Deregulation in many states has seen to it that people have multiple electricity suppliers to choose from. Additionally, each of these suppliers has different electricity plans that offer different rates and terms of service. It is important to understand the two basic types of plans in order to gauge their benefits.

Your first option is known as a fixed rate plan. In this context, “fixed” literally means a constant, unchanging price point. During the terms of a 6 month, 12 month, or 24 month contract, the billing rate for kilowatt hours is fixed.

This rate is determined by the energy company, and it is based upon anticipated market fluctuations and customer usage.

The benefit this offers to you is a predictable amount of money you have to pay out each month. No matter what the wholesale price of electricity goes to, your rates remain the same for the duration of your fixed electricity plan.

The only disadvantage here is the fact that if the wholesale price of electricity goes down in the marketplace, you still have to pay the agreed upon rate per kilowatt hour.

A second option you have is called the variable rate plan. As the name indicates, the rate you pay per kilowatt hour varies. When wholesale prices for electricity fluctuate, the cost that you pay also fluctuates. Sometimes these prices go down and stay down for several months in a row.

At these times, people on variable rate electricity plans can save a great deal more money than on a fixed rate plan.

Of course, they are going to spend more money too if the prices suddenly rise on the wholesale market.

So how do you know which type of electricity plan is right for you?

If you do not want to absorb the cost of higher wholesale prices, then choose a fixed rate plan. The predictability of your rate will allow you to manage your power consumption and have direct control over your expenditures.

If you are going to be living in a home on a short-term lease, a variable rate is preferable for two reasons. For one thing, you may get lucky and hit the market when wholesale prices, and therefore your prices, are low.

More importantly, you will not have to worry about paying a contract cancellation fee this way.

Another type of electricity plan is the hybrid plan. This offers you fixed rates for an agreed upon amount of usage. If you use more than this amount, variable rates kick in.

Some electricity resellers also offer a balanced payment option. Persons pay a fixed amount based on their usage history for twelve months. If at the end of the twelve months they have used more power than they have paid for, they are billed for the difference.

If they are found to have used less, they are credited the difference for the following year’s bill. For people who want predictability and do not mind possibly having to pay a little more once per year, this balanced or budget billing type of plan is often preferable.

Author Bio: For more information on