What you should know about changing energy prices.
Why Prices Change
As a customer in a deregulated energy market, you are often told how competition helps drive down prices. (Often by us.) And it’s true. That’s because energy suppliers, like Spark Energy, buy units of energy in a competitive open market from companies that either generate electricity or process natural gas. We’re pretty good at it too. You pay less because we pay less.
The prices you see on our rate plans today reflect our projections on what a fair and reasonable price would be for the term of the contract based on present market conditions. However, energy prices go up and down over time with changes in the market
How Fixed Rate Plans Work
At Spark Energy, our customers are able to “lock-in” a set price on each kilowatt-hour or therm for the duration of a contract. Presently, we offer different contract terms of 6, 12, 18, or 24 months.
Why Are Rates Different for Different Contract Lengths?
The rates we quote on any given day are ultimately determined by how much we anticipate paying for gas or electricity over the length of the contract. The longer the contract, the more we may need to anticipate a higher swing in price over that time. That’s why those prices may reflect a marginally higher rate.
Why Not Just Go with Shorter Contracts All the Time?
While today’s shorter term contract may have a lower unit price than today’s longer term contract, this may not be the case when it’s time to renew. The following graph is just an example of how sticking with shorter contracts may not pay off over the long run.
How Should I Choose?
When considering what length of contract to select consider the following:
- If you prefer the peace of mind that comes from knowing that your prices won’t change for a long time, then a longer contract is for you.
- If you don’t like the idea of having to agree to a new contract and all the paperwork that entails on a periodic basis, the longer contract will give you greater peace.
- If you are unsure how long you will be at an address or feel like you could be liable for an early termination fee for any reason, then shorter contracts may work better.
- It is very difficult to anticipate the future movement of the market. It is not necessarily cyclical. It is driven by many factors. Be careful when trying to anticipate market movement when deciding on the term of your contract.