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Wednesday, December 6, 2023

Short-Term or Long-Term Electricity Contract: What Is the Better Deal?

The cost of electricity is always fluctuating, which is just one reason why people prefer fixed-rate electricity plans over variable energy plans. A fixed-rate plan helps protect you from energy price spikes and expensive electricity bills. When looking into fixed-rate plans, however, people have a hard time deciding whether they should go with a short-term or long-term contract.

A few factors you need to consider when selecting the term of your electricity contract are time of year and the region you live in. Fixed-rate prices often change depending on the time of year and the local energy usage, so keep that in mind when signing a contract. 

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Reasons to Select a Fixed Energy Plan

In most cases, a fixed-rate energy plan offers cheaper electricity than variable month-to-month energy plans. This is because variable plans are not only changing by market value but also by the demands on energy. To mitigate the risk associated with energy prices, energy providers occasionally charge more for variable rates or short-term month-to-month plans. 

With a fixed energy plan, you pay the same rate each month for the term of your contract. The only variables in this equation are the amount of energy you use and the delivery fees charged by the energy company. The delivery fee typically covers things like energy setup, meters, electricity poles, and other supplies that get the energy to your home or business. 

Short-Term Energy Contracts

A short-term energy contract typically lasts less than a year. The term length can vary, with options typically including:

  1. Month-to-month energy plans
  2. 3-month electricity contracts
  3. 6-month energy plans

A short-term contract can be beneficial when energy prices are lower. For example, in southern states like Texas, electricity plans tend to be cheaper starting in September. The state is moving into the winter months when less energy is needed to regulate the temperature of houses and other buildings. Since less energy is used during this time, the electric companies will offer short-term contracts with really great rates. This means you can sign a 6- or 9-month contract starting in September or October and have a relatively low energy bill for the next half year or so.

It’s important, however, to look ahead to the end of the contract period when selecting a short-term option. When you sign up for new electricity service, you may sign up for a short-term contract during the time of year when energy is least expensive; however, when you go to renew the contract at the end of the six months, it could be the summer season, when energy prices spike. If your contract needs to be renewed during one of these periods, you could end up paying a lot more for your next electricity contract period (although these tips can help you set up electricity and choose the best, money-saving energy plan in the process). 

Long-Term Electricity Contracts

A long-term energy contract lasts one or more years. The rate you’re given in a long-term contract mainly depends on energy forecasts for the coming year or two. If the forecasts are in your favor, you could end up with a low electricity rate for the next several years. Often, you’ll see 36-month contracts offer a better rate than 12-month contracts, too.

Locking in a long-term energy plan like this can have you set up with a great rate for a long time. Of course, the opposite is true if the rates aren’t ideal when you sign up. You could end up locked into a high rate for an extended period of time. If you’re going to sign a long-term contract, make sure the rate is decent before agree to the terms.  

Is a Long- or Short-Term Electricity Contract Better?

When selecting an energy contract always look at the current rate and compare to the rates you’ve had in the past.

  • If rates are currently really high, then a short-term contract could be a better option. You can stick with the high rate for a few months then reevaluate at the end of the contract to see if prices have improved.
  • If rates are already low, you may want to consider locking something in long-term.

Review the plan rates and fees for each option to determine which choice is best for you and your family. Shopping for electricity plans isn’t exciting but it doesn’t have to be hard, either. Some people prefer long-term contracts simply because they don’t like shopping around every six-months. If you want the best deal, however, it usually takes time and research to find the most affordable contract. Either way, compare prices, note associated fees, and you’ll make an educated decision. 

Discover the Electricity Plans Available in Your Area HERE

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