Fixed vs variable electric rates: which is safer?

When a company offers you a new electric or gas price, the first thing to ask is simple: will this price stay the same, or can it change?

That one answer tells you a lot about how safe the offer is. Let me walk you through the kinds of prices you will see, in plain words.

What is a fixed price?

A fixed price stays the same for the whole contract. The Ohio Consumers' Counsel (OCC), the state's office for home utility customers, puts it this way: a fixed rate "is a price that will remain the same throughout the contract period."

So if you sign a 12-month contract at a fixed price, you pay that same price for each unit you use for all 12 months. A unit is a kilowatt-hour (kWh) for electricity. For gas it is a Ccf, an Mcf or a therm, depending on your gas company.

Keep in mind:

• Your bill can still go up and down. A fixed price is the price per unit. If you use more power in July or more gas in January, your bill is bigger.
• A fixed price is not always the lowest. The OCC notes that "Fixed rates may be higher than variable rates." You pay a little for the peace of mind.
• Check what happens at the end. When a fixed contract ends, it may roll into a new price. I explain this in What to do when your supplier contract is ending.

What is a variable price?

A variable price can change. The OCC says a variable rate "can change each month." Some Illinois gas plans can change even more often: the Illinois Commerce Commission (ICC) says the price on a variable gas plan "can change monthly, weekly or daily."

A variable price might start low. That does not tell you where it will be in six months. This is how many people end up with a bill that suddenly doubles. If that has happened to you, read My variable rate electric bill jumped. What now?

The OCC suggests you ask two things about any variable price:

1. How often can it change?
2. Are there limits on how much it can go up?

The seller "should be able to explain the factors that cause the variable rate to change." If they can't, that is a warning sign.

What is an introductory (teaser) price?

An introductory price is a low starting price that only lasts a short time. The OCC calls it a teaser rate: a rate "that is low for a brief period, perhaps one to three months, then increases to a higher price for the remainder of the contract."

A teaser price can look like the best deal on the list. But you will pay it for only a month or two. What matters is the price after the teaser ends. The OCC's advice: "Consumers need to know what the rate will be after the introductory rate expires."

What is a fixed bill plan?

Some Illinois gas suppliers sell a fixed bill plan. This is different from a fixed price. The ICC explains: "On a fixed bill plan, a customer will pay the same amount every month for a set period of time."

That sounds easy to plan for. But you pay the same amount even in summer, when you use very little gas. Before you sign, add up what the fixed bill would cost over a full year and compare it with what you paid last year.

Some Ohio electric offers charge a flat amount each month, too. The same advice applies: compare the whole year, not one month.

What must a seller tell you?

Each state has its own rules about how a variable price is explained to you.

Ohio

For a variable electric price, Ohio's rule (Ohio Adm. Code 4901:1-21-12 (opens a new tab)) says the contract must give one of two things:

• "A clear and understandable formula, based on publicly available indices or data" that the company uses to set the price, or
• "A clear and understandable explanation of the factors that will cause the price to vary," including "how often the price can change."

If the company picks the second choice, the rule says "no early termination fee may be charged." An early termination fee is a fee for leaving a contract before it ends.

Pennsylvania

Pennsylvania's rule (52 Pa. Code § 54.5 (opens a new tab)) says:

• If there is no limit on how much a variable price can change, the seller must "clearly and conspicuously state that there is not a limit on how much the price may change from one billing cycle to the next." It must also say, in larger type than the rest of the terms, that the price can change each billing period.
• If there is a limit, the seller must explain it.
• For an introductory price, the seller must tell you "the duration of the introductory period" and "the price for the first billing cycle after the introductory period."

Illinois

In Illinois, a company can't quietly turn your fixed electric price into a variable one. State law (815 ILCS 505/2EE (opens a new tab)) says a fixed-price contract can't renew as a variable one unless you agree in writing (or by electronic signature) 30 to 60 days before it ends.

Illinois home customers can also leave an electric supplier "at any time without any termination fees or penalties." That has been the law since January 1, 2020 (220 ILCS 5/16-119 (opens a new tab)).

Doesn't my utility's price change too?

Yes. Your utility's standard price is not set for good either. The OCC reminds people that "the Standard Offer varies" and suggests looking at old bills to see how it has changed.

• Ohio electric: the Price to Compare changes a few times a year. See What is the Price to Compare on my Ohio electric bill?
• Ohio gas: the standard price is set fresh each month. See Why your Ohio gas price changes every month.

The difference is that the utility's price is set in the open, by rules the state watches. A supplier's variable price is set by the supplier, under the terms of your contract.

So which is safer?

For most people, a fixed price with no teaser is the safer choice. You know what you will pay per unit, and you can plan.

A variable price is not always bad. But it asks you to watch every bill and act fast if the price climbs. Many people don't have time for that, and they shouldn't have to.

Here is my short list of questions before you sign anything:

1. Is the price fixed or variable?
2. If it is variable, how often can it change, and is there a limit?
3. Is the first price a teaser? What is the price after it ends?
4. How long is the contract?
5. Is there a fee to leave early? How much?
6. Is there a monthly fee on top of the price?
7. What happens when the contract ends?
8. Is the price lower than my utility's standard price today?

If the seller can't answer these clearly, you can say no. You don't have to decide on the spot.

What to do next

• Get a free check. Send me your bill at the free check. I'll tell you if you have a fixed or variable price and whether a better offer beats it.
• See today's prices for your state: Ohio, Pennsylvania or Illinois.
• Look up a word. The Help page explains terms like "variable," "introductory price" and "cancellation fee."
• Worried about a sales visit? Read Is it safe to switch my electric supplier?

Judy Saves will never call you or knock on your door. If someone pushes you to decide right now, that is a good reason to wait.