Fixed Rate Heating Bills

December 15, 2005
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ANNAPOLIS, Md. — Jeff Mayer, CEO of Maryland-based MXenergy, has never had an adjustable-rate mortgage. He remembers inflation and topsy-turvy interest rates, even if neither has been a factor for well over a decade.

“I could kick myself. Had I had a mortgage with a floating rate, I could have saved a lot of money,” he said. “But I wanted to sleep at night. I didn’t want to worry about interest rates turning around suddenly and having to cover (the cost).”

In a nutshell, that is how MXenergy’s fixed-rate natural gas service works. West Michigan customers who signed a 36-month contract in the spring of 2002, for instance, were locked in at a rate of $0.349 per Ccf (100 cubic feet). A slight premium over local providers Michigan Consolidated Gas/DTE Energy and Consumers Energy at the time, that is far below the current price of $1.14 and $1.01, respectively, per Ccf.

This does not include the $0.17 per Ccf distribution fee, taxes or other fees.

In the past three years, DTE Energy has increased its prices 95 percent; Consumers Energy’s rates spiked a staggering 240 percent.

Of MXenergy’s 75,000 Michigan customers, 95 percent are paying $0.60 to $0.70 per Ccf, which is 50 percent to 70 percent of the corresponding utility rate, and are locked at that price for up to another 24 months. The EPA estimates a typical home uses 70 Ccf during the winter months, a difference of about $38 per month between DTE and MXenergy.

When the company launched in 1999, shortly after the deregulation of the natural gas industry, energy prices were low and weren’t much of a concern, Mayer explained.

“If it went up a few dollars, it wasn’t a big deal,” he said.

He compared the situation to that of interest rates today. These have stayed remarkably low for several years, and adjustable rate mortgages no longer seem so risky. That was the case as late as 2001, when MXenergy entered the Michigan market, but not so today.

Mirroring the inflationary horrors of interest rates in the ’70s and ’80s, the price of natural gas has increased four and five fold, depending on region, since 1992. An individual or business that locked in a rate three years ago would now have heating bills of only one-third to one-half of the current rate.

Mayer’s company can do this by negotiating for 36-month blocks of natural gas, storage and pipeline capacity. Alternative energy providers still rely on utilities for infrastructure and distribution, so those costs do not change. But competitive pricing and packaging can be offered for the gas, a commodity for the utilities. MXenergy, with 300,000 customers in 11 states, is one of a handful of companies to do so using fixed rates, marketing it as a price-protection service.

No different than a bank locking in an interest rate, the fixed option comes at a premium. MXenergy customers in Michigan who sign up this month will lock in at $1.259 per Ccf, compared to the current utility rate of $1.138 per Ccf.

This is not to be confused with the budget payment plans offered by utilities, in which the same price is paid each month based on an estimated annual cost, with a balance, either positive or negative, to be settled at the end of the year.

“We do not promise savings for our customers,” Mayer said. “Our crystal ball is broken. If market rates go down, customers will pay more. But if they go up, they won’t be affected.

“We’re selling more than just price; we’re selling price protection.”

For small business and residential customers, switching to the alternative supplier takes only minutes at the company’s Web site, www.mxenergy.com. Commercial customers can have a quote within a day.    

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