Pros and Cons Cons Fixed and Variable Electricity Rates

In deregulated states, consumers now have the choice to select different utility plans from a litany of providers. With this came the availability to switch from fixed electricity rates to variable rates. Of course, with all changes come fear, skepticism, anger, and then gradual acceptance. While decried by most, energy deregulation has provided lower rates for consumers and variable rates allow for even greater supplier competition.

There’s no objectively better choice between variable and fixed rates because it comes down to consumer preference and energy usage. Let’s discuss the pros and cons of each plan to determine which energy rate is best for your situation.

Fixed Rates: Security

Many people choose to stay with fixed rates because they provide a layer of security in an incredibly volatile energy marketplace. They also provide cost security, assuming your monthly energy consumption stays consistent with historical usage.

Consumers who sign up for a fixed plan are typically locked into a contract for three billing cycles, although some are different. Perhaps the biggest cont that fixed energy rates have is that most suppliers charge a cancellation fee, although this is not true of all suppliers.

Generally, most fixed rates will sit slightly above market price averages to protect suppliers from risk during peak demand seasons. Nothing is free, not even security. It’s also important to keep in mind that your utility bills will also rise with energy usage so fixed plans don’t entirely shield you from the price spikes you’ll encounter during incredibly hot and cold months.

Variable prices also consistently dip beneath fixed prices meaning that you’ll need to wait to receive those benefits as well or pay a huge fee. Of course, price consistency helps many people budget month-to-month. Ultimately, fixed prices are ideal for the short-term investor, not necessarily the saver.

Variable Rates: Long-term Savings

On the other hand, variable rates are ideal for the long-term investor or those with disposable income to budget for price spikes during peak demand seasons. Most suppliers don’t have cancellation fees for variable plans, although this is also not true of all suppliers.

Generally, variable rates provide an accurate indication of the state of the energy market. When supply is abundant and demand is low, consumers will enjoy surprisingly cheap utility bills. Without paying for that extra layer of security, variable plans prove cheaper in the long-run.

Yet, without this layer of security, budgeting for month-to-month expenses becomes much more uncertain depending on your energy consumption habits and the weather. This requires you to track your energy usage to incur the full benefits.

Decision Time

Still unsure about whether to switch to a variable or fixed plan? Shop around and see what bids you can broker through the market. Compare your energy usage over the last year to the average variable rates and fixed rates being offered.

Be sure to read your supplier’s terms and conditions before signing up. Finally, try to make the switch during a time of year where the energy savings will be the most beneficial.