option to receive service for natural gas from an ESP at your home. Due to the much lower annual usage, most people will find that service to your home does not save you enough money to make it worth your while. Supply for your business is a different story.
Some utilities around the country make it almost impossible for the small business owner to take advantage of this program. Puget Sound Energy (PSE) in Washington State is a perfect example. Behind PSE, you pay a monthly customer charge of $32.32 when you buy your natural gas from them. If you chose an ESP for your natural gas supply, the monthly customer charge increases to $355.50 per month. The additional $323.18 per month charge makes it impossible for an ESP to save small commercial and industrial customers money on their natural gas supply.
In Oklahoma, Oklahoma Natural Gas Company (ONG) has several requirements for changing over to an ESP. The first is an annual usage minimum of 1,000 MMBtu. If your account uses less than that amount, you cannot purchase your natural gas from an ESP. If you meet that requirement, ONG requires the installation of a telemetry device at a one time charge of $1,896.00. Even after all of this, the savings you can expect will allow you to see a return on that investment in generally less than six (6) months. After that period of time, the annual average savings against what you would have paid to the utility is historically more than 20%. This amount of savings makes the initial cost to institute this change well worth the expense.
In New Mexico, there is no minimum usage requirement nor is there a requirement for the installation of telemetry equipment. The savings here are some of the best in the United States. The only requirement is the calculation of an Exit Fee. This fee is a calculation of the difference between what New Mexico Gas Company (NMGC) estimated their monthly Cost of Gas to be, for your particular account, and their actual cost. NMGC corrects this difference each year for all of their customers. When a customer chooses to move to transportation with an ESP, NMGC automatically calculates this Exit Fee. We have found that this fee is usually very small, sometimes even a credit for the customer. A very small price to pay to save the level of money the customer will see.
One state that is particularly frustrating for me is Texas. Texas is the leading supplier of natural gas in the United States. One of the largest utilities in Texas is Atmos Energy. Atmos supplies the northern portions of Texas and much of the panhandle. The northern portion of their service area covers the Dallas / Fort Worth Metroplex. Behind Atmos, you can purchase your gas from an ESP (only) if you are a manufacturing concern. If you are a commercial or industrial customer, you are required to have an alternative fuel source as a back-up supply in order to purchase your natural gas from an ESP. The accepted alternative fuels would be propane or fuel oil. When you consider that this area sits upon one of the largest natural gas deposits in the United States, or maybe even the world, this requirement does not seem to make much sense at all. Unfortunately, it is part of the rules (the utility tariff) and we all have to play by the rules.
I can say that I am making a concerted effort to get this rule changed. When you consider the number of hotels, motels, restaurants and other types of businesses in this area, changing this rule would allow more than 100,000 businesses to take advantage of this supply program. Based upon the historical prices of natural gas, these customers would have been able to save well over 20% annually on their natural gas costs. I will eventually prevail as even Atmos realizes this requirement is counter-productive.
This is just a sampling of the differences between the states and their respective utilities. Every utility is different and you will need to find out the different requirements from your state's Public Utility Commission or from an ESP.
Most ESP's price their natural gas for their customers based upon a nationally published index. These prices are set each month and reflect what the local price of natural gas is currently selling for. Your ESP will add a margin to this index price for their costs and profit. This will result in a monthly price to you that changes each and every month, just like your local utility price. In nearly all markets, your ESP will beat the local utility price almost every month. Due to the way the utilities price their monthly Cost of Gas, there are going to be months where the ESP price will be higher than the utility. In most areas, your utility will generally set their price of gas at least 30 days ahead of time. Your ESP's price of gas is set 3 to 5 days ahead of time. With the many factors that can affect natural gas prices, hurricanes being one of the biggest factors, the end result can be a higher price from your ESP. However, your utility will have to make that difference up the following month. At that time, your ESP will generally be much lower than your utility.
One of the biggest advantages of purchasing your gas from an ESP is your option to fix your natural gas price. Almost all ESP's will give you this option. This entails your reaching an agreement with your ESP on fixing a price for all or a percentage of your historical usage for a future time frame. Taking this option gives you a level of budgetary certainty that you do not get with the index pricing. Remember, index pricing is subject to market conditions. Index pricing can climb dramatically in a very short period of time. By fixing your price, you are able to know what your natural gas costs are going to be for the time frame you have chosen.
One thing I stress to all of my customers is that you should NEVER fix your natural gas price to try to "beat the market." You should only take this action to try to keep your costs at a known level. Trying to beat the market is a game that rarely, if ever, pays off. There are too many variables and outside influences that can and do affect the price of natural gas. Sometimes these factors do not make any sense whatsoever. Also, natural factors, such as hurricanes, earthquakes, etc. can impact supply.
Purchasing your natural gas from an ESP can and will be good for your bottom line as a business owner. I tell all potential customers that "This is something that you have to buy anyway, why would you want to pay more than you have to." Even if you only save 5% on your annual natural gas costs, it is money in your pocket. I strongly suggest that everyone look into this program. The information is readily available on your local utility's website. Do your homework, and make a smart choice. In today's economic climate, every penny does count.
About the Author:
Guest Blogger:
Jim Isenhour
Vice President, Tiger Natural Gas, Inc.
Jim Isenhour is the Vice President of National Accounts and Commercial Sales for Tiger Natural Gas, Inc. Mr. Isenhour has over 30 years of experience in the Oil and Gas Industry. He currently serves the natural gas requirements for well over 10,000 accounts around the United States. These accounts range from individual business owners to national chain restaurants, hotels, hospitals and manufacturing concerns.
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