Fixed and indexed contracts both have defined pricing mechanisms, but they behave very differently over a contract term. Fixed locks a price. Indexed tracks a published benchmark. Understanding the trade-off helps you choose the right structure for your risk tolerance and operational flexibility.
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Side-by-Side Comparison
| Factor | Option A | Option B |
|---|---|---|
| Price certainty | Complete — locked for term | None — tracks index monthly |
| Pricing transparency | Fixed price agreed upfront | Full — you see the index and adder |
| Market upside potential | None — locked in | Benefit if index falls |
| Market downside risk | None during term | Exposed if index spikes |
| Best for | Budget-focused accounts | Sophisticated buyers tracking market |
| Typical term | 12–36 months | 12–24 months |
| Contract complexity | Low | Moderate — requires monitoring |
| Broker process value | High — competitive fixed bids | High — competitive adder bids |
How Indexed Pricing Works
An indexed contract sets your price as a published index (ERCOT Day-Ahead Hub, PJM Western Hub, NYMEX Henry Hub for gas) plus a fixed supplier adder. Example: ERCOT Day-Ahead Houston Hub monthly average + $0.003/kWh. The adder is fixed for the term; the index resets each month. You know exactly what you're paying and why.
When Indexed Outperforms Fixed
Indexed contracts can deliver lower total cost than fixed when the underlying index stays below the fixed-rate equivalent over the contract period. In low-volatility markets with downward price trends, indexed buyers capture savings that fixed-rate buyers forgo.
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When Fixed Outperforms Indexed
Fixed outperforms when the index spikes above the contracted fixed rate. In stress events (cold snaps, heat waves, fuel disruptions), indexed buyers absorb the full impact of the market move. Fixed-rate buyers pay their contracted rate regardless of what the market does.
The Adder: Where Broker Value Shows
In indexed contracts, the supplier adder is the negotiable component. Suppliers compete on the adder — a smaller adder means a lower total rate when the index is stable. We submit to multiple suppliers and find who offers the most competitive adder for your account profile.
Who Should Consider Indexed Pricing
Indexed contracts suit commercial buyers who: actively monitor energy costs, have some load flexibility to respond to price signals, want full transparency into pricing mechanics, and are in markets where they trust the index behavior. Not suitable for operations that need budget certainty above all else.
Frequently Asked Questions
What index do most commercial electricity contracts track?
Electricity indexed contracts typically track Day-Ahead wholesale prices at the hub nearest your utility territory: ERCOT Houston Hub (Texas), PJM Western Hub (PA/OH/NJ area), NYISO Zone J (NYC), ISO-NE Mass Hub (New England). Natural gas indexed contracts track NYMEX Henry Hub plus a basis differential.
What is a 'fixed adder' in an indexed contract?
The fixed adder is the supplier's margin on top of the index — expressed in $/kWh or $/therm. It's fixed for the contract term even though the underlying index moves. Suppliers compete on the adder; a lower adder means a better deal for the buyer when the index is at its expected level.
Can I convert from indexed to fixed mid-contract?
Some indexed contracts allow conversion to fixed pricing at a then-current market rate — check your contract terms. If yours doesn't, you'd need to wait for expiration or pay an ETF to switch to a new fixed contract.
Is indexed pricing available for natural gas too?
Yes. Natural gas indexed contracts are common — typically NYMEX Henry Hub plus a basis differential to account for local pipeline costs. Indexed gas contracts are popular for accounts that want to see their energy costs correlate with published market data.
How does a broker help with indexed contracts?
We source competing bids on the adder component — the negotiable part of an indexed contract. Multiple suppliers compete on adder size for the same index, giving you a market-competitive adder rather than whatever one supplier offers.