Term: Fixed-Rate Electricity Plans

Fixed-Rate Electricity Plans

A fixed-rate is a type of energy plan offered by utilities or retail energy suppliers where the price a customer pays for electricity and/or natural gas remains the same for the predetermined duration of their contract. Regardless of how the market prices change, a fixed-rate energy plan’s rate will remain the same. This does not mean every month your charges will be identical, however. Fixed-rate electricity plans are based on usage so every month’s bill will reflect the amount of electricity or gas consumed multiplied by the contracted price.

What Affects Energy Prices

Energy prices on the open market are subject to daily fluctuations. This movement in pricing may be due to costs incurred at the generation site. Fluctuations in weather conditions, where colder than normal or warmer than normal temperatures are present, can also affect the market price. Additionally, issues with the distribution system and changes in demand for energy all can affect pricing.

Advantages of Fixed-Rate Electricity Plans

If a customer’s monthly usage is somewhat stable, enrolling in a fixed-rate plan allows them to budget for energy costs more easily. Also, consumers who are on a fixed income may enjoy the peace of mind fixed-rate electricity plans can offer. There is also the benefit of stable pricing if the market price should increase for any reason. Paying 18 cents per kilowatt for electricity when the market price rises to 25 cents is a real advantage to the customer.

Disadvantages of a Fixed-Rate Plan

Once a consumer enrolls in a fixed-rate plan, there is always the possibility the market price for energy will fall and the customer will be stuck paying a higher price. Also, fixed-rate plans usually carry an early cancellation fee which means a hefty price will be charged by the utility or energy provider if the contract is canceled before its end date.

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