Alex Ram

Being in a state or area that has allowed competition for power makes a person become no stranger to shopping for the lowest rate. The unit price for power that most people will compare between companies is pennies per kilowatt-hour. Along with shopping for the lowest rate comes looking at the corresponding restrictions, the criteria required to get the lowest rate. Yet with rates differing between six cents and thirteen cents in a given area, a shopper could easily expect many "hoops to jump" in order to receive a low rate. Start up fees, contract length, minimum hourly usage, and other such terms are just a start. Moreover, these charges can be varied from month to month for each patron or be fixed. Consistency from month to month in the rate pricing is usually categorized by the terms variable, fixed, or indexed.Since fixed charges stay the same, a fixed rate plan will usually be paired with a minimum period of time on the contract and can "lock in" a low rate when rates are expected to rise. To the contrary, variable rates would be advantageous when the charges might be expected to remain stagnant and the patron would like the option to switch providers or cancel a contract in a short time frame. Indexed rate plans, however, can add complexity to the range of choices and confusion about what determines the rate.Variable fees vary because they are based on the cost of the raw energy used to create the electricity, like the cost of natural gas. Indexed plans share the idea of variable rate plans that the rate varies from month to month AND that the rate is based on the cost of production, i.e., it is raised when the power provider must pass on to the end-user any rise in price of energy production. The uniqueness of the indexed plan is that it is more directly tied to the cost of the raw energy such that the end-user, the power customer, can be certain they are paying the lowest possible at the moment the raw energy is at its lowest cost. Rate plans that vary from month to month at the providers discretion can be based on a multiple of criteria that can be more subjective than the cost of production, like an end-user's credit history.A variable rate plan can, however, have an advantage when the power provider is trying to compete with other providers because the provider can choose to charge less just to be competitive. Therefore, the end user may decide their commitment to a plan is based on two factors: whether raw energy cost -- the cost of producing energy -- is expected to rise or fall or maintain and whether their commitment is long term or short term.In one scenario, an power consumer would feel confident that the cost of raw energy used to produce energy would go up in the near future, and that same consumer feels able to commit to a year with one provider, then that consumer might choose a plan with a fixed rate. Plans that lock in the rate for a year will likely have the lowest rate, as long as the customer's credit score, their lack of usage, or some other restriction does not bump the rate back up. If the cost of raw energy, however, is expected to fall, and the customer could commit to a year, then the customer might choose an indexed plan in order to "hug" the curve in declining costs as closely as possible.In a third scenario, the charges might be declining but the customer is not certain about committing to a lengthy contract, then that customer might choose a variable plan so that the customer could keep aware of pricing from competitor providers and switch when it makes sense to do so, or at least threaten to switch and get the current provider to offer a lower rate to keep the customer.Not sure where to go from here? An electrical customer who doesn't wish to research all of this information every time their contract for power is fulfilled should consider the use of an energy broker, one who could shop on behalf of the customer and give the customer even lower rates than the customer could receive by working directly with the electricity providers. An energy broker has the advantage of being able to offer specially low rates because the various providers will promise low rates through the broker in exchange for bringing additional customers.The author enjoys writing articles on finding the cheapest business electricity. Click on the links to learn more information about how to compare electricity rates.