Commercial and residential customers shopping for a retail electric supplier have different energy rate plans to choose from. There are a variety of plans offered by suppliers that are catered to individual needs. These energy rate plans include a fixed, variable, index, and renewable rates. The majority of the energy rate plans are offered to both residential and commercial customers, but the index product plan is only offered to commercial users. We will review each plan, including the pros and cons, and let you decide which energy rate plan is right for you.
The most popular product plan among both commercial and residential customers is the fixed-rate option. This may be no surprise to those who don’t like surprises and want to know exactly how much they will be charged per kWh. Fixed rates do not change through the duration of the term.
Pros
- The rate remains fixed through the duration of the term
- The customer knows exactly how much they will be charged per kWh
- Will protect you against sudden spikes in the energy market
- Offered to both commercial and residential customers
Cons
- Might be stuck paying a higher rate if energy market drops
- Most fixed rates come with a cancellation fee
Variable Rates
It is not uncommon for an electric supplier to lure a customer in with a low introductory variable rate. Variable rates are not tied into any commodity and can fluctuate at the sole discretion of the supplier. The rate can easily double or triple in a single billing period. Most customers on a fixed-rate plan will automatically be switched over to a variable rate at the end of their term if no action is taken.
Pros
- Most variable-rate plans can be canceled with no termination fee
- Offered to both commercial and residential customers
Cons
- Can easily double or triple in a single billing period
- The supplier can increase the rate on you at their sole discretion
- Variable rates tend to increase rather than decrease
Index Rates
Very few are familiar with Index pricing, however, this rate product can save a commercial company a tremendous amount of money. Two components make up index pricing. The wholesale price of electricity, plus a fixed retail adder. This is the main distinction between index pricing and variable rates. Websites, such as PJM, allows a customer to monitor the wholesale price of electricity so they know exactly how much they will be paying for their billing period. It is important to note, this is a fluctuating rate product and there are risks associated with the high volatility of the energy market.
Pros
- Index rates have been tremendously lower than fixed-rate plans over the past few years
- A customer on the index plan can be switched over to a fixed-rate plan without penalty
- Plans are tied directly to the wholesale price of electricity and can be monitored by the customer
Cons
- Exposure to market risk
- Once customer switches over to a fixed-rate plan, they won’t be able to switch back to index pricing
- Only offered to commercial customers that meet a minimum usage requirement
Renewable Energy Rates
A growing number of electric suppliers are now offering renewable energy rate plans. These rates are advertised as 100% renewable. This means the electricity is generated by clean energy sources such as solar, wind, and hydro. This is a great alternative energy solution for those seeking to avoid coal, fracking, and other methods of electric generation that may cause harm to the environment. Green-e is an organization that makes it easy for homes and businesses to purchase verified clean energy.
Pros
- A clean alternative solution as opposed to coal
- Reliable as to any other source of generation
- Offered to both commercial and residential customers
Cons
- You may pay a high premium
- Most often more expensive than coal