Worried about your winter heating bill? You might be able to hedge

Whether you use natural gas, heating oil or propane for your boiler and furnace, this could be a really expensive winter. The good news is that you might be able to hedge against high heating bills, depending on what fuel you use and where you live.

Prices are surging and will likely keep climbing higher, energy analysts say.

“At this point, I expect that the cost of heating products like propane, natural gas (and) heating oil are likely to increase at least another third,” says Dan McTeague, president of Canadians for Affordable Energy.

Soaring prices reflect a global energy crunch, as soaring demand from economies recovering from the impact of COVID-19 runs up against supply snarls as producers struggle to ramp up production fast enough after delaying capital investments amid the pandemic.

Unusual weather patterns have also resulted in unusually low output from renewable energy sources in some areas, exacerbating the shortages.

But if you’re worried about your winter heating bill, there may be more you can do than plug up drafty spots and change your furnace filter to protect yourself from sticker shock. You might be able to lock in a fixed rate for your household energy needs.

If you’re heating your home with furnace oil or propane, you may be able to sign a fixed-price or capped-price contract for your cold-season fuel supply.

With the first, you are guaranteed a certain price for a certain period of time. With the second type of contract, your rate fluctuates with market prices, but you won’t have to pay more than a set cap, which is usually higher that the provider’s fixed price.

If you’re considering a fixed-price contract, it’s a good idea to compare what’s on offer from different suppliers, McTeague says. Also, you should make sure that the fixed price is lower than what you’re currently paying and understand you may lose out if prices don’t rise as much as expected this winter or even decline, he adds.

Fixed-price and capped-price contracts may also come with administrative fees.

While analysts fear an expensive winter, just how steep your heating bill could be depends a lot on how harsh the cold season will be, says Rory Johnston, founder of the Commodity Context newsletter. Despite current low inventories, prices for Canadians may not rise much if we have a mild winter, he adds.

“At this stage, all these (price) forecasts are very, very weather dependent,” Johnston says.

Locking in may also make sense if you’re keeping your house warm with natural gas, says Joel MacDonald, founder of EnergyRates.ca, a website that allows users to compare natural gas and electricity rates based on their postal code. That’s especially true in Alberta.

Right now, an Alberta residential consumer can expect to pay about $6 per gigajoule (GJ) for winter natural gas, says MacDonald. Most fixed-rate contracts, on the other hand, offer rates of about $4 per GJ, he adds.

Even better, Albertans can switch back from a fixed to variable rate after 30 days with no penalty.

“You can lock in for three years, but then exit in the spring if you want,” MacDonald says. “It’s essentially a no brainer.”

Each province runs its own energy marketplace and options to choose between floating and fixed rates vary from jurisdiction to jurisdiction. Beyond Alberta, B.C., Saskatchewan, Manitoba, Ontario  and Quebec also allow consumers to shop among different retail natural gas marketers.

In general, however, only Alberta has a vibrant market of private providers that offer competitive rates compared to those available with the incumbent provincial utility, according to MacDonald.

Still, on sites like EnergyRates.ca consumers in any of those provinces can compare publicly available rates from retail marketers and provincial utilities.

If your best or only option is sticking with the provincial utility, you may be able to opt for an equal-payments plan. Under this arrangement you pay the same amount every month, usually based on an estimate of your previous gas use, expected rates and weather.

This smooths out your natural gas charges throughout the year, meaning you’re paying a bit more than you otherwise would during the summer months but won’t face gargantuan heating bills in the winter.

Keep in mind, though, that your provider may have to revise the amount of your equal payments or adjust the balance of your account after the 12 months have elapsed with either a final payment or reimbursement.