What is the Best Type of Energy Rate Plan?

The Two Most Popular Energy Rate Plans Taking advantage of energy deregulation by finding a lower energy rate is one

The Two Most Popular Energy Rate Plans

Taking advantage of energy deregulation by finding a lower energy rate is one of the best ways to reduce your electric bill. But, once you find a lower rate, what now? Which energy plan do you choose?

The answer to the question “What is the best energy rate plan for my business?” can vary depending on several factors including the amount of energy you use, the current and predicted natural gas market, as well as your tolerance to mitigate short term risk compared to long term gain – meaning are you willing to secure a longer-term energy contract or do you prefer a month-to-month plan where you could pay less or more depending on the market’s fluctuations?

Ok… if I just made this sound complicated don’t worry, finding lower energy rates and find an energy plan that best fit’s your business energy needs is a lot easier than it sounds. 

In the “world” of energy shopping, there are quite a few energy rate plans available. But when it comes down to it there are two main plans that people choose.

To help you figure out what energy rate plan is best for your business, I thought it would be easiest to explain the two most popular energy plans. 

Also, if you prefer watching a video, I’ve also included a video that pretty much summarizes this blog:

What Determines Energy Rates?

In just a few paragraphs I’m going to jump into the main point of this article; the two plans, when to choose which, as well as each plan’s advantage. 

But first, being that I’m talking a lot about energy rates, I thought it would be fundamental to briefly cover what determines electricity rates in the first place.

If you look at your electric bill you’ll notice it has various charges, taxes, and fees. Well, when I talk about “electricity rates” I mean the amount of money you pay for the electricity you use measured by Kilowatt-Hours, or “KWH”. 

A kilowatt-hour is simply a unit that your utility uses to determine how much electricity you use. Also read, What is a Kilowatt-Hour and What Does it Have to Do With Your Electricity Bill.

If you look at your electric bill you’ll notice it has various charges, taxes, and fees. Well, when I talk about “electricity rates” I mean the amount of money you pay for the electricity you use measured by Kilowatt-Hours, or “KWH”. 

If you look at your electricity bill you should be able to see what rate you are paying per KWH.

When you shop for “lower rates”, you’re looking for a lower rate per KWH. So what determines these rates?

Like most commodities electricity rates are affected by the fundamentals of supply and demand. That’s why in periods of colder or hotter weather, electricity rates go up which in turn increases your electricity bill.

That’s right, not only are you using more electricity during these times but you’re also paying for more for it – unless you’ve taken advantage of energy deregulation!. Many factors play a role in determining electricity prices, but the main ones include:

1. The cost of electricity generation.

2. The transmission and distribution from where the electricity is generated to the power grid.

3. Weather patterns, as they impact the demand for electricity by consumers

4. Wholesales electricity price.

Let’s take the cost of generation as an example. Natural gas is typically the biggest price-setting factor, meaning that the natural gas market is directly correlated to determining electricity prices. That’s why our routine energy market updates are heavily focused on natural gas. 

With a basic understanding of what determines electricity rates, let’s now dive into the two most common energy plans: 

The Two Most Common Energy Rate Plans

Fixed Rate Energy Plan

A fixed energy rate plan gives you the opportunity to select a lower energy rate and lock that rate in over an extended period of time. That means no matter what happens on the market, you’ll always pay the same rate for the duration of your energy plan.

Between 2010 and 2020, electricity rates increased by 13%. That means, every year you pay more for electricity, even if you use the same amount. A fixed-rate electricity plan will protect you against fluctuations and increases in electricity pricing.

When choosing a fixed rate energy plan, you can decide how many months you want to secure your rate for. The amount of time you choose can also increase or lower the rate depending on the supplier.

A fixed-rate plan can extend from 6 months to seven years. But a typical plan is usually between 36 and 48 months.

Choosing a fixed-rate plan is great if you want to protect your business against increase energy rates or an increasing energy market like we have at the time of this writing.

Variable Rate Energy Plan

A variable rate plan means the rate you pay each month changes based on electricity’s wholesale value and whatever adder (profit) or fees your energy supplier or utility adds to it.

If you chose a variable rate plan, your utility or supplier will tell you each month what your rate will be.

Being a month-to-month plan, variable rate energy plans are good if you are in an energy market where prices are unsure or if they are falling – which is not currently the case. If energy market rates were decreasing variable-rate plans would help you take advantage of declining prices rather than being stuck at a higher rate.

I will add that when choosing a variable rate plan, it’s very important to fully understand what you will be paying for. Many suppliers offer variable rate plans with a very low introductory price which slowly start to increase over time. Consumers often notice this after they’ve overpaid a lot of energy.

Can an Energy Consultant Help?

If you are shopping online for lower energy rates, you will have most likely run across websites that allow you to choose your rates and your plans online. These websites mainly cater to homes and very small businesses.

If you’re spending more than $5,000-$10,000 in energy a month, you may want to consider speaking with a professionals Energy Consultant.

An Energy Consultant has direct relationships with retail energy suppliers and can go straight to them for pricing, cutting out a lot of fees and adders that will automatically be added to rates that you find online.

Additionally, for larger consumers, an Energy Consultant can leverage the amount of energy you use to get a variable rate, as well as ensure the contract terms and conditions work to enhance your plan, helping you avoid unforeseen regulations, restrictions, and fees.

If you found this article informative and helpful, I also encourage you to read The Benefits of Finding Lower Energy Rates.

James Lightning

James Lightning
Senior Editor, Energy Professionals
(844) 674-5465

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