Fixed and variable electricity contracts represent two fundamentally different risk positions. Fixed locks your supply price for the contract term. Variable exposes you to wholesale market movements every billing period. For most commercial accounts, the choice is clear — but the right answer depends on your specific circumstances.
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Side-by-Side Comparison
| Factor | Option A | Option B |
|---|---|---|
| Price certainty | High — locked for term | None — resets monthly |
| Exposure to market spikes | None during term | Full exposure every month |
| Savings in low-price periods | No — locked in | Potential savings |
| Budget predictability | Excellent | Poor |
| Best for | Most commercial accounts | Sophisticated buyers with risk tolerance and flexible load |
| Typical term | 12–36 months | Month-to-month |
| Risk of extreme cost | None during term | Significant (Uri, polar vortex events) |
| Contract complexity | Low | Low, but market monitoring required |
The Case for Fixed-Rate Contracts
Fixed-rate contracts eliminate supply price risk for the contract term. If wholesale electricity prices spike — polar vortex, heat wave, supply disruption — your rate doesn't move. For businesses where energy is a significant operating cost, that predictability is worth a modest premium over the lowest available variable rate. You can price your product or service knowing your energy cost through the contract period.
When Variable Rates Make Sense
Variable rates work for commercial buyers who: (1) have operational flexibility to significantly reduce load during high-price events, (2) actively monitor wholesale markets and move to fixed when prices are favorable, or (3) need a short-term bridge while evaluating options. They're not appropriate for accounts that can't absorb price spikes.
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What Can Go Wrong With Variable
ERCOT Winter Storm Uri (February 2021) pushed Day-Ahead prices above $9/kWh for several days. ISO-NE polar vortex events have pushed New England commercial rates above $0.30/kWh. Variable-rate customers in these events received bills 5–20x their normal amounts. Fixed-rate customers paid their contracted rate.
The Indexed Option
Indexed contracts sit between fixed and variable: your rate tracks a published wholesale index plus a fixed supplier margin. Transparent pricing with market exposure. Best for sophisticated buyers who want to see what they're paying and why, and have some load flexibility to respond to price signals.
How to Choose
If energy represents more than 5% of your operating costs, or if a 50% spike would materially affect your business, use a fixed-rate contract. If you have genuine load flexibility and the sophistication to actively manage energy exposure, indexed or variable may occasionally offer better economics — but requires ongoing attention that most commercial operators don't have bandwidth for.
Frequently Asked Questions
Which is better for most commercial businesses — fixed or variable rates?
Fixed-rate contracts are better for most commercial accounts. They eliminate price spike risk and enable accurate budgeting. Variable rates carry significant downside risk during market stress events.
Can I switch from variable to fixed mid-contract?
If you're on month-to-month variable, you can typically switch to a fixed contract with 30 days notice and no penalty. If you're in a fixed-term contract, check your ETF terms.
What's the typical premium for fixed vs. variable pricing?
Fixed rates are typically set at a slight premium to current Day-Ahead market expectations — the supplier is pricing in the risk they're absorbing. In stable market conditions, this premium is 5–15% above variable. In periods before anticipated price spikes, the premium may be higher.
Do brokers offer both fixed and variable quotes?
Yes. We pull both fixed and variable (or indexed) quotes from each supplier so you can see the spread and make an informed decision. We present the risk profile of each alongside the price.
What happens when a fixed contract expires?
Most contracts have an auto-renewal provision — they default to a new rate (often variable or an elevated fixed rate) if you don't take action. We track expiration dates and initiate a new competitive process 6–9 months before your contract ends.