What Is a Fixed Rate Electricity Plan?

A fixed rate electricity plan sets a consistent per-kilowatt-hour (kWh) rate for the energy portion of your electricity bill over a predetermined period. This allows consumers to lock in a stable price for electricity usage, regardless of fluctuations in the broader energy market. This consistency helps consumers anticipate a significant part of their monthly energy expenditures.

Understanding Fixed Rate Electricity Plans

A fixed rate electricity plan sets a constant price per kilowatt-hour (kWh) for the duration of the agreement. This provides predictability for a core part of your bill, as the charge for each unit of electricity consumed will not change. This fixed energy charge is distinct from other charges that comprise a full electricity bill.

Your total electricity bill includes components beyond this fixed energy charge. These typically encompass delivery charges, transmission fees, taxes, and utility-specific surcharges. Local utility companies determine and pass through these fees, which cover infrastructure maintenance like power lines.

While the energy charge remains stable, other bill components can fluctuate. Delivery charges, for example, might adjust periodically. Therefore, even with a fixed energy rate, your overall monthly bill will still vary based on your actual electricity consumption. Higher usage, such as during peak heating or cooling seasons, will result in a higher total bill.

Key Elements of Fixed Rate Contracts

Fixed rate electricity contracts outline specific terms and conditions. Common contract lengths range from 12 to 36 months, though some providers offer shorter terms like 6 months or longer ones up to 60 months. The fixed energy rate applies throughout this contract duration.

These contracts often include early termination fees (ETFs) if a customer cancels service before the agreed-upon term ends. ETFs commonly range from $150 to $300, though the exact amount can vary by provider and contract.

Contracts may also stipulate other charges beyond early termination fees. These can include monthly base fees, which are flat charges applied regardless of usage, or minimum usage fees if consumption falls below a certain threshold. Some fixed rate plans might also integrate specific features, such as bill credits for reaching certain usage levels, or offer time-of-use pricing, where the fixed rate varies based on the time of day. Information about these contractual specifics, including renewable energy content, is detailed in an Electricity Facts Label (EFL).

Fixed Rate vs. Variable Rate Plans

Fixed rate and variable rate electricity plans differ fundamentally in how their pricing is determined and how that impacts a customer’s bill over time. A fixed rate plan maintains a constant price per kilowatt-hour (kWh) for the entire duration of the contract, providing a consistent energy charge. This means the price you pay for each unit of electricity consumed will not change, regardless of shifts in the wholesale electricity market.

In contrast, a variable rate electricity plan features a price per kWh that can fluctuate. These rates are typically influenced by market conditions, such as the wholesale cost of electricity, supply and demand dynamics, and other factors. Variable rates can change monthly, or sometimes even more frequently, reflecting immediate market shifts.

The core distinction lies in price predictability and exposure to market volatility. With a fixed rate plan, consumers have a clear understanding of their energy charge, which allows for more predictable budgeting. This stability means the rate remains constant even if market prices for electricity rise significantly. Conversely, variable rate plans offer no protection from sudden price increases, as their rates directly respond to market fluctuations. While a variable rate might decrease if market prices fall, it also carries the risk of sharp increases, leading to unpredictable monthly bills.