Hi! I’m Mike, and I’m a Senior Energy Advisor here at Nania Energy. Whether you’re new to energy buying or you’ve been buying for quite a while, you’ve probably heard of a “Fully Fixed” or “Fixed All-In” product.
In today’s video, we’re going to do a deep dive into what a fixed product is, the pros and cons of choosing a fixed product, and why it’s such a common choice among energy buyers.
What is a Fixed All-In Product?
Your energy supply charges are made up of five pieces of the pie shown here.
- Energy by far is the biggest. These charges are at least 50% of the pie.
- Next is Capacity. Capacity relates directly to when you use energy and how you use energy during peak times over the course of a year.
- Next is Transmission. Transmission are the charges of the energy going across the wires from the grid to the place where the power is being used.
- Up next is Losses. Losses is a small portion of your bill, but that’s related to the loss of energy over the wires that the utility gets to recoup charges for.
- Lastly is Ancillaries. Ancillaries make up a small portion, just like losses. Those are miscellaneous charges — anywhere between 30 and 50 different charges — that are put into a catch-all bucket.
So, with a Fully-Fixed product, we’re locking all 5 pieces* of the pie into one rate.
*Note: Depending on the market, all or some of these components may apply. For example, in Texas capacity/reliability costs are included in the energy component rather than separately charged for.
Pros & Cons of a Fixed All-In Product
Now that you understand the components of the energy pieces that go into the pie, we’re going to talk about the pros and the cons of a Fully-Fixed Product.
- You have the same rate regardless of usage. Your rate won’t change based on seasonality or any major variations in your monthly usage.
- It makes budgeting easy and predictable. You estimate your annual usage, you times it by the rate, and you get your budget for the year. There’s no worrying about variable month-to-month charges when estimating what your budget might be.
- You can take advantage of the market. As we’ve seen historic lows over these last couple of years, locking in a longer term — say, 24, 36, 48, or even longer — can yield tremendous savings and protection over the long term.
- You have little to no flexibility. Say your facility gets more efficient and your capacity numbers improve. You’re locked in at an artificially higher rate than you would be if you were able to take advantage of those efficiency improvements in the facility.
- There are built-in premiums. While you have budget certainty by locking all the pieces of the energy pie, there are premiums built into each of those pieces that suppliers use to hedge their risks. So while you have premiums attached to each of those, you’re paying a little bit of a higher rate than you would with another product.
- Is now the right time to lock? While this could be viewed as a pro — similar to market timing — I get asked a lot “What if I lock and then the market goes down?” I usually ask in response “Would it bother you more if the price went down another 1-2 percent or if it went up 5-10 percent?” It’s about market timing and what you’re most comfortable with at that time.
Why is Fixed All-In a popular product choice?
So why is Fixed All-In such a common choice for new energy buyers?
- It’s easy to understand. You have one fixed rate on your bill and you’re good to go.
- There’s no guesswork. When it comes to your budget, you have the ultimate budget certainty.
- You have an apples-to-apples comparison when you’re shopping with other suppliers.
Should you choose a Fixed All-In product?
Is a Fixed All-In product the best choice for you? Or is there another product that might fit better with your strategy and your facility?
Contact an advisor and we can have a conversation about your electricity purchasing options.
Thank you for watching!