Quick gut check: Are you the type of person who’d prefer to pay the same price for electricity, no matter the time or day, or would you rather adjust your behavior so you could save money on your energy bills?
That’s essentially what you’re choosing between when picking between a fixed- or variable-rate electric plan.
But let’s back up for a second. You’ll have this choice only if you live in one of the 18 states that offer consumers deregulated energy markets, along with the District of Columbia.
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If you live in a place where you’re allowed to choose your energy supplier, understanding the difference between the types of energy plans could potentially reduce how much you’ll pay for electricity each month.
Can I choose my energy plan?
Currently, only 18 states and the District of Columbia offer their residents some sort of choice when it comes to their energy suppliers (your energy distributor or utility is typically locked in). Check out this CNET guide to see which states currently offer consumers a choice.
We’ll help you find the best electricity rates in your area
In deregulated markets, you can usually choose from a variety of pricing structures as well as where your energy comes from (such as renewable sources). Making the right choice can net you savings on your energy bill, while making a bad one could end up costing you more. One study, out of Harvard University and the University of Pennsylvania, even found that prices are higher in deregulated markets, so buyer beware. Still, it’s worth at least considering your options.
What is a fixed-rate electricity plan?
The industry standard fixed-rate plan is simple: You pay the same rate for electricity no matter what time of day. The benefit of these plans is predictability. If rates remain flat from month to month (they typically only change upon approval from the state regulator), and your energy usage remains the same, your bills month over month should also be similar.
What is a variable-rate electricity plan?
Here’s where you can potentially save money on your electric bills. With variable-rate plans, energy suppliers will charge different rates based on what time of the day it is. If it’s, say, right after work and everyone has just arrived back home to cook dinner, do the laundry and watch some TV, rates will be higher. But at other times of the day, say, during the morning or at night, rates will be lower. These off-peak periods offer savvy consumers the chance to save on their bills, as long as you’re willing to schedule laundry or charge your electric vehicle during these times.
Some utilities will offer even more specialized types of variable plans where rates can change by the minute or hour. Typically, though, residential consumers don’t have access to these energy market-type plans. They are more for commercial properties such as large offices or factories.
What is a prepaid electricity plan?
The best analogy for prepaid electricity plans are prepaid cellphone plans, according to Mark Rawson, senior VP of strategy and partnerships at Rhythmos.io, an EV charging optimization platform for utilities and fleets. “You pay a flat rate and get to use as many minutes up to your allocation for that rate. Any minutes over that period, you pay a different rate,” he said. “I don’t think it’s that common.” He adds that utilities don’t prefer these types of plans because they have no mechanism to change consumer behavior, such as getting you to use your dryer at night.
What type of electricity rate is best for me?
The best type of electricity plan for you depends on two factors: how much energy you typically use per month, and how much you’re willing to change your behavior for savings. If you’re someone who just wants to use their appliances whenever the need arises, a fixed rate plan offers a degree of predictability to your bills.
If, however, you’re willing to do energy intensive activities during off-peak hours, there’s potential savings to be had by switching to a variable rate plan. It’ll require more vigilance on your part, but you’re likely to be rewarded for those efforts.
