Understanding the Polar VortexThe polar vortex of last winter highlighted just how volatile the energy market can be if you are on a variable rate plan.

Energy, like other commodities, fluctuate in price due to a number of different factors. Unfortunately, energy is one of the most sought after and consumed commodities on the market, making it essential to any homeowner. This has led many people to look for different solutions that can help them save money. You may have recently invested in a new energy efficient appliance or renewable energy system to cut back on your power usage for this very reason.

Another popular solution among many has been to rework their energy contracts to achieve the lowest prices possible. However, these solutions do not always work. An often advertised plan among many energy providers has been the variable rate electric plan. These work to offer the lowest possible market rate for energy based on the wholesale price of electricity.

Lessons from the polar vortex

Many customers were shocked last winter when they opened up their utility bills to find that they were far higher than they had been in the past. This is because of the effect that the unusually cold weather had on the electric grid. The cold drove up demand for natural gas for both electricity and to heat homes, which in turn drove up wholesale electricity prices.

A report from the Energy Research Council noted that on Jan. 7, 2014, PJM Interconnection recorded its highest winter peak demand ever, and over the course of the month, 8 of the 10 highest levels of winter demand were attained.

In order to maintain reliable power delivery, the company–which is responsible for electricity transmission in 13 states–needed to charge roughly $150 per megawatt hour of electricity. In 2013, this number was just $53 per megawatt hour.

The value of fixed rates

The problem with variable rate plans is that they are a kind of gamble that the market will always be low, which as the vortex showed is not always the case. This means that more fixed rate plans may be the better option. While you may be paying more one month, you know that this rate will remain the same for a fixed period of time.

The Plymouth PriceLock product work to help energy customers nail down a fixed rate for electricity over a set period of time, which can range from 6 months to an entire year. If you want to nail down a more predictable energy rate, talk to your power provider about a fixed rate solution.

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