Fixed-price energy contracts: what is actually fixed
A fixed-price contract sets one price per kWh or therm for the term. What "fixed" covers is the part that varies: some suppliers fix only energy, others fix energy, capacity, transmission and ancillary services, and every one of them excludes the utility's delivery charges.
How a fixed price is built
When a supplier quotes a fixed price, it is buying or hedging your expected usage, hour by hour, for the whole term. The quote is the cost of that hedge plus the cost of the risk the supplier keeps:
- Wholesale energy for your load shape. A flat 24-hour load costs less to hedge than one concentrated in summer afternoons.
- Volume risk. If you use more or less than forecast, the supplier buys or sells the difference at market. That risk is priced in, or limited with a bandwidth.
- Charges the supplier agrees to fix. Capacity, transmission, ancillary services and fees, where the contract includes them.
- Credit, margin and term. Longer terms and weaker credit cost more; start month matters because forward prices differ by month.
Two offers with the same headline price can therefore carry different risk. One may fix capacity and transmission; the other may pass them through. One may allow usage to swing freely; the other may bill usage outside a narrow band at market.
The variants suppliers sell as "fixed"
| Variant | What's fixed | What is not | Watch for |
|---|---|---|---|
| Fixed energy only | The energy component | Capacity, transmission, ancillary services and fees, passed through | A low headline price that leaves the volatile parts with you |
| Fixed with named pass-throughs | Energy and most charges | A short list of named charges, often capacity or transmission | Whether a margin is added to the pass-throughs |
| Fixed all-in | Every supply-side charge at signing | Utility delivery charges; new charges under change in law | How broadly change in law is defined |
| Fixed with bandwidth | The price, within a usage range | Usage outside the range, at market or with a fee | Bandwidth measured monthly rather than annually |
| Fixed, load-following | The price on whatever you use | Nothing on volume, in principle | A higher premium for carrying volume risk |
What sits inside the price in each market
| Market | Usually inside a fixed price | Often outside or passed through |
|---|---|---|
| PJM | Energy and losses; often capacity and ancillary services | Capacity in some offers; transmission, which in some states is billed by the utility instead of the supplier |
| ERCOT | Energy, ancillary services and ERCOT fees | All TDU delivery charges, including 4CP transmission, passed through at cost on the retail bill |
| NYISO | Energy and ancillary services; capacity in some offers | Capacity, which is priced in monthly auctions, often passed through |
| ISO-NE | Energy, capacity and ancillary services | Transmission, which is generally a utility delivery charge in New England |
| MISO (Illinois, Michigan) | Energy and often capacity | Seasonal capacity in some offers |
| Natural gas | NYMEX and basis, delivered to the utility | Utility delivery and balancing charges, and any swing volumes priced at index |
For the detail on each market, see charges by market.
When fixed works, and when it costs you
Fixed prices protect a budget from price spikes. They cost more on average than the market they replace, because the supplier is paid to carry the risk, and a contract signed at a high point in the market keeps that price after the market falls. The exit is an early termination charge, usually calculated as the difference between the contract price and current market prices on the remaining volume.
Terms to read before signing
- The list of charges included in the price, by name
- Bandwidth: the usage range, how it is measured and how usage outside it is priced
- Change in law: what counts, and whether new charges can be added mid-term
- Early termination: the formula, and whether it applies when a site closes
- Add-and-drop: whether sites can be added or removed, and at what price
- Start and end: by calendar month or by meter read date, and what happens at expiry
At expiry, fixed becomes variable
Many contracts roll onto a month-to-month variable rate if nothing is signed before the end date. That rate is set by the supplier and is often well above market. Track every end date; TaraBase does this for Discovery clients.
How a fixed price shows up on the bill
On a consolidated bill, the supplier section usually shows usage times the fixed rate, with any passed-through charges as separate lines. On a dual-billed account, the same lines are on the supplier's own invoice and the utility bill carries only delivery. Two things are easy to miss:
- Bandwidth true-ups. Usage outside the band may be billed months later as a reconciliation line, priced at market.
- Rate changes at renewal. If the contract ended and nothing was signed, the rate on the bill may already be a month-to-month variable rate while the line name stays the same.
Check the rate on every supplier line against the contract for the billing period, not only the first bill after signing. See how to read a utility bill.