Fixed Versus Variable Electricity Contract: Simplified

The implementation of energy deregulation in PA (and other states like Texas and Atlanta) gives the power to select a "Retail Electric Provider" (provider) or electric company that services and facilitates our supply of electricity. However it also provides us with the option to choose our preferred choice of electricity plans. In Pennsylvania, which was recently deregulated, we can choose between a variable and a fixed rate plan. This can be confusing, and I hope to simplify the choice (fixed versus variable).

The atmosphere created by energy-deregulation competition gives those of us in the PA electricity market prompted various payment models and rate plans to fit their preference and capacity needs.It can be a daunting task, so in addition to visiting PA Power Switch and reading this blog, I strongly encourage you to speak with friends and family. Making a wrong decision (like a long-term, binding fixed-fee contract) could have considerable negative repercussions on our electricity bills. See also this eZine article which was an important resource to this post.

Simply put, we Pennsylvanians can now decide whether we prefer a generally higher “fixed” plan, or the ability to enjoy the lower prices when electricity prices are down (but potentially pay higher fees when they are high). Fixed means you may leave "money on the table," but don't have to worry about switching providers if the Kwh (rate per kilowatt hour) increases. Now here's an "executive summary" on the difference between fixed and variable electricity. Please check the merits of each option so you make the right decision for your and your household.

What is a Fixed Electricity Plan?

The term "fixed" means something that is constant or unchanging. In terms of electricity plans, a fixed-rate plan means your rates are locked or fixed for a certain period (for instance, 6 months to 2 years) as agreed upon by you and your Pennsylvania electric retail provider. The agreement is bound by a contract between these two parties, and we consumers are guaranteed to pay only the same rate per KWh of electricity usage. I personally don’t like this model because I am counting on lower rates with more competition. I also don’t want to lock myself into one provider (which is why I chose Stream, which has no cancellation penalty.

Those of us choosing a FIXED plan will get the security of a constant rate even if the energy market "wholesale price" fluctuates. However if "market prices" drop below those agreed fixed rates, we consumers are stuck… required to pay the guaranteed price as stipulated in our contracts. Other Retail Electric Providers offer a balanced or “levelized” payment model for their users who are not delinquent on their payments, which allows the customer to can pay a levelized amount calculated from their electricity usage for a certain period such as twelve months or more.

What is a Variable Electricity Plan?

The opposite of a fixed rate plan is a variable or "month-to-month" payment model, where the PA electric company will invoice the consumer based on the current conditions or pricing trends of the energy market. This is nice for those of us who want to enjoy the benefit of a price drop in the market. However, if the fluctuations in the prices result to higher rates, we’ll pay a higher price (or switch providers). This is one of the reasons I selected Stream.

How to Choose between Variable and Fixed Electricity Plan

The following may help guide your decision on the right electricity plan for your needs. Again- speak to people you know and trust, or read websites that review the companies and their reputation.

If you don’t want to worry about fluctuating energy prices, pick a fixed rate or select a provider that doesn’t require a long-term contract. Before the contract period expires, the PA electric retail provider should contact you as to whether to continue with the same plan for the next period.

If you plan on staying in your current home for a short period of time (or currently are under a short-term lease) you can be more confident picking a variable electricity plan. But the opposite isn’t necessarily true – just because you’re in a permanent home doesn’t mean you want a fixed plan.

If you don’t mind paying early termination fee (if one exists), you could opt to use a month-to-month plan. Good news: don’t worry if you may relocate. Regulations stipulate that people under a fixed-rate contract are not required to pay a pre-termination fee if the reason for your termination is to relocate to another city or state not covered by the provider.

Some providers offer special incentives or giveaways for consumers who pay regularly and are not delinquent on bill payments. These giveaways of incentives can vary -- from free movie tickets to paid trips to pre-determined destinations depending on what they offer.

Any other tips! Comment below.