It’s no secret that the cost of electricity can vary widely from month to month.
Most electricity customers discover this firsthand if they have signed up for a month-to-month electricity contract. There are natural price variations that happen each month depending on factors such as customer demand and electricity fuel generation costs. To avoid these price swings, most residential electric customers choose an electricity plan that locks in a favorable rate for a fixed length of time.
Contract term lengths with your electricity provider can be as short as 3 months or as long as 5 years, with the most common generally ranging from 6 months to 2 years. You may think the longer contracts are the better deals, but are they? What is the best length of an electricity plan for you?
Why choose a Fixed Rate Plan?
Fixed rate plans (regardless of the contract length) are cheaper than month-t0-month plans. Why is this? Because without a contract, the provider has to guess at how much electricity will be needed to service customers with month-to-month contracts. If a provider’s estimate of usage is too low, they’ll have to purchase additional power at higher prices to meet customer demand. As a result, provider’s charge more for month-to-month plans to mitigate this risk.
With a variable, month-to-month plan, you’re at the mercy of the energy market with no way to accurately predict how much your electric bill will be each month. Granted, electricity providers are required to disclose historical pricing for the month-to-month plans, but that doesn’t mean you won’t be in store for a roller coaster ride when it comes to your future energy costs.
With a fixed rate plan, you’ll pay the same energy and delivery rate per kilowatt-hour used each month during the term of your contract. The only variable will be how much power you actually use. Fortunately, if you live in a deregulated state, you have the power to choose a fixed rate plan with a variety of lengths. The best one for you depends on your usage and lifestyle.
Short-Term Electricity Plans
Short-term plans usually last less than a year, with six months being the most common length of time.
The biggest advantage to signing up for a short term plan is that you’ll have the ability to switch plans frequently, affording you the opportunity to take advantage of lower electricity rates if they’re available. It varies, but some electricity providers tend to offer slightly lower rates for shorter-term contracts. As a general rule, electricity rates are the highest when demand is the highest. Avoid signing up for a short-term electricity contract that expires in July/August.
On the other hand, having a short-term electricity contract means that you will need to shop for electricity more frequently, leading to a missed contract renewal. If you happen to miss the deadline and don’t sign up for a new contract before the expiration date, your provider will move you into a default plan which is a month-to-month variable rate plan. A default plan can cost you hundreds of dollars in a bad market and be a nasty surprise.
Long-Term Electricity Plans
Long-term plans allow you to lock in a certain rate for one or more years. If you sign the contract when electricity prices are low, you’ll get a bargain that lasts. This also means you won’t have to suffer through price peaks during the worst of winter cold or summer heat.
The rates for long-term electricity contracts depend largely on the provider and their marketing strategy. Some providers offer lower rates for longer-term contracts, and other provider’s offer lower rates for shorter-term contracts. Generally, a provider’s rate difference between a 12 month contract and a 36 month contract is no more than half a cent per kWh one way or the other all else being equal.
If you are unsure of how long you may be at your current residence, don’t let that stop you from signing an electricity contract. Each state has rules that prevent providers from charging an early termination fee if you move. All you need to do is let your provider know and give them your change of address.
Is a short-term or long-term electricity plan better?
Unfortunately, there’s no simple answer to this question. It depends on your specific needs.
Most customers want to find the lowest rate possible regardless of the contract length. Others don’t want to bother finding a new electricity plan every few months and are willing to pay a little more to avoid it. Depending on where you fall on this spectrum, the best thing you can do is shop and compare.
At ElectricityPlans.com, you’ll find a large variety of plans from many reputable providers. The search tools allow you to facet by plan length, provider, as well as unique plan features. You’re able to find an electricity plan with the exact plan length that works for you at the best electricity rate available.
Learn more about shopping for electricity by reading our guide, The Definitive Guide to Shopping for Electricity in Texas.