Energy Management

Understanding Electricity Choice for Businesses

Fundamentals of Electricity Choice
3 min read

In regulated electricity markets, business customers must purchase electricity from their designated utility provider at rates set by the public utilities commission. However, the deregulation of energy markets in many states introduces valuable options along with complex decisions for business customers. In the first post in this ‘Fundamentals of Electricity Choice’ series, Constellation will explain key aspects of electricity choice to help businesses make informed energy decisions.

Electricity choice allows businesses to shop for competitive electricity plans from retail providers and choose the optimal plan to meet their unique needs. While business customers can select their electricity provider in deregulated markets, the physical transmission and distribution of electricity is still managed regionally by local utilities and grid operators to ensure reliable delivery of power.

Competitive electricity markets give businesses more options and greater control. Providers compete on rates, contract terms, customer service and features. Businesses can evaluate plans based on their unique budget goals, risk tolerance and energy usage patterns.

Key Differences:

  • Regulated markets: Rates and providers are dictated by the utilities commission. Customers bear the financial risks of utility infrastructure investments.
  • Competitive markets: Businesses can choose plans from various providers and plans based on their needs, budget and risk preferences.

As a business customer, understanding the key aspects of retail electricity choice will help navigate through electricity plan selection in a competitive market.

Choosing an Electricity Plan

With electricity choice, customers can shop for electricity plans from retail providers and select the best choice based on their needs instead of taking a one-size-fits-all approach. Important considerations when choosing a plan include the budget, risk tolerance, and energy usage patterns of each business. Businesses should make sure to compare all costs, not just per kWh rates.

For a business to identify the optimal plan, it must weigh many complex variables. Working with an experienced electricity advisor can help evaluate the right plan for each business’ unique needs and objectives. Businesses should start by evaluating the main types of electricity plans available to decide the best fit.

It is important for businesses to consider budget, risk tolerance, usage patterns, contract terms, renewal options and renewable energy additions.

Types of Electricity Plans

Fixed Rate

  • Fixed rate plans allow customers to lock in a set price per kWh for the entire contract term, typically 1-5 years. This provides maximum budget certainty but less flexibility.
  • If market prices fall below the fixed rate, you will pay more than the current market price because your price remains unchanged regardless of market fluctuations.

Index Rate

  • Index plans tie the price per kWh to market conditions like electricity demand, fuel costs and weather. Rates fluctuate based on underlying indexes.
  • Index rates can allow customers to take advantage of lower prices when market prices fall. However, they also expose customers to higher bills during extreme weather events or peak demand times when prices spike.
  • Index rates provide less budget certainty due to variable pricing that changes based on market conditions.

Managed Rate

  • Managed electricity plans blend fixed and index rate components to balance budget stability and market exposure.
  • For example, you could lock in a portion of your usage at a fixed rate and pay an index rate beyond that base amount. This allows you to benefit from market opportunities while still having some price certainty.
  • Managed plans offer more flexibility to optimize costs than locking in a fixed rate, but less certainty than a pure fixed rate.
  • Managed plans may provide less exposure to extreme index price events than a pure index plan.

Developing a Customized Electricity Purchasing Strategy

Working with a trusted provider like Constellation allows business customers to embrace a purchasing strategy tailored to their unique usage profiles, risk tolerance and budget goals. This may involve incorporating a mix of plan types and optimally timing fixed price purchases.

Rather than settling for a generic one-size-fits-all electricity plan, businesses can take control of their power purchases with a strategic, specialized approach.

Choosing a Retail Electric Provider

When making an electricity choice, evaluating and selecting a provider is one of the most important decisions for your business. Navigating the options and identifying the ideal provider to meet a business’s current and future needs requires consideration of several key factors, including:

  • Strong reputation and years in business
  • Flexible plan options to meet your business needs
  • Transparent, easy-to-understand pricing
  • Strong customer service and support
  • Tools and resources to make informed decisions

With these criteria in mind, Constellation can be an invaluable resource to help your business successfully navigate electricity choice.

Let Constellation Simplify Electricity Buying

With over 20 years of expertise in energy markets, Constellation has the experience and energy specialists to simplify electricity choice for your business. We can eliminate the complexities of purchasing power by customizing a strategy tailored to your budget, risk tolerance, energy needs and sustainability goals. Our flexible plan options, clear pricing and exceptional customer service provide the support businesses need to confidently navigate the energy market.

Contact Constellation today to learn more about how we can help your organization optimize costs, minimize risks, and meet your power supply objectives.

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