Most brokers push 100% fixed rates because they are easier to sell and carry higher commissions. But for 40% of commercial facilities, a pure fixed rate is leaving money on the table. Here is the math they don't want you to see.
Executive Summary
Fixed Rates: Best for budget certainty and risk-averse organizations (Schools, Non-Profits). You pay a "risk premium" (insurance) to the supplier.
Variable (Index) Rates: Best for facilities with flexible load or high tolerance for volatility. Historically 8-12% cheaper over 10 years, but with wild monthly swings.
The Winner: Block & Index (Hybrid): Lock in 50-70% of your baseload, float the rest. Captures shoulder-month lows while protecting against summer spikes.
Visualizing the Risk Premium
Simulated Annual Cost Comparison (¢/kWh)
*Simulated data based on typical PJM LMP curves. Variable rates dip below fixed in Spring/Fall "Shoulder Months".
The "Insurance Premium" of Fixed Rates
When a supplier offers you a fixed rate of 8.5¢/kWh for 36 months, they aren't guessing. They are buying futures contracts to hedge that power, and then adding a markup to cover their risk. This markup is effectively an insurance premium.
In "Shoulder Months" (April/May and Oct/Nov), wholesale electricity often trades at 3-5¢/kWh. If you are locked in at 8.5¢, you are effectively overpaying by 100% during those months to subsidize your rate during the summer/winter peaks.
When to AVOID Variable
• You have a fixed annual budget that cannot be exceeded.
• You cannot shift operations away from peak hours (Waiters, Hospitals).
• You are in a volatile zone like ERCOT (TX) or ISO-NE (MA/CT) without automated controls.
When to CHOOSE Index
• You have flexible manufacturing shifts.
• You have on-site solar or battery storage.
• You have a smart building management system (BMS).
• You can tolerate a "bad month" for a cheaper year.
The "Hybrid" Strategy (Block & Index)
The sophisticated play—used by data centers and large manufacturers—is Block & Index. You lock in a "Block" of power (say, 500 kW around the clock) at a fixed rate to cover your baseload operations. Anything above that block is purchased at the real-time Index rate.
This strategy allows you to:
Secure budget certainty for your core operations ("Keep the lights on").
Participate in market dips during shoulder months.
Incentivize your facility team to reduce load during price spikes (since you pay spot prices for marginal usage).
Run the Numbers for Your Facility
Don't trust a broker's spreadsheet. Use our historical back-tester to see how a Variable or Hybrid rate would have performed against your actual usage last year.