How your gas company makes money

Unlike an electric company, which in most cases generates the power it sells directly to its customers, gas companies tend to purchase the energy from an outside supplier. Typically, the cost of gas to the gas company is more than 50% of a customer’s bill.

However, gas companies typically pass the cost of gas on to customers without a markup, according to Scott Grigg, a supervisor with South Carolina Electric and Gas. In other words, a gas company doesn’t generate a profit from selling the gas. Instead, it makes its money from the fees and service charges associated with getting the gas to you.

It’s important to remember that the price of energy—especially natural gas—fluctuates from season to season and even from month to month, just the way gasoline prices go up and down at the pump. Some of the billing procedures and terminology that appear on your gas bill are designed to account for fluctuating prices by averaging costs over a period of time.

Understanding gas usage terminology

Energy usage and other charges may appear on your bill in various ways. For example, gas usage is often expressed as an amount of energy used, rather than as a quantity of gas. Therms, BTUS, MCFs, and CCFs are all ways that your utility company might refer to the gas you’ve consumed per month.

Note that utility providers differ in the way they describe charges and fees. Most, however, provide explanations of their bills online. It’s a good idea to check your provider’s website for specific explanations of items on your bills.

BTU stands for British Thermal Unit, and is a measure of heat energy. In the United States, the BTU is an easy way to compare the usage of various types of fuels. For example, a cubic foot of natural gas contains 1,028 BTUs; a gallon of heating oil has 139,000 BTUs; and a kilowatt hour of electricity provides 3,412 BTUs.

According to the American Gas Association, the average U.S. household consumes about 72.5 million BTUs of natural gas per year, at an annual cost of $992.

Therm (or the abbreviation, “thm”) is short for thermal unit. The term often appears on utility bills and is a simpler way of referring to the consumption of BTUs. One therm is the equivalent of 100,00 BTUs.

When shopping for gas-powered appliances, you’ll see that they are rated by how much energy they consume per hour. For example, a 100,000 BTU appliance consumes one therm per hour. A 30,000 BTU appliance uses 0.3 therms per hour. A higher rating means the appliance is more powerful, but at the cost of greater gas consumption.

CCF and MCF are other ways your gas company might refer to the amount of energy you consume. CCF is the volume of gas used, and the abbreviation means 100 cubic feet of gas. An MCF equals 1,000 cubic feet of gas; one MCF equals ten CCF.

Procurement or commodity charge is the amount you’ll pay for your gas, based on your usage in a particular month. The term refers to the cost that your utility company pays to its gas provider, and then passes along to you. As mentioned above, your utility company doesn’t mark up this cost.

Gas transmission or delivery service charges cover the company’s cost of getting the gas to its final destination: your home.

The baseline allowance, also called the baseline charge, is determined by your utility provider (and may be mandated by state law). It refers to the amount of energy you’ll probably use to meet your basic needs, based on average usage in your area. Gas consumed within the allowance is charged at the lowest rates.

Consumption that exceeds the baseline allowance is charged at progressively higher rates according to a tiered rate system, usually consisting of three or four tiers. If you use more than the baseline allowance, the excess charges may appear on your bill as “amount over baseline.” You will not receive a credit for using less than the baseline allowance.

Gas cost adjustment appears either as a charge or a credit. Since gas rates vary each month, the gas company will estimate what it thinks the price of gas will be the following month or quarter. If the price is higher, then you’ll be billed for the excess in a subsequent statement in order to cover the actual cost of the gas; if it’s lower, you’ll see a credit on your bill.

Reducing your gas bill

Lowering your gas bill means lowering energy consumption. A good place to start is to conduct your own energy audit to spot energy leaks in your house and determine proper remedies.

Other strategies include purchasing Energy Star appliances and building materials, selecting energy-efficient windows and doors and adding sufficient amounts of insulation.

Appliances that consume the most power in a house are the water heater and the clothes dryer, whether they’re gas or electric. Any reduction in usage during the winter will result in lower utility bills. Use energy calculators to help determine how much energy your gas appliances use to help understand how to cut back energy consumption.

Your gas bill can help, too. Know your baseline allowance and try to keep your gas usage as close to that as possible so you’ll be paying the lowest rates available. Look on your bill for graphs that indicate the months in which your gas usage is the highest; it’s usually the winter. Be extra-aware of utility usage during those periods.