Energy providers sometimes offer two main choices in how to pay for your electricity. For many, locking in electric rates makes a lot of sense. But maybe you’re asking yourself: “Should I lock in my electric rate, or pay the market price every month and take the chance that rates will go down?” The answer depends on how you use electricity and how much risk you’re willing to accept. So, it pays to take a little time to weigh your options.
What it means to “lock in” electricity rates
Locking in electric rates means you agree to a fixed supply price per kilowatt-hour for all the electricity you consume for the duration of the contract. Like any commodity, electricity is sold at rates that vary according to demand. When demand is high, the price of electricity tends to go up. When you lock in a rate, that is the price you pay for the period of time you agree to in your contract, no matter what happens to the market price of electricity.
You can often lock in a price for a set amount of time, anywhere from a few months to a few years. The savings, if you time it right, can be significant.
What energy plans allow me to lock in my rate?
Energy providers may offer two kinds of plans for paying for electricity. Locking in electric rates at the same pre-contracted price for a period of time is one option. That plan is what’s called a fixed rate supply plan.
Another type of plan allows you to pay as you go with a variable rate. With this plan, you pay for the electricity you use monthly at the current market rate. It’s important to think carefully about how you use electricity in your household when comparing variable vs. fixed-rate options.
How can I change my electricity rate?
Even fixed supply rates can change when your electricity contract is up for renewal. If you’re already in a fixed-rate contract, you’ll likely have to pay an early-termination fee if you cancel before the end of your contract term.
The important thing is to know how to shop for an electricity plan. Read the details of the contract carefully because the terms of the deal are just as important as the rate you pay. And lastly, consider timing. Rates vary over the course of the year, so you’ll want to lock in electric rates at the best time possible.
Best month to lock in your electricity rate
So, let’s say you’ve answered yes to the question “Should I lock in my electric rate?” You then have another question to answer: When is the best time to buy electricity? Naturally, the best time to buy electricity is during low-demand months. And even though electricity rates are driven by many factors, there are times of the year when electric rates are lowest.
Temperature and weather are the big factors affecting price. Do electricity rates go up in the summer? In Texas, for example, the answer is yes. Summer can be a bad time to lock in electric rates in that state. It gets very hot there in summer, so everyone uses their air conditioners more, which can drive up demand. Texas also gets a lot of severe weather, like hurricanes and tornadoes, which affect transmission. That can mean higher summer electric rates in Texas.
Further north, winter is a higher time of demand. Severe cold and ice can affect usage and transmission in places like Michigan.
In general, the best months to lock in electricity rates are those mild ones in spring and fall between the two extremes of winter and summer. Electricity prices are generally lowest in March and April, in spring, and September and October, in autumn.