Choosing Your Electricity Plan: Fixed Rate or Variable Rate?

Friday July 15, 2011
Posted at 08:12

The differences between fixed and variable electricity plansIf you live in an electric market that’s been set free by deregulation, you’ll be able to shop around for residential electricity from a retail electric supplier. When you do, you’ll probably be confronted with two main types of plans: fixed rate plans and variable rate plans. Sometimes the information about which type of plan is best can be a little confusing, but thankfully the differences between both types of plans can be easily explained.

Fixed Rate Residential Electricity Plans

Fixed rate plans lock you into one rate for the length of your contract and will charge you the same amount per kilowatt hour of electricity each month until your contract expires, whether the price of electricity rises or falls.

If you’re like a lot of people and think electric rates are only going to go up, then being able to sign a contract and lock in your rate for up to two years, depending on what your electric supplier offers, might be a smart move. After all, if electric prices go up, you’ll be protected from any rate increases until your contract expires.

The Mixed Benefits of Fixed Rate Plans: You won’t have to pay for increases if electricity prices go up. If electric rates go down, however, you’ll be stuck paying your contract’s higher rate.

Variable Rate Residential Electricity Plans

Variable rate plans allow your electric rate to change from month to month, based on fluctuations in the market. Because the electricity market is pretty volatile, signing up for a variable rate means you’re probably destined to pay a different amount per kilowatt hour every month.

If you think electricity prices might fall, or at least fluctuate enough on the low side to come out cheaper on average than a comparable fixed rate plan, then a variable rate plan might be best for you. With a variable rate plan, you could end up being surprised — either in a good way or a bad way — when you get your monthly bill.

The Mixed Benefits of Variable Rate Plans: If electric rates go down, so does the amount you pay for electricity. If electric rates go up, however, you’ll have to pay more.

Sources:

Electricity Texas website, “Benefits of Fixed Rate Electricity Plans.”

Switch Energy Pennsylvania website, “Fixed Rate vs. Variable Rate Made Easy.”

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