Trying to figure out what type of electricity rate plan you should sign-up for is not exactly thrilling. But if you happen to live in a state in which the energy market is deregulated, you have the opportunity to shop around and compare electricity rates to choose the one that’s right for you. We’re here to break it down for you in simple terms, so that you’ll be well equipped when faced with the decision of choosing between a variable or fixed rate plan.
Most utilities put their customers on their SOS rate, which stands for Standard Offer Service rate. This rate is the amount at which the utility buys electricity for its customers and can fluctuate at any time. The SOS rate can also differ between competing electricity suppliers, so one utility company’s SOS rate may not match another’s.
People who are on a fixed rate plan pay the same rate every month for the duration of their contact, regardless of how the SOS rate fluctuates. This grants you the piece of mind in knowing exactly what your electric rate will be each month, but if the SOS rate falls below your plan’s fixed rate you can end up paying more for energy than you need to.
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A variable rate plan, on the other hand, means that your electricity rate may fluctuate from month to month. This plan generally does not lock you into a long-term contract, so you can monitor the energy market and SOS rates offered in your area over time to choose a fixed rate when an SOS rate is lower. It also puts you at risk for paying a higher rate when the energy market is experiencing high competition or seasonal price increases.
In order for you to make the right decision that suits you and your needs, you first need to understand the fundamental differences between each plan.
The differences between a variable electricity rate and a fixed electricity rate
A fixed rate plan is a set price per kWh for a certain amount of time. The price remains constant throughout the length of the contract and the typical fixed electricity rate contract is either 6, 12, or 24 months. Sometimes you can come across a company that’ll offer even longer contracts.
A major benefit of having a fixed rate plan is the ability to dodge the energy market spikes that usually occur in areas with brutal winters, or suffocating summers. Since you pay a fixed price per kWh with a fixed rate plan the only variable in your bill is how much energy you use. A fixed rate makes it much easier for you to anticipate what your energy bill will be monthly. The downside to a fixed rate just so happens to be a major benefit of a variable electricity rate.
The energy market fluctuates, so when energy prices skyrocket a fixed rate protects you from this change, but if energy prices drop below your fixed rate you could end up paying more than you would if you’d had a variable rate plan. Variable electricity rate plans follow the fluctuations of the energy market- when the market price spikes your rate spikes, and when the market price falls your rate falls. So even though you’ll have the benefit of wholesale prices, you still need to be aware of the potential spikes in the energy market. Variable electricity rate contracts vary in length, with some being month to month, but they typically don’t require a long-term contract – which offers you financial flexibility.
Since market volatility is the key element behind which rate plan saves you money or costs you more you should consider what factors cause the market to go up and down when evaluating which rate is right for you.
Choosing the right electricity rate plan is just step one.
When you’re in the midst of deciding between a fixed or variable rate plan for your electricity take into account market-impacting factors such as location and energy sources.
Your current location, as well as where you see yourself living in the next two to three years, are important to consider both for contract lengths as well as climate conditions. If you’re someone who happens to always be on the go, then your lifestyle might not be suited for lock-in contracts, which accompany most fixed rate plans.
If you are situated somewhere with unpredictable or extreme weather, like New York where winters usually cause heavy energy consumption – you might want to consider a fixed rate plan. That way when extreme weather causes increased energy consumption, you won’t have to worry about the energy market spikes that often occur.
The ultimate form of maximizing your electricity rate comes when your energy consumption is derived from a renewable source. Natural gas currently leads the energy market, but is quite inefficient and expensive when compared to renewable sources such as wind and solar. As renewable energy sources such as wind and solar energy continue to increase in demand, non-renewable energy sources such as coal and oil-driven energy are projected to spiral downward. Renewable energy is the cheapest and most sustainable option, and thus it is driving the other energy sources out of the market.
This is why at Arcadia Power we are dedicated to finding you the right energy rate plan for your needs. We work to find you a better rate than you’re currently paying, and even offer a way for you to pay your utility bill without transaction fees. The best part? We’ll offset your energy usage with clean wind energy at no additional cost.