Electricity prices are charged based on the number of kilowatt hours that a home or business consumes. The price range per kilowatt hour varies by your region and rate class.
Energy companies can offer fixed rate products that lock in your rate for a specific period of time or variable floating rate products that fluctuate with the wholesale natural gas and electricity markets. It is important to know the difference. Energy companies offering a variable rate will usually not require the customer to sign a long term contract and will have no penalty for leaving. Fixed rate contracts require the energy company to buy the electricity in advance for the customer, so there is usually some sort of penalty if the customer leaves before the term of the contract is up.
While many customers in deregulated energy markets like the flexibility of the variable “no contract” electric rate, what they should understand is that though the energy company will usually guarantee the first month’s rate, after they can charge whatever they want for the electricity that you consume. Most of these companies will try to keep the rate low so that they don’t lose you as a customer, however if the market rates go high these energy companies will be forced to pass along the higher electric prices to their customers. This is the risk of choosing a variable electric rate option with an energy company.
Fixed electricity rates lock in a low rate for a set number of months specified in the contract. Many people are afraid to sign electricity contracts that lock you in for several months, but they can be very beneficial in protecting you from spikes in the energy markets.