​​Natural Gas and Electricity 

Remember 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

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
Energy charge (kWh) Energy charge The amount of electricity used in kWh multiplied by electric utility's energy charge price.	134,400	$0.039904	$5,363.10
Demand charge (kW) Demand charge The greatest 15-minute average kW peak demand that occurred during the billing period, multiplied by electric utility�s demand charge price, which is adjusted seasonally. Note: This charge is to help maintain sufficient generation and distribution capabilities to meet customer demand.	273	$6.610000	$1,804.53
Interim rate adjustment Interim rate adjustment After a utility has filed for a rate increase, this amount reflects potential cost increases. If the rate increase is reduced, a portion of this amount will be refunded.			$506.66
Environment improvement (kWh) Environment improvement rider Fee applied for environmental improvement projects, based on energy usage.	134,400	$0.000610	$81.98
Environment improvement (kW) Environment improvement rider Fee applied for environmental improvement projects, based on peak demand.	273	$0.250110	$68.28
Fuel cost adjustment (kWh) Fuel cost adjustment An adjustment for the fuel costs required to generate electric power. This amount fluctuates based on the monthly market price.	134,400	$0.000255	$34.25
Resource adjustment Resource adjustment Reflects energy initiative expenses, including costs for the Conservation Improvement Program, Renewable Development Fund, Renewable Cost Recovery and State Energy Policy charges.	​		$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. Taxes, city fees, basic service charges Additional charges for having natural gas service. All customers pay these fees, regardless of electricity provider.

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Table 3
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Samp​​le natural gas ​​bill
Charges and rates may vary by utility.
Type of charge	Qty	Unit rate	Total cost
Delivery charge (therms) Delivery charge Amount of natural gas used multiplied by gas utility's delivery charge price.	1524	$0.11274	$171.82
Cost of gas (therms) Cost of gas Amount of natural gas used multiplied by gas utility's wholesale price of natural gas and transportation costs. This cost is passed through to the customer without mark-up. The cost per therm varies, based on market prices.	1524	$0.76393	$1,164.23
Interim rat​e adjustment Interim rate adjustment After a utility has filed for a rate increase, this amount reflects potential cost increases. If the rate increase is reduced, a portion of this amount will be refunded.	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. Taxes, city fees, basic service charges Additional charges for having natural gas service. All customers pay these fees, regardless of natural gas provider.

​ ​Space heating comparison​
Commercial building with a 2 MM Btu heating loa​​​d	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

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