Fixed Energy Rates: What You Need to Know

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Category: Home Utilities
Posted on: 11/03/2020
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If you’re living in a deregulated energy market and considering switching your energy plan or provider, a variety of plans from a selection of different energy companies are likely available to you. However, finding the right energy plan can be challenging. Not only do you have to consider all the varying energy rates, but there are also different contract term lengths and rate structures. One of the main decisions when picking the right plan is choosing between a fixed or variable-rate plan.

While a savvy energy customer can save some money with a variable-rate plan, it usually takes some effort to actually benefit from variable rates. If you don’t want to constantly monitor energy prices and market-related news, a fixed-rate energy plan may be the easier option for you.

What Is A Fixed-Rate Plan?

Fixed-rate energy plans are electricity or natural gas plans where you pay the same fixed price for every kilowatt-hour or every therm over the entire contract length. Based on your contract terms, the price you pay per unit may change seasonally on a predetermined schedule. On shorter plans, the price typically remains the same for the entire duration of the contract.

The rate you actually pay depends on factors such as the retail energy provider (REP) you choose or the term length. The price gets locked in at the time you sign up with the energy provider. While all REPs offer different contract duration periods for fixed-rate energy plans, the term lengths for electricity or gas are commonly six months, 12 months, 18 months, and 24 months.

A fixed-rate plan does not mean your utility bill will be the same amount every month. While some energy retailers and utilities offer budget billing plans that do just that, fixed-rate plans lock in the price per kWh or therm. The amount on your bill will vary with your energy consumption, the amount of kWh/therms you actually use every month.

Benefits of A Fixed-Rate Plan

Fixed-rate plans can be a great way to save money with little effort. To save money with a variable rate plan, you would have to monitor the energy market and possibly adjust your energy consumption based on the current energy price. A fixed-rate plan lets you lock in a rate, and you’ll always know how much you’re paying for your energy. For the length of your contract, you don’t have to worry about shopping around for electricity or gas.

While you may be paying more per kilowatt-hour at times compared to a variable rate plan, you’ll pay less when energy prices go up. You can save significantly more with a fixed-rate plan if you lock your rate at the right time when prices are low. Fixed energy rates are also easier to budget with. Instead of two variables, consumption and unit price, you only have one variable each month, your energy consumption.

Scheduled Rate Fluctuations

Energy prices not only fluctuate constantly on the wholesale market, they also follow seasonal patterns. When the demand for electricity or gas is high, prices go up. Electric demand typically peaks in the summer months, when air conditioning is running around the clock. Gas demand peaks in the winter when the heating is on. At the same time, electricity is also used for heating while natural gas is used to generate electricity causing demand to go up, respectively. 

Many energy providers respond to these fluctuations by scheduling adjustments to their energy rates. 

Time to Switch

While fixed energy rates don’t change throughout the term of your contract, the rates charged in fixed-rate plans offered by the energy providers frequently change throughout the year. If you keep looking for new rates after you’ve already signed up, you may find out that rates have dropped or increased. This leads to the question, when is the best time to sign up for a fixed-rate plan? REPs typically offer the lowest rates whenever demand is low. While electric demand heavily depends on fuel sources, climate, and even the current weather in your area, it is somewhat predictable. Fluctuations in energy prices follow seasonal cycles within geographical regions.

Electricity demand is typically higher in the summer and winter and significantly lower in the spring and fall. Natural gas follows a similar cycle; demand is highest in the winter months but can also spike in the summer, especially if you live in a cooling climate where the predominant fuel to generate electricity is natural gas. Like electricity, gas demand is also typically lower in the spring and fall.

Consequently, depending on your personal situation, the best time to shop for a fixed-rate energy plan is in the spring or fall. This is especially true if you live in an area with extreme high or low temperatures. Remember that you’ll have to shop around for a new plan again once your contract runs out. It can make sense to lock in your rates for 12, 24, or even 36 months to be able to profit from low seasonal rates again the next time you shop.

Things to Consider

Fixed-rate energy plans are a great way to save on your energy bill if you’re able to lock in a low rate. Keep in mind, though, that you’re stuck with that rate even if energy prices go down. Depending on the climate in your area, your energy usage can change significantly over the year. So do energy rates offered by REPs and utilities. Energy usage and supply rates are directly related to the outside air temperatures.

While fixed-rate plans come with different contract term lengths, the plans with the lowest rates are typically 12-month plans. When you sign up for a fixed-rate plan, pay attention to the terms and conditions that will apply at the end of your contract term. Some companies will roll you over to a more expensive plan or to their default rate.

Some retail providers offer fixed-rate plans with options, such as a fixed-rate time-of-use plan that gives you a discounted rate or even free energy at certain times of the day or days of the week. Or you can get a green power plan at a fixed rate if you want your electricity to come from renewable sources.

Are you ready to make the switch? Use our comparison tool to see the plans available in your area.

Finance Guru

Finance Guru