Natural Gas and Electricity
Natural gas is your best energy value

Natural Gas and ElectricityRemember when energy choices were easy? Electricity was used for lighting, electronics and motors. For heating, the obvious choice was natural gas. In today’s changing energy market, technological innovations and fluctuating energy costs are causing some decision makers to rethink energy options.

To make decisions more complicated, varying billing structures and pricing options make it challenging to understand charges and effectively compare electricity costs to natural gas. The information that follows will help your business or organization sort through the options and make informed decisions. As you will read, historically natural gas has been an excellent energy value and, for most applications, continues to be a better choice than electricity.

The cost difference

Because electricity is billed in kilowatt hours (kWh) and natural gas in therms, it can be challenging to compare costs. Delivery and other charges make it even more difficult to accurately assess cost differences. The following table adjusts for the disparities, showing actual prices for natural gas and electricity for Minnesota commercial/industrial customers. As illustrated, even when a range of electric prices are considered, natural gas prices are consistently two to three times lower than electric prices.

In fact, when all charges are considered, for a $0.06 per kilowatt hour (kWh) electricity rate to be competitive, natural gas would have to cost $1.77 per therm. Historically and currently, natural gas costs are well below that price. Even the highest commercial/industrial natural gas firm rate on record is only $1.38 per therm. The higher cost was the result of 2005’s unusually active and destructive hurricane season. See Table 1 below for an electric versus natural gas price comparison.

Another consideration is that electric utilities nationwide are projecting significantly increased costs as they update aging infrastructure to accommodate increased demand. Those costs will be passed along to the consumer and could even widen the gap between natural gas and electric costs.

Table 1

Click to view natural gas costs versus other fuels

Gas Electric chart comparison

Understanding your utility bill

Do you know how much your company or organization is paying for utilities? It’s not enough to simply compare kilowatt and therm unit rates. As you can see in the actual bills below (see Tables 2 and 3), there are a variety of charges added to basic costs that can make a big difference to your bottom line.

What’s your bottom line?
To find out how much you are paying for your utilities, take a closer look at your bills and, using the sample bills below (see Tables 2 and 3) as a guide, calculate your total cost per kWh and therm. Then take a second look at Table 1. How much less are you paying for natural gas than electricity?

Table 2
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Sample electricity bill

Charges and rates may vary by utility.

Type of charge

Qty

Unit rate

Total cost

1.

Energy charge (kWh)

134,400

$0.039904

$5,363.10

2.

Demand charge (kW)

273

$6.610000

$1,804.53

3.

Interim rate adjustment

$506.66

4.

Environment improvement (kWh)

134,400

$0.000610

$81.98

5.

Environment improvement (kW)

273

$0.250110

$68.28

6.

Fuel cost adjustment (kWh)

134,400

$0.000255

$34.25

7.

Resource adjustment

$235.84

Sum of costs

$8,094.64

To determine how much you are paying per kWh:

Divide sum by total kWh

$8,094 ÷ 134,400

Total cost per kWh

$0.0602

Note: Taxes, city fees, basic service charges apply.

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Table 3
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Sample natural gas bill

Charges and rates may vary by utility.

Type of charge

Qty

Unit rate

Total cost

1.

Delivery charge (therms)

1524

$0.11274

$171.82

2.

Cost of gas (therms)

1524

$0.76393

$1,164.23

3.

Interim rate adjustment

1524

$0.025255

$38.49

         

Sum of costs

 

$1,458.86

To determine how much you are paying per therm:

Divide sum by total therms

$1,458.86 ÷ 1,524

Total cost per therm

$0.9573

Note: Taxes, city fees, basic service charges apply.

To take it a step further, use the following equation to convert your actual kWh usage to therms:

1 kWh = 3,413 Btu = .0341 therms
Example: 134,000 kWh x .0341 = 4,587 therms


Add efficiency to the equation

Price of energy is one factor for determining fuel choice. But, it’s also important to consider price in the context of efficiency. The example - (Table 4) below compares an electric and natural gas heating system. Even with the efficiency factor difference, the lower cost of natural gas makes it a much better choice. Use this table to help make comparisons in your facility.

Table 4

Space heating comparison

   

Commercial building with a 2 MM Btu heating load

Electric equipment

Natural gas equipment

Output – kWh : Btu*

586

2,000,000

Efficiency factor

.95

.80

Input – kWh : Btu

616.8

2,500,000

Annual operating hours

4,680

4,680

Load factor

0.35

0.35

Annual input – kWh : Therms

1,010,378

40,950

Unit energy cost – $/kWh : $/Therms

 $.06

 $.96

Annual energy cost

$60,623

$39,312

Annual savings with gas

$21,311

 

Percent saved with gas

35%

 

Incremental gas equipment cost

$ 12,500

 

Payback

.6 years

 

*1 Therm = 100,000 Btu = 29.3 kWh

 

Natural gas is cleaner and greener

Environmental impact is another important consideration when choosing fuels. As you can see in (Table 5) below, the significant differences between natural gas and electricity make natural gas the better choice for the environment.

Table 5

Natural gas

Electricity

90% efficient – it takes far less energy to extract from its source and provide to user

27% efficient – largely due to the energy lost in electric generation

Lower greenhouse gas, sulfur dioxide, nitrogen oxide emissions and no mercury emissions

Higher greenhouse gas, sulfur dioxide, nitrogen oxide and mercury emissions

Burns more cleanly than other fossil fuels

Coal combustion to produce electricity is the biggest source of many pollutants in Minnesota*

*Minnesota Pollution Control Agency, www.pca.state.mn.us, Sept. 8, 2006

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Natural gas – for yesterday, today and tomorrow
As shown in the examples provided, historical and current natural gas prices are significantly lower than the average retail electricity price. Natural gas remains the best value and best all-around energy choice. When you choose natural gas for your facility, you are making a wise decision for your bottom line and the environment.

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