The Power is the Same. The Prices Aren't.
It won’t take you long while shopping for electricity or natural gas to come across this: two different energy providers giving you two different prices for the same energy.
Seems a little strange right? It’s not really. Like any competitive market, pricing is determined by more than just the cost of the base product. A variety of factors go into creating an energy supply rate—from the length of the service contract to the method of payment. Each supplier negotiates with power generation companies to create unique pricing and plans. The energy comes from the same place, but it’s “packaged” differently, all in the name of winning your business.
So if it’s the same power, why would you go with anything other than the cheapest rate? Because of the many variables that go into creating energy rates. The cheapest rate might be cheap because it requires a longer commitment, or has the possibility of changing from month to month. There are a number of factors to consider before committing to an energy plan.
Which Electricity Plan is Right for You?
Fixed Rate Plans
- What is it? Fixed rates lock-in an electricity supply rate for an extended length of time—some can go up to five years. The benefit of a fixed rate is the long-term stability. Your rate stays the same for the length of your contract, regardless of what happens in the volatile energy market.
- Is it right for you? Are you planner? Do you prefer a more reliable bill? If so, a fixed rate plan might be for you. Just know that because energy markets can change, it’s possible that sometimes your rate will be higher than what someone would pay with a variable rate. But it’s a two-way street. Locking in a low rate could help you save in the long-term should prices go up.
- What is it? As the name implies, variable rates vary monthly or quarterly, based on market electricity prices and your energy supplier. Many suppliers start variable rates with limited-time promotional rates.
- Is it right for you? If you prefer a bit of flexibility and the chance to pay less when market prices drop, a variable rate plan might be right for you. Variable rates sometimes offer competitive introductory rates, but remember, they’re called variable for a reason. The market is always fluctuating, so you could just as easily pay more than you initially thought you might. If you don’t like the look of long contracts, and are willing to expose yourself to market prices, a variable rate plan could be a good option.
Green Energy Plans
- What is it? Going green can be an ambiguous term at times, but when it comes to energy is has a pretty standard meaning: energy derived from clean, renewable resources, like solar or hydropower. Many green plans also include the option to purchase carbon offsets and Renewable Energy Certificates.
- Is it right for you? If you’re concerned about your impact on the environment and want to help, a green energy plan might be right for you. Many green plans make helping the environment easy—you may not even have to change your usage habits. Some renewable or green energy plans can be slightly more expensive, but that extra money often goes to the proliferation of more renewable energy sources.
- What is it? Like variable rates, indexed energy rates can change monthly, usually based on a pre-defined formula. With an indexed rate you can take advantage of market lows and save, but you’re also at risk of market highs.
- Is it right for you? Indexed-rate plans are great if you like the idea of a flexible policy. It could help you save money, plus you'll have the consistency of a clearly defined formula that determines your rate.
Prepaid Energy Rates
- What is it? A prepaid energy plan lets you pay as you go. Like a prepaid cell phone, you put down money up front and pay for your monthly energy use in advance, no deposit required.
- Is it right for you? Prepaid plans are great for customers who have low or no credit, or temporary residents. There are no contracts, deposits or long term commitments. You get the energy you pay for.
- What is it? With a flat billing plan, you pay one flat price every month, regardless of your electricity usage.
- Is it right for you? Not a fan of surprises? Prefer a steady, reliable bill? Flat billing might be right for you. Budgeting for your energy expenses is easier when you know your bill will be the same every month.
Time of Use Billing
- What is it? If you have a smart meter—many utility companies have upgraded, or are in the process of doing so—then your utility company can see how much energy you use by the hour. Time of use billing shifts rates throughout the day based on your peak usage time and the average peak usage time of those around you.
- Is it right for you? As long as you’re flexible with how you use your electricity, you could benefit from a switch to time of use billing. If you use energy during off-peak hours, you could save more, although that does require a slight adjustment in your energy usage habits.
- What is it? A bundle plan combines two or more services together. Bundles often come with additional discounts for ordering multiple services.
- Is it right for you? Bundle services are easy. You get multiple services with one easy phone call. You can bundle electricity and natural gas, or energy with other home services offered by your supplier.