In gas-choice states, the utility default service rate is the price-to-compare. Suppliers compete below it on locked-rate contracts of 12 to 36 months. The utility default re-prices quarterly or semi-annually based on wholesale market plus utility procurement cost plus a regulated margin. Locking a supplier rate typically saves 8 to 14 percent vs the utility default over the contract term, with no service interruption and no infrastructure change. Here is when each one wins.
How the utility default service rate is set
The utility default service rate (often called Price-to-Compare or PTC) is set by the regulated tariff filed with the state PUC. The rate covers the utility's wholesale procurement cost plus an approved margin.
Most US gas utilities re-price the default quarterly. Some re-price semi-annually or annually. The default rate moves with wholesale prices but with a smoothing effect from the procurement contracts the utility has in place.
How a supplier-locked rate is set
A supplier offers a per-therm or per-CCF locked rate for the contract term you sign (typically 12 to 36 months). The supplier hedges the contract at signing in the gas futures market.
Suppliers do not have the utility's regulated margin requirement, so they can price lower than the utility default and still make money on the spread between hedge price and contract price.
When the utility default actually wins
Rarely, but it happens. When wholesale gas prices fall dramatically and remain low for the entire contract term, the variable utility default can come in below a locked rate signed at the start of the period.
The math has favored locked in roughly 9 out of 10 quarters across the deregulated US since 2018. Wholesale gas inflation, capacity charge increases, and winter spike risk all push the utility default upward.
Lock the rate before the next reset.
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