Locking In

Received a letter from a natural gas supplier encouraging me to sign a contract to lock in to a guaranteed price for natural gas for the next 5 years. It is filled with the usual scare propaganda such as natural gas prices have risen 103% over the past 5 years and are expected to continue to increase. Their lock-in price is a little more than 20% above what I currently pay at market cost.

I have had my home in Ottawa for 9 years and in that time my home heating bill has gone up only 20% as I continue to pay market cost for natural gas.

Why did my heating bill go up only 20% over 9 years when natural gas prices have risen 103% over the past 5 years? Simple. A lot more goes into my heating bill than just the cost of natural gas, there is delivery (despite being piped into my home, I still get charged delivery), infrastructure costs, taxes and one or two other things. The natural gas component of my heating bill is not bulk of the bill.

Even so, why don't I lock in? Because the company is in the business of making money, they have calculated the cost of natural gas based on them making a profit, i.e. having a little extra after paying market costs. Besides, they have a little opt out clause that lets them raise the contract price if the cost of natural gas goes above a certain price - which guarantees they won't lose money, but my bill would still go up.

Comments

Barbara said…
This reminds me of those service contracts they try to get you to buy with every new gadget. I have to assume they are only trying to make money and politely decline them all.
Richard said…
barbara: Mostly, those service plans are not worth it. I did purchase one, 2 or 3, years ago when I bought a replacement DVD player. It was a cheap player with a 90 day warranty. My credit card would double it to 180 days (credit cards do have advantages if you know how to use them). The store offered a 2 year service plan for $10. A bit of arithmetic showed that the price of the player + $10 for a 2 year warranty was still significantly cheaper then the cheapest player with a 1 year warranty (it was also cheaper than the next cheapest player). Making it a no brainer for me to buy.

You have to balance the disposableness / useful life and warranty of the product against replacement cost and / or future repairs.
TorAa said…
It's a basic attitude you show here: Sceptisisme - having in your hand#the Offer2.#
ghee said…
i dont like the sale system of some agents,sometimes i find it hard to avoid them.but now im trying my best.

they sure wanna make money from you.
Richard said…
toraa: I have a pretty healthy dose of skepticism. While some people are genuinely interested in helping, the majority are interested in making some money. Everyone needs to eat, I just think our societies are incorrectly structured. We should work more cooperatively, rahter than antagonistically.

ghee: some of them are very pushy here. I remember a few years back, when natural gas and electricity were deregulated, people would come to the door and say, "Hi. We're here to check that you are getting the lowest possible energy prices. Would you please show us your energy bill?" (Then they would proceed to copy information off it). "Now if you would please sign here, to confirm that we visited you." (They get your signature).

Lot's of people were tricked into signing contracts they did not want in this manner.
Ancilla said…
it always hard to not have a skepticism when we talked about money...

a policy somehow related with money... and with money, it is hard to keep on aware with the threat of the beauty to be powerful...
b said…
Well, what a deal they are offering you! I love it when they act as though they are doing you a huge favor. Of course their bottom line will remain more than protected. Ugh.
Richard said…
ancilla: I would prefer not to be skeptical, my own fundamental nature is to trust people, but lots and lots of experience has taught me to be cautious.

breal: it is like so many things in life, people don't tell you the honest truth, but instead spin the information to make it look more appealing than it is. Unfortunately, or fortunately, I prefer facts to stories and any time someone tells me a story, rather than facts, I become suspect. Surely, facts can stand on their own?
TorAa said…
He-he, don't even think about it, unless they give you a chance give you a free option in their company's profit.

.. and ask them, if you have time for it: Why did you give ME this offer? For losing or winning money?

he-he
Richard said…
toraa: oddly enough, the other day, I was called to ask if I wanted to lock in to a fixed rate for my electricity as well.

ghee: some are very aggressive. Direct Energy is the worst I have dealt with, they are very aggressive and insist you get you old bill and show it to them so they can get information off it. As mentioend to toraa, they called a few days ago and wanted me to lock in for 5 years at a price that is 40% higher than I am paying now
b said…
Well said, Richard. Yes, facts should be able to stand on their own. By chance, have you seen the movie "Thank You for Smoking?" It is an amusing and wonderfully sarcastic movie about spin.
Richard said…
breal: no, I have not seen the movie.
ghee said…
goshhh,really pushy fellow.imagine,5 yrs with 40% higher prices!!unbelievable!!
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