Every business needs to be able to negotiate a fair natural gas contract. Here’s how it’s done.
1. How the Gas Market Works
Delivering Natural gas to your home or business requires two very basic components: A) Pipelines and B) Natural Gas. In both Indiana and Michigan, the utility owns the gas distribution lines. The utilities charge a fee to transport this gas through their lines and are regulated by the State. Now– the Gas part: in Michiana, private brokers are allowed to sell gas directly to the consumer. Brokers pay the utility to deliver their gas to the customer through the Utility pipeline network. These brokers are called CHOICE providers and there are over two dozen in the region. If a customer does not pick a CHOICE provider, the Utility will provide gas rates negotiated between the State and Utility.
2. The Problem with CHOICE Providers & Default Options
Natural gas procurement is complex and no one wants to spend the time to become a utility expert. Because of this, few customers can negotiate a natural gas contract in their interest. Additionally, CHOICE providers can charge whatever they can convince the customer to pay. Because of this, one customer pays $1.50 per Therm while another pays $.60 and yet another pays $.31. (Yes, we have actually seen this.) Here are a few things we often see with CHOICE providers:
- Price Gouging
- Hidden “line loss” fees are included in the total gas volume.
- Billing that misaligns with the utility billing cycle. (This keeps you from knowing if the CHOICE provider is billing you for the same amount of gas delivered by the utility meter– unless you are an Excel sleuth.) This also makes it difficult to determine the total cost of gas.
- “Meter” fees are added to the bill.
- Sign the contract and never hear from them again.
Utilities own the pipelines and can supply your gas. They usually do a nice job with pricing the gas and delivering it to your business. But the utilities have their shortcomings as well:
- Since they buy large volumes of gas for a large group of customers, they are typically unable to offer custom solutions, lock in favorable pricing into the future or hedge volumes.
- During excessively cold weather utilities, at times must buy gas to meet their demand at ultra-high rates on the open market. They must pass these costs on to customers.
3. It Doesn’t Have to Be This Way: Find a Provider With Integrity.
There are excellent CHOICE providers out there, but the number is very small. Here is what to look for:
- Demand a detailed explanation of all costs from NYMEX to “Burner Tip” including provider margin.
- Insist on unified billing with the Utility bill to keep volumes aligned.
- Be sure there are no “stealth” charges like “line losses”.
- Don’t accept “meter fees”.
- You want them to offer some flexibility in volume to protect you from vicious price spikes when your demand exceeds your contract volume.
- You want them to both fixed price and variable rate contracts based on the actual market.
- You want them to actively manage your gas supply and to provide ongoing support, market updates, hedging reports, and call on you when the need arises.
- Ask for at least two references from customers in your local area with similar gas needs. Call the references.
4. Tactical Energy Group is Here for You.
Tactical Energy Group does not sell gas, electricity, or water utilities. We are not in the business of brokering deals or selling products. Tactical Energy Group is a friend of and an advocate for Commercial and Industrial consumers in Michiana. Tactical Energy Group acts on behalf of consumers, giving you a voice and an equal understanding of your rights in the utility market. We leverage precise market knowledge to reduce costs and risks for our clients. We are also happy to discuss contract negotiations or review your gas contract offer.
