How to avoid sky-high energy bills
More small businesses are taking advantage of fixed-rate offers to lock in prices for natural gas. With prices falling, now may be a good time to take a look.
NEW YORK (CNNMoney.com) -- "Our energy bills would go from $1,500 in the winter to $3,000 in the summer," said Peter Horglow, owner of Brooklyn Bridge Bagel Works based in Chico, Calif.
Even still, when Horglow first heard about fixed-rate natural gas contracts, which lock in a set price for natural gas, he was reluctant to give them a try. But under the pressure of astronomical energy bills, he decided it was worth a shot.
"I was definitely looking to save some money," he said. Now, two years later, his energy bills have gone down about 30 percent. "I have been real happy," he admits, "and it's really simple."
With deregulation forcing most utility companies to recommend alternative suppliers and independent energy providers popping up all across the U.S., more small businesses have been opting to take advantage of fixed-rate offers.
And with warmer-than-usual temperatures and ample inventories driving natural gas futures prices on the NYMEX down over 30 percent in the last year, it might be a good time for even more businesses to consider it.
Although it's hard to estimate how much money a business will save, if any, buying fixed-rate contracts can make business planning easier so many firms are attracted to the stability alone.
As with fixed-rate mortgages, these contracts provide stable energy prices over the length of the contract.
With a fixed rate, customers avoid the ups and downs of the volatile energy market, which is especially helpful for those small business that may not be able to survive if higher prices take a big bite out of their bottom line.
The downside is that a business could remain locked in at the fixed price for the term of the contract even if rates subsequently drop.
For Al Shah, who owns three Burger King franchises in Southern California, it was the consistency, rather than the prospect of saving money, that encouraged him sign up with Accent Energy, a independent energy marketer, last spring.
"With a small business such as ours, it's critical for us to be able to project our expenses," Shah said, who negotiated a fixed-rate deal for the next three years.
Of course the savings have been nice too, he admits. "We were paying as much as $1,200 to $1,300 and now we are averaging about $850 a month, so we're saving at least a few hundred a month for sure."
"And every penny counts," he says.
The way it works
Firms such as Accent Energy, Liberty Energy and IDT Energy strike contracts with utility companies to deliver natural gas to businesses or residential customers through a pipeline.
Consumers can opt for fixed-rate contracts for up to three years and are charged the weighted average of the front-month contracts for the duration of the term. For example, a business owner who opted for a one-year contract would have to pay the average futures price for the next 12 months. The fixed rate may be higher than the variable rate some months, but less other months.
The monthly bill will then be dependent on how much natural gas was used and the transmission charge, which goes directly to the utility company.
Because of strict regulatory rules, utility companies such as PG&E (Charts), American Electric Power Co. (Charts) and Consolidated Edison (Charts) do not make a profit on the sale of natural gas. They profit primarily from delivering gas through a system of pipelines and therefore are open to recommending other suppliers - as long as they still collect a transmission charge.
To get started, businesses can find a list of certified suppliers in their area on their local utility company's Web site or on their state's public service commission's Web site.