As you figure out your energy choices for your business, there are a lot of terms that can come up. Fixed rates and variables rates are one of them. What are they, and what’s best for you?
In this post, I will explain what they are, what affects them, and what’s best for your busines.
Fixed Rate Energy Plans
Fixed rate energy prices are acquired through contracts, with an alternative energy supplier, in deregulated markets. (Illinois is one of them!) Fixed rates plans can be for natural gas or electricity. With a fixed-rate energy plan, the price you pay per kilowatt-hour (kWh) or therm (in natural gas) remains the same throughout your contract. The contract term determines the amount of time your business will have the fixed rate.
There are some big advantages in signing a fixed rate contract, on your commercial business account. A fixed rate plan guarantees predictability and stability in your electric and natural gas bills.
Just like a stock price, electricity and natural gas prices change every day. (Side note: because the price changes every day, when your account is being quoted for a fixed rate plan, it’s imperative, if you like the price, to make a move that day. That price will change tomorrow.)
With a fixed price contract, even if market prices change, your energy rate won’t be affected. A set price makes it easier for you to plan for how much your business will spend on energy each month.
On a fixed rate plan, you pay a slight premium for peace of mind and protection from market conditions. The only change in your billing will vary on your usage. For example, if you use more electricity or natural gas that month, your bill will be higher.
There are two disadvantages to a fixed rate energy plan:
- Because it’s a contract, if you decide to leave the plan early, there may be cancellation fees.
- If the energy price lowers one month, in that month, you will have paid a higher rate, than you would’ve on a variable rate.
Variable Rate Energy Plans
A variable rate energy plan means that you pay whatever the market rate is for energy, every month. If electricity or natural price gas prices are high that month, your price per KWH or therm will be higher. If it’s lower that month, your price is lower. Your rate is different every month. Your business is totally exposed to market conditions.
There are a myriad of factors, which affect the natural gas and electricity price. Some of these are:
- Weather conditions
- Time of year
- Location
- Minimum usage charges
- Energy Demand
- Cost of fuel to produce the energy
Variable rates, due to the number of factors influencing its price, can be very volatile. It is impossible to plan your energy budget for the month, while on a variable rate. Your business is exposed to market conditions. Especially if you’re a smaller business, the unknown energy budget required every month, on a variable rate, can be disastrous. This can result in hundreds, if not thousands, of extra dollars per month.
Note: Another way that an account can end up on a variable rate is when a fixed rate contract lapses. It’s always important to pay attention to your broker’s calls/emails, when your fixed rate contract is up for renewal, so you can lock in your price. In instances of contract lapses, we’ve seen businesses charged 2-3 cents per KWH, on a variable rate, more than what they were paying. When a contract lapses, your variable rate is determined by the alternative supplier, not by the utility.
An advantage of being on a variable rate is that if the price of energy lowers, you get the advantage of the lower price that month. There is no contract in place, on a variable rate plan, which can be appealing for some.
What If I Don’t know What Kind Of Plan I’m On?
Contact us, and we’ll take a look at your bills for you, free of charge. You may be on a variable rate, without knowing it. Sometimes, with employee turnover, the person in charge of the energy account may have left, and a contract may have lapsed.
Which is Better For My Business-A Fixed Rate or Variable Rate?
Our recommendation, for commercial businesses, is usually a fixed rate plan, especially in a place, like Illinois, with very unpredictable weather. Your business has enough expenses to incur. An energy bill that drastically changes every month shouldn’t be one of them.
With a fixed rate plan, your business is protected from volatile conditions. Furthermore, when your contract is up for renewal, we consistently monitor and quote your account, to try to get you another great price. You have enough to focus on in your business; your energy account shouldn’t be another worry.
We are Illinois based energy brokers. LBE, Ltd. been in business for over thirty years, and we specialize in fixed rate plans. If you’re interested in getting a quote for your account, please feel free to call, email, or use the quote request, on the website! Our quotes are free, with no strings attached.
