Are variable rates a good idea?

When switching to an alternate supplier, variable rates can be cheaper on average than fixed rates, but they can also be more expensive, depending on your retail electric supplier, and on the market prices of electric supply.

 

Electricity prices on the wholesale markets vary every month. Therefore, if you choose a variable rate plan with your retail energy supplier, your rates will most likely reflect the variations of the market. These variations tend to be seasonal, since the demand increases during months of extreme temperatures.

Variable rates with your utility company

By default, if you have not switched to an alternate retail energy supplier yet, your electric supply will be done by the utility company. Utility companies only offer variable rates, which are directly based on the price of electricity on the wholesale market. To this will be added a purchasing fee (which is fixed per kWh) to cover internal supply costs.

 

There can be advantages to remaining with your utility company, especially if you wish to keep a variable rate plan. Indeed, utility company variable rates directly follow the market price, whereas retail supplier companies may have more loose rules.

Variable rates with your retail supplier

Honest & less honest retailers

Some retail suppliers are not always bound by the price of the market, like utility companies are. This means that with some alternate suppliers, variable rates with retail electric suppliers may not directly reflect the price of the market.

This can in some cases be to your advantage (if the variable rate is lower than market prices during a given month), or to your disadvantage (variable rate higher than market prices during a given month). In many cases, there is not clause in the Terms and Conditions which makes promises about the value of the variable rate.

For example: an unnamed retail supplier stated in its terms & conditions that: "Your price under this Agreement will be a variable price set by "Supplier Name" based on market conditions and the way your account uses energy." This isn't very specific, and does not state specifically that the supply price will be equal to the market price, or equal to the market price plus a supplier fee. It simply says "based on market conditions", which leaves room for uncertainty.

This means that your supplier is technically allowed to skyrocket the prices of the electricity supply, with no obligation to warn you, and with little or no justification of a market inflation of electricity prices.

 

Complaints regularly appear to suppliers, where people criticize a sudden increase in the electricity supply prices in their bill. There is unfortunately nothing that can be done to prevent this, other than resigning from your contract, which will not return your lost money.

What should I do then?

In most cases, when switching to an alternate supplier, we do not recommend variable rates. They may end up cheaper than the variable rates of utility companies, but they may end up more expensive. 

Nevertheless there may be some cases where you can win money from having well read the terms & conditions, and choosing a trusted retail energy supplier.

How to know if a retail supplier can be trusted

Visit our website! We give all the information on utility companies in your state, and on all the retail electric suppliers in the US