How Fixed-Rate Energy Can Lock in Electricity Prices for Small Businesses

The rush usually comes around 12:30, but today it came at 3. Which would have been fine, except that Sandra called out with the flu. Long story short, you’re shorthanded and the lines are long. Which would normally be fine, except today the basement flooded and ruined most of your sandwich toppings. Now, customers who’ve waited half an hour in line can’t get pickles or mushrooms on their sandwiches. Which means customers grow frustrated. But despite it all, you remain relatively calm. Until you open your electric bill at the end of the day and see that the rate has doubled from the previous month.

When you’re running a small business, the only thing you can predict is the unexpected. At your scale of operations, even minor bumps in the road can have major consequences. As a result, you seek predictability and stability wherever you can. While you can’t control the weather, flu outbreaks or the price of your supplies, one thing you do have some control over is the price of your electricity. With a fixed-rate energy plan, you’ll pay the same amount month to month for the energy you use. Here’s how it works:

Variable Rate Energy Plans Change Hour by Hour

There are two ways that energy suppliers bill their customers for electricity. The most common method is known as variable-rate energy pricing. It’s relatively simple. The energy company, whether a utility or third-party supplier, buys their electricity wholesale from the energy market through power plants. The price of electricity varies from hour to hour, depending primarily on where it was generated, how much electricity is available, and the level of demand. The energy company distributes that electricity to their customers. Each customer’s meter is read to see how much they used for a specific month. The customer is then billed for their electricity at the market rate for that month, plus any applicable taxes.

The three factors that determine the market rate for electricity can vary greatly. Certain power plants are simply more costly to operate than others, making the electricity they sell more expensive. Another important factor is time of year. If there is a heavy amount of demand, such as in the summer when everyone turns on their air conditioners at once, energy companies are forced to buy more – and more expensive – electricity. This also typically happens in the winter, when we keep the lights on longer and turn up the heat. The more the energy company pays, the more you, the consumer, will pay. That is, unless you lock in your rates ahead of time with a fixed-rate plan.

Fixed-Rate Plans Lock in the Price of Electricity

A fixed-rate plan is an alternative to a variable-rate plan and gives you more stability when it comes to planning your budget. No matter how much – or how little – your energy supplier pays for electricity, you will be charged the rate you both agree upon based on the recent average cost of electricity. Your energy company then goes to the market and buys in bulk, based on the estimated usage you’re expected to use while on agreement with them. This is determined when they analyze your past usage. For your entire agreement, you are billed at the same supply rate. Once your agreement is up, you can decide on renewing, at a new fixed rate, or rolling over on a variable rate.

Of course, because your price is based on an average, in months when electricity is particularly cheap, you may be paying more than the going rate. But don’t forget – when it’s summer and the market price for electricity spikes, you keep the paying the same rate even though price just got more expensive.

The real win with a fixed-rate plan is predictability. If you use the same amount of electricity every month, then you’ll pay the same amount on your bill. For a small business with thin margins, this predictability can allow you to plan your budget with a greater degree of stability than is otherwise possible. So, how do you find a fixed-rate plan to fit your needs?

Third-Party Energy Suppliers Offer Fixed-Rate Electricity Plans

In states that have restructured their electricity markets third-party energy suppliers can provide you with a fixed-rate plan. These suppliers buy and sell electricity the same way utilities do, while utilities remain responsible for delivering it to your business. Third-party suppliers offer fixed-rate plans as a way to give customers budget control and choice when it comes to their energy rate.

To find the best fixed-rate plan, it’s important to shop around. Not every third-party supplier has the same buying power, so not all of them can offer the same price. In order to know a good deal when you see one, figure out what you’ve paid per kilowatt hour on average over the past year. Then, check with third-party suppliers in your area to see if you can find a comparable price. Depending on the market, a fixed rate may be able to save your business some money over the course of the year. Without a doubt, it’ll save you the headache of not knowing what your bill will be.

As with any purchase, it’s important to ask questions before signing a contract. For instance, find out if they assess any extra fees, such as for an early termination of your agreement. Once you’re satisfied with the terms, you’re all set to lock in your electricity rates. Then, even if the basement floods or your whole staff gets pink-eye, at least you won’t be surprised by your electric bill.

At Liberty Power, we think it’s important to give small businesses a chance to grow. We started out as a smaller enterprise ourselves, and have since expanded to offer fixed-rate energy plans in 13 states. Our size gives us the buying power to negotiate with energy markets and pass our fixed-rate prices on to you, the consumer. Contact us to find the best energy rate available in your area.

Liberty Power Editorial Team
The Editorial Team at Liberty Power is a swashbuckling group of passionate and creative Energy experts bringing you the hottest topics on exciting market trends, booming products and services, and the latest news in the industry.
July 27, 2017