Thursday, April 28, 2016

Level Billing on CNG a good deal?

Brought over from my G+...

Did you get an offer in the mail for level billing on your monthly gas bill that promises to save you money?  It just might, this year.

According to the US Energy Information Administration, we are on the tail end of a slide to historic low prices for dollars per million BTU's delivered gas.

You might look at this chart and conclude that level billing would be a losing proposition for you, which would be true if the price continues to slide.  But, there are signs it can't, and so to determine if this is a good deal for you or not, you'll need to do a little math.

First those 'signs' I mention.  With prices so low, the industry is feeling pinched.  Their operating capital and profit comes from the price they can charge customers for their product.  The lower the market price (more supply) the less profit for them.  Eventually, apart from what might be (wrongly) ascribed to greed, the basic economics in a very mechanical sense provide a buffer on production due to the cost to operate wells, compress and transport the fuel.  Put another way, I can't run at full production output when the profit only pays for half production output.  So it is likely that production will decline this year, decreasing supply towards late fall, and making the prices next fall and winter begin to climb out of this trough.

Now the math you'll want to do is pretty simple but you need to get all of your gas bills for the past 12 months together.  You want to figure out the total ccf you purchased and the total dollars you spent on all of these.  Then you will want to compute your personal average cost per ccf.  You want to look at a year's worth of data because any given month you may have paid more or less per ccf.  If the level billing (sometimes called flat billing) offer you get is a nickle or more less than what you paid last year, you are in a good position.  You will certainly save money over last year.  The worst you can do is not save as much if the market prices stay at historic lows, which isn't terribly likely.