Here’s a quick breakdown of the different plans types out there:
- Fixed Rate – As its name implies, a fixed rate plan locks in a rate for a certain time. You’ll have a contract and the rate is guaranteed not to change for the term of the agreement. Typically, contracts last for six, twelve or twenty-four months, though there are other terms out there. In essence, you’ll wind up paying a consistent rate per kilowatt of usage throughout the term of your contract agreement, so you won’t be subject to the worries that go along with fluctuating market rates.
- Variable Rate – The opposite of a fixed rate plan, a variable rate plan has no contract or fixed price. Your rate will generally fluctuate based on market conditions, but ultimately changes based on the discretion of the provider. Variable rate plans let you take advantage of prices when they are in decline and let you switch providers freely, but leave you exposed when rates begin to climb. By watching the market each month and being prepared to jump to either a lower variable rate from another provider or fixed rate plan, you can minimize your risks.
- Indexed Rate – An indexed rate is similar to a variable rate, but fluctuates on a pre-published formula that takes into account a specific energy index (such as a natural gas index). You have all of the same benefits and liabilities as a variable rate plan, but cut out the provider’s discretion. Even so, rates can still change drastically when the natural gas index fluctuates, and the algorithms used to determine customer's rates are complicated, so these plans aren't the best choice for someone who is looking for consistency and predictability.
Ultimately, you’ll have to decide what type of consumer you are. Are you risk adverse and just want an autopilot plan with no surprises? If so, look at fixed rate plans. But, if you’re a little less risk adverse and willing to monitor rates and switch providers and plans every few months, a variable or indexed rate might be for you.
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