If you have an electric company calling you and sending you mail outs asking you to renew an expiring fixed rate energy contract you are likely benefiting.
Most people get their highest electric bill after they let their contract expire and the rate defaults to a variable market rate.
The variable prices are not hedged rates and so the provider is taking on a significant risk by selling a price that is not locked in.
The provider can eliminate this risk by adding in their profit margin and allowing the price increase that may happen to roll over to the customer.
Market electric rates can sometimes be lower than what you could sign up on with a fixed rate but an electric provider is unlikely to give you these savings if you did not renew your contract.
What they will do instead is give themselves an added 2 cents or more per kWh added to the existing profit margin.
So you may have had a significantly cheaper electric bill over past years while on a 1 year fixed contract.
Let’s use a residential contract as an example instead of commercial to explain.
Your electric bill might have been under $100 a month but as soon as that contract expired your rate went to a variable price and you racked up almost 2 months of usage on a higher electric rate and perhaps had a $200 plus electric bill for the two months you were off contract.
An electric provider that gave you an excellent deal in the beginning may have hoped a certain percentage of their customers would allow their contract to lapse so they could meet their profit target.
This is a warning to procrastinators. Don’t let your electric service contract expire without renewing with the same provider or shopping and ordering with a cheaper provider.
The providers would hope you will let it slide but it’s not a smart move for a family budget that needs to stay on target.
In summary, let me suggest a way to avoid the electric rate price uptick by setting an alarm to ring on your phone around the date of your contract expiration. Make a commitment to shop and order electric service when that alarm sounds so you don’t pay $200 – $400 more for electricity than you really needed to.