Fixed Rate vs. Variable Rate Electricity: Why One Works and One Doesn't

January 2014: the bill that changed everything

A polar vortex hit New York in January 2014, dropping temperatures to single digits and running heating systems around the clock. Customers who had switched to variable-rate contracts with energy service companies, or ESCOs, expected their usual bill: maybe $100, maybe $120.

They opened bills for $400. Some got $600, and a few got more than that.

These ESCO customers paid over $1.00 per kWh during that event. ConEd's standard rate for the cost of electricity itself was around $0.14 per kWh at the time. (NY PSC) That's roughly 7x more, for the same electricity delivered through the same wires.

That's not a fringe case. That's what variable rates do when conditions turn against you.

Fixed rate vs. variable rate: the short version

There are two types of electricity supply contracts. Understanding the difference takes about two minutes.

Fixed rate: A locked-in price per kWh that doesn't change for the length of your contract, usually 6, 12, or 24 months. If wholesale prices spike, your bill stays flat. If you use more electricity, you pay more in total, but the per-kWh price is locked.

Variable rate: A price that can change every month with no cap. The supplier sets it based on market conditions and wholesale prices. You have no idea what you'll pay next month.

Why variable rate sounds good at first

Variable-rate ESCOs don't lead with the horror stories. They lead with teaser rates.

The typical pitch: sign up today for a rate well below ConEd's. You'll see that savings on the first month's bill, maybe the second, and it looks great. You tell a friend.

Then month three arrives, the intro period ends, and the rate flips to variable. Most customers don't notice until the bill is already higher.

By the time you realize what happened, you've already signed a contract, and some of those contracts carry early termination fees. You're stuck until the term ends or you pay to leave.

This is the playbook, and it's not hypothetical. It's documented by the state.

What the NY PSC found

In 2015, New York's utility regulator, the Public Service Commission (PSC), completed a multi-year study of ESCO pricing. The finding: variable-rate ESCO customers paid an average of 3 to 4 cents per kWh more than ConEd's rate over the study period. (NY PSC) At 500 kWh per month, that's $15 to $20 extra every single month, adding up to $180 to $240 a year, for worse service.

In 2016, the PSC went further, banning variable-rate ESCOs from serving low-income and fixed-income customers entirely. The documented harm was that significant. (NY PSC)

The PSC didn't ban variable rates for everyone. But the data behind that 2016 decision should tell you something about how those products actually perform for consumers.

What to look for before you sign anything

If you're considering an energy supplier, these three things matter:

• The contract must say "fixed rate." Not "stable rate." Not "competitive rate." The words fixed rate need to appear. If they don't, ask in writing.
• Compare against your price to compare. Your ConEd bill has a line called "price to compare." That's ConEd's current supply rate. Any fixed-rate offer you consider should beat it, or at least match it while offering you stability.
• Read the cancellation terms. Some fixed-rate contracts include early termination fees. They're typically $25 to $50 flat, or a per-month charge for the remaining term. Know what you're agreeing to before you sign.

Reputable fixed-rate suppliers in New York include Clearview Energy, Constellation, and Green Mountain Energy, all licensed by the NY PSC and offering contracts where the price you see is the price you pay for the full term.

SwitchNYC only lists fixed-rate plans and community solar. No variable-rate products, full stop.

Community solar: a third option worth knowing

Community solar, a subscription to a local solar farm where your bill gets a credit for the energy it produces, works differently from traditional supplier switching. Common Energy is one of the main providers in New York.

The savings model is different too. Instead of a fixed per-kWh rate, you get a guaranteed percentage discount off ConEd's current rate, usually 5 to 15 percent. So if ConEd's rate goes up, your discount applies to the higher rate. You always save relative to ConEd.

There's no early termination fee with most community solar subscriptions. And you're directly funding solar farm construction in New York State. The electricity flows through the same ConEd wires. Your bill still comes from ConEd, with the community solar credit applied.

It's not the same product as a fixed-rate supply contract. But for people who want a simple, no-surprises way to save money and support local solar, it works.

SwitchNYC lists community solar options alongside fixed-rate plans. Both are safe. Both are transparent. Neither is a variable-rate product in disguise.