Retail energy contracts for first time home buyers (and renters)

Energy for Calgary Mortgage BrokerLast updated: May 2019

Before I was a mortgage broker, I worked for years in the wholesale natural gas (and power) marketing and transportation industry.  The two energy forms are very closely related, hence why you, as a home owner or tenant, might get someone knocking on your door trying to get you to sign a "retail energy contract" to secure natural and/or power supply.  Usually the offer sounds like you will save a bunch of money.

The reason I am writing is, too often - as a mortgage broker - I hear stories or see client's credit reports wrecked by collections from these energy retailers, and the client's plan to buy a home is delayed trying to sort things out.  In most cases, the client didn't know what they were signing and missed the part about the big early contract termination penalty.  So, if you don't want to read this blog to the end, here's the punch line. DON'T sign things you don't understand (RTFC*).  There are NO real savings to be had in the first place.  You will do better to simply take the "default regulated-energy supplier" for your area, who - by law- can only pass through the actual market price they pay for energy to you, with no price mark-up.

How the Retail Energy Market Works

Back to how energy is bought and sold, my old job was to move natural gas from the field (gas processing plants), through the pipeline networks, and ultimately to consumers, like utility companies, factories, power generators, etc.  Same goes for power. Residential consumers (you) are called "retail customers." The pipelines and electrical wires (pipes and wires) in each specific town, city, or area are owned by a utility distribution company, who has the franchise (right and obligation) to deliver you your gas or power supply. Notice, I didn't write the right to sell you your gas or power supply. The delivery cost to you is regulated by the "public utilities board", so that the utility company can't take advantage of the consumer. Think about it - your house has only one pipeline or powerline to it, and the utility company could easily hold you ransom otherwise.  No matter who you get your energy supply from, the delivery cost is the same and a pass-through to you.energysupplychain landscape

It is important to understand that the regulated utility must also act as your  "default" supplier of gas or power at their cost in the event you do not enter into a contract with any other retail supplier.  That's why there are people banging on your door trying to get you to sign up to retail energy contracts, promising big savings, because in reality, they are trying to make money off of you and your lack of knowledge in this complicated area. (Buy low, sell high is their game.)

So your next question should be - what does the utility have to pay for gas (or power) supply and will it cost more or less than what an energy retailer has to pay?  And the answer is, both utility company and energy retailer are buying from the exact same energy supply points (market) from exactly the same energy wholesalers, and the way the market works, there is no significant difference in the price either party pays.  Further, the utility cannot mark up the price to you, but the energy retailer can (because they are not regulated).  

So how does an energy retailer make money?  More often than not, they charge you a higher fixed monthly administration fee and they mark up or guarantee your energy supply price at a price much higher than the current or historical market.  Finally, when you have to move homes and your energy supply retailer doesn't service the area you are moving to, you have to break the contract, and the fine print in the contract kicks in, and you may end up with a horrific penalty that you refuse to pay, hence it goes to collection and the credit score gets damaged.  When you use the default supplier for your area (utility company) to source your supply for you, you get it at their actual wholesale cost and there is no contract to sign hence no penalties.

So I know a lot about energy contracts, a lot about landlord and tenant rules, a lot about how to fix credit, a lot about finance, and a lot about how to get you a great mortgage!  I will always be a resource for my mortgage clients to keep you out of trouble.  If I can help you with any mortgage questions, please contact me!  If you want a mortgage pre-approval or approval, call me or click here, or if you want, learn if you can mortgage qualify


* R.T.F.C. applies in so many ways, and will hopefully keep you out of trouble. It means Read The F***ing Contract, whether cell phone, energy contract, lease, mortgage, or otherwise. Don't sign things you don't understand.