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Competitive utility markets allow customers to benefit from a variety of variable and fixed rate natural gas plans when choosing a natural gas provider. Fixed rate plans allow customers to contract a given price per therm over an extended period of time, typically one year. Variable rates provide customers with costs based upon wholesale costs for natural gas at a given point in time. Customers who are informed about the options available will find the competition in the utility market keeps prices lower and allows flexibility based upon each individuals needs.
All for-profit utility companies set prices based upon three primary factors: wholesale price of natural gas, administrative costs, and desired profit. Wholesale prices can vary a great deal over time, based upon the scarcity of resources, their availability, and the costs of extracting gas for use. Competition among providers requires that administrative and profit margins be in proportion to other vendors in the marketplace.
With a fixed rate plan, customers lock in a given rate (measured in price per therm) with a utility provider over a fixed period of time. Providers offer a competitive rate based upon the average wholesale prices to date and the historical demand for gas of the customer. Formulas used to create rates vary from provider to provider, and may consider other factors such as credit history.
The advantage of a fixed rate plan is that it eliminates the unpredictability of gas prices over the period of the contract. The only variable for customers using a fixed plan is usage from month to month. However, the customer in this type of program may pay more than market value if gas prices decrease. Owners on a fixed income or utilizing a strict monthly budget are ideal for a plan with fixed prices, because there is no risk of prices increasing greatly over the life of the service contract.
Gas service providers will provide written notice of a contract’s expiration at the end of the period, and will include the new price per therm and any other plan options available. To ensure the best price, owners may choose to comparison shop as a contract nears expiration.
Fixed plan rates are highly competitive, but do require property owners to sign a contract with a single utility provider for an extended period of time. These contracts often come with stiff cancellation fees if terminated early, so may be undesirable for owners who frequently change utility providers or who plan to relocate within the contract period.
When state governments began to deregulate utilities, the number of utility providers increased and variable and fixed rate utility pricing became a popular means of incentivizing customers. Utility companies and certified providers use differing formulas to set the price of gas, and invest profit in the ability to distinguish themselves. With utility competition, the product itself does not vary, so certified marketers use branding, competitive pricing, and reputation to engage and solicit customers. Deregulation allows the market itself to regulate product and services offered, but requires customers to understand the variations in pricing, plans, and overall service value to select a utility company that best meets their needs
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