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Short Term Electricity Rates Risky

Fixed rate electricity plans are a great fit for most consumers. You get price certainty without having to worry about your electricity rate changing every month.  You simply shop, compare, enroll, and then forget about the rate until it is time to renew.  Selecting a product term, however, can be a little tricky.

Flexibility or Rate Stability

We have previously discussed the opportunities and issues associated with long-term fixed price electricity plans.  Short term fixed price offers are on the other end of the product spectrum.  These plans balance price stability with the flexibility of a variable rate plan.  This is perfect for consumers worried about price volatility but unsure about making a longer-term commitment.  These short-term plans are especially useful in states like Connecticut and New York where variable rates plans are no longer available.

The question comes to mind, however, as to how short is too short?  The answer depends heavily on your personal preferences and circumstances.  There are times when a three or four-month fixed price electricity plan makes sense.  For example, say you have an annual apartment lease and enroll in nine-month electricity plan.  A three-month fixed price plan might be a good option to match up with the end of your apartment lease.  Choosing a short-term electricity plan, however, may not be a good idea for everyone.

Seasonal Electricity Prices

The concern is when electricity providers use three and four-month terms to take advantage of seasonal price variations. These rates may appear artificially attractive to consumers.  Low short-term electricity rates may cause some customers to overlook the risk associated with these offers.  The chart below reflects the seasonal nature of residential electricity rates.

Seasonal Electricity Prices

A customer locking in an ultra-short fixed price offer is usually in for a rate shock when they reach the end of their contract term. This may not be an issue for some consumers.  It can be a problem if you like to keep your utility budget on an even keel throughout the year.  Fixed rate electricity plans with annual terms (12, 24, or 36 months) keep your rate constant throughout the year.  Your electricity bill will still vary with your usage but at least the rate will hold steady.

Before selecting a short-term fixed rate electricity plan, be sure to give some thought as to how it fits your needs. The low rate aspect of these plans can be tempting.  Be sure you are comfortable with the possibility of a much higher rate when the term ends.

About: Charlie Hewitt

Charlie Hewitt has more than 25 years of in-depth energy experience having served in executive and managerial roles at some of the largest retail energy providers in North America. His expertise covers a wide range of retail energy disciplines including pricing, contracting, risk management, and credit. He holds an MBA from UT Arlington, MA and BS degrees in geology from UT Austin, and was a TXU environmental research fellow.

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