What’s the Difference Between Fixed-Rate and Wholesale Electricity? | Power Wizard Blog

What’s the Difference Between Fixed-Rate and Wholesale Electricity?

September 12, 2019 Published by Categorized in: Tags: , , , , ,

The Answer Could Save You Lots of Money on Your Home Electricity Bill

In case you’ve been living under a rock for the past few weeks, Summer 2019 in Texas has been hot. Actually, you’ve probably been cool under that rock! But you’ve also missed the biggest debate in Texas energy circles: locking in a fixed-rate plan versus riding the wholesale electricity wave.

 

An upstart Texas electricity company, a retail electric provider (REP) called Griddy, has attracted attention (and new customers) by encouraging Texans to leave their old energy company. Griddy’s promise – “You only pay the actual market price of electricity!”

 

This idea is known alternatively as “wholesale” or “indexed” electricity. The price people pay for energy matches the live price of the commodity on the market with no markups or additional fees. You can take advantage of low seasonal prices instead of being tied to a fixed-rate plan for months or years at a time.

 

While this sounds great, there’s a big problem with that approach: Texans use LOTS of electricity in the summer.

 

What’s the Difference Between Fixed-Rate and Wholesale Electricity? | Power Wizard Blog

 

Texas set new records for electricity demand over several consecutive days in mid-August 2019. At one point, the price of wholesale electricity hit $9,000 per megawatt-hour. That meant the average Griddy customer was paying $9.00 per kilowatt-hour! To put that in greater context, the average price for residential electricity in Texas in 2019 has stayed around 12 CENTS per kilowatt-hour. Griddy reportedly faced backlash when some of its customers said their electricity bills soared to over $100 per day for one or more days.

 

Power Wizard decided it was time to present our unbiased explanation of the difference between fixed-rate and wholesale electricity. Think of it as a bit of a public service announcement to Texas energy customers. We hope it helps.

 

How are electricity rates calculated?

 

Lucky for you, we answered this question in another blog post. But since REPs don’t purchase electricity like average energy customers, we wanted to re-emphasize a few key points.

 

  • Electricity is bought in large chunks from the companies that actually generate the commodity for the electricity grid.
  • Prices change every 15 minutes based upon supply and demand, which can be directly attributed to the time of year.
  • REPs determine the best possible long-term average price, one that appeals to customers while helping them turn a profit.

 

Ultimately, what you need to remember is that prices will be higher during the times of the year when people use the most energy. Everything else is a balancing act between how a given company wants to make money and how it takes care of customers.

 

What is a fixed-rate plan?

 

 

What’s the Difference Between Fixed-Rate and Wholesale Electricity? | Power Wizard Blog

 

At its most fundamental level, a fixed-rate plan locks in your rate for a specific period of time. It’s a promise made by an electricity company to not change the price you pay per kilowatt-hour for your contract term. It is a security blanket you can depend upon during the hottest and coldest times of the year. The rate for your plan will stay the same because your REP bought energy on the market at that average price.

 

Admittedly, during milder times of the year, electricity prices might drop below the fixed rate you locked in. On the flip side, your fixed rate will probably be lower than the industry rate when summer and winter appear. Additionally, REPs could change the price they offer tomorrow because they bought another large amount of energy at a different average price.

 

Then again, there’s a reason the 12-month fixed-rate plan is the most popular one for many Texas electricity companies. People like knowing what they’ll pay over an extended period of time.

 

What is wholesale electricity?

 

REPs who offer wholesale electricity sell energy to their customers at the same price the REP pays, but they also charge a “membership” or subscription fee too, like Costco and Sam’s Club. You can face the high prices we discussed earlier, but when rates are low, you could also pay far less than you might with a traditional fixed-rate plan. It all depends upon the market.

 

We see the appeal in such a setup. You should pay the best possible electricity price without any markups or additional fees. However, wholesale electricity means the price you pay for electricity could vary wildly over the course of a single day. Hence, the problem with wholesale electricity is that the average household doesn’t have someone watching the real-time market price of electricity all day long.

 

To take advantage of the promises proclaimed by wholesale electricity companies, you’d have to check the real-time electricity price every 15 minutes. You’d then have to determine how to adjust your home energy usage so you don’t use electricity when prices are at their highest. THEN you’d have to do that all day long while also working, eating, seeing your friends, talking to your family, and just living life.

 

Do you really have time for that? We do! Our goal at Power Wizard is to find you the best low rate Texas electricity plan, and continually monitor your rate to ensure it stays low.

 

Which Type of Electricity Plan is Right for Me?

 

What’s the Difference Between Fixed-Rate and Wholesale Electricity? | Power Wizard Blog

 

If you’re interested in a wholesale electricity plan, it means you want to save money by paying less for your home electricity. We get it. Your electricity bill can represent a sizable portion of your budget each month, so you should look for ways to manage those costs.

 

That’s why Power Wizard will always recommend a fixed-rate plan.

 

We place a high value on understanding what you’ll pay for your electricity each month. It’s the easiest way to manage both your home energy usage and your energy bill. Knowing your energy rate over a long period of time helps you budget while improving your peace of mind. But do you really need to track the market price of electricity on your phone every 15 minutes?

 

This is the Power Wizard Guarantee. We use advanced proprietary technology to find you the best possible Texas electricity plan that can help you save money on your home energy costs. We’ll handle the switch to that better fixed-rate plan. And if we find one that will help you save more, then we’ll switch you to that one! Our goal is to decrease your electricity bill and your stress, while continually monitoring the market to ensure you’re still on the best plan for your home!

 

As a Power Wizard member, you don’t need to be a Texas electricity expert to enjoy a great electricity rate.

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