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Should you hedge your bet on high heating costs?

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Xcel Energy has begun offering a new fixed-rate billing plan for natural gas service, while CenterPoint Energy has had a similar plan in place for the past four years. (MPR Photo/Melanie Sommer)
If you're an Xcel Energy customer, you may have gotten a letter recently telling you about a new plan to lock in your natural gas rates. It may be a tempting offer for many consumers, who have been reading about predicted 40 to 50 percent increases in heating costs this winter. But if you think such plans will save you money this winter, you may want to think again. Experts say you'll probably pay more for the peace of mind.

St. Paul, Minn. — Both CenterPoint Energy and Xcel offer fixed-rate plans. The companies acknowledge the plans won't necessarily save customers money, but they say they will eliminate the anxiety of wondering what your monthly bill will be.

CenterPoint Energy has had a program called "No Suprise Bill" for four years, and Xcel Energy just began offering a similar plan. Customers who qualify agree to pay a specific amount for natural gas for each of the next 12 months.

Xcel spokesman Ed Legge said the program isn't designed to save customers money. He said it simply provides a predictable bill.

"There are customers who want, who value, predictability over everything else," Legge said. "And there are customers out there who would rather know what they're going to be paying than to take their chances, because there is risk involved in just accepting whatever the market is charging."

Legge said Xcel bought a block of natural gas on the futures market for the fixed-rate program. Xcel paid $1.60 per therm of gas, higher than the current rate of $1.40 per therm, and set the rate for customers based on that price and their past usage of gas.

Legge said Xcel won't make money off the program, since it's charging customers based on what it paid for the block of gas.

Still, many consumers are suspicious.

"To me, it sounds a little bit like a Vegas kind of thing, where the house is trying to weigh the odds, and I just have a feeling that the house comes out on top either way," said Craig Vanderah of Prior Lake. "I'm skeptical of it, because it seems to me like what they ought to be doing is just billing us the actual cost."

It sounds a little bit like a Vegas kind of thing, where the house is trying to weigh the odds, and I just have a feeling that the house comes out on top either way.
- Consumer Craig Vanderah

Vanderah also worries that if Xcel and CenterPoint lose money on their fixed-rate programs, they'll have to raise rates for customers who don't sign up. The utilities say that won't happen, since they don't make or lose money on the programs.

Janet Gonzalez, the energy unit manager at the Minnesota Public Utilities Commission, said customers want to make sure the utilities aren't ripping them off.

"The utilities don't make money on the cost of the commodity, on the cost of gas, per se," Gonzalez said. "And when the cost goes up or down of the underlying commodity ... Xcel and Centerpoint are just passing along the cost from the producer."

Both utilities charge an administrative fee for the program.

The PUC approved Xcel's fixed-rate program in September. The Minnesota Attorney General's office didn't object to the program, although it raised concerns about its automatic renewal feature. In both programs, customers are automatically renewed at the end of the year unless they request to leave the program. There's also a $30 early exit fee.

If customers' primary motivation is saving money, the fixed-rate plans probably aren't for them, according to CenterPoint regulatory specialist Joe Klenken.

"If it's warmer than normal, you probably will have lost on the program," Klenken said. "Because your quote for the No Surprise Bill is based on normal weather."

On the flip side, if this winter turns out to be colder than normal, and natural gas prices go up more than expected, you could save money with a fixed rate. This fall has been warmer than normal, but there's no guarantee the rest of the winter will be the same.

The last couple of winters have been fairly warm, and CenterPoint customer Robert Klemenhagen calculated he would have paid an average of 20 percent more under the No Surprise Bill program the last two years.

Klemenhagen, a retired finance executive from Minnetonka, said the program gives no incentive to conserve energy, and he wouldn't recommend it for most people.

"If that makes you sleep better at night ... that would be the type of person that would opt in," Klemenhagen said. "But they have to recognize at that point that they're paying for something there, they're paying kind of an insurance for the peace of mind."

An expensive insurance policy is exactly how former Commerce Commissioner Jim Ulland describes the fixed-rate plans. Ulland, president of Ulland Investment Advisors, said Xcel bought the block of natural gas after three major hurricanes, during a period of almost historically high prices. He said the price has dropped 10 percent since the program was announced.

"In my judgment, just practically, rationally, why lock in at the high price?" Ulland asked.

Ulland said if consumers are concerned about natural gas prices, the wisest thing they can do is to turn down their thermostats and try to conserve energy.

But for those who think a fixed-rate plan is the best way to hedge against high prices, the deadline to sign up for both plans is Nov. 15.