Budget Plan vs. Fixed Plan, What’s the Difference?

By Phil Van Horne
CEO, BlueRock Energy

I often get the question, ‘What can an Energy Supply Company (ESCO) do for me that my utility company can’t?” or “Why would I switch to an ESCO?” I have explained often how not only do we provide outstanding customer service and work closely with each individual customer to ensure the supply rate they are paying is the lowest, but we offer fixed supply plans for 1-3 years that will lock our customers into those low rates and eliminate exposure to electricity and natural gas spikes – something the utility companies do not do. The typical response is, “But I’m on a fixed plan with my utility company. I’ve set it up so I pay the same amount each month.” Then I have the onus of informing them that the plan they are on is called a Budget or Level Plan, not a Fixed Rate Plan. Utility companies in New York do not offer ‘fixed rate plans.’ Only ESCOs do. (In other states Utilities may offer fixed rate plans, but only for very short terms, such as 3 months).

When you sign up for a Budget or Level Plan, the utility company calculates your average bill for both supply and delivery based on what you’ve paid them over the past year, and use that average to determine what you will pay for your energy each month going forward. Your supply costs still fluctuate with market prices. The utility company will look at your usage and the cost of the energy that you use every few months to ensure they are being as accurate as possible in determining your price for your Budget Plan. They will then adjust your budget amount accordingly to make up for any over or under collections. If your budget amount does need to be adjusted, the utility company will usually notify you a month in advance regarding the change to your plan and what the new dollar amount will be.

The utility company’s determination is based solely on what you have historically paid them over the past 12 months. However, there’s more. If we have a bitterly cold winter or a heat wave in the summer, and the utility supply rate increases, you will pay for that increase at a later time. At the end of your 12-month plan, you will experience what they call a “settlement month” whereas, if you didn’t pay enough to cover your cost of supply and delivery (in those summer and winter months of higher cost), the utility company will charge you with a lump sum to cover the deficit. They allow you to either pay the amount due over the next 12 months, or pay it in full on the 12th month. Either way, you’re paying for any electricity and natural gas price spikes, which can be a hit to your budget you were trying to maintain.

At BlueRock Energy, we watch the markets closely, knowing when commodity rates traditionally increase or decrease, such as when we approach a change in seasons. We look at forward commodity rates, not just the historical pattern of your bill payments, to lock your supply rate in on a Fixed Plan at the lowest competitive rate available for you. Therefore, with a Fixed Energy Plan, your bill only fluctuates based on your usage rather than the rate at which you pay for energy supply each month. When we run into a frigid winter or hot summer, you may be using more energy during those periods, but you will be paying for it at the exact same rate you have signed up for over the course of 12-months. Best of all, when you’re on a fixed rate plan with us, there will be no “settlement” surprise at the end of your plan’s term. We take the risk, not you.

Keep in mind that a Budget Plan is not a cost savings plan; it’s only designed to help you avoid fluctuations on your utility bill, but any excess charges get collected in later months. Our advice is to have the “best of both worlds” with signing up for a both a Budget Plan from your utility company and locking into a Fixed Energy Plan with an Energy Supply Company (ESCO), like BlueRock Energy. Being signed up for both options is a great way to truly budget out your energy expenses, gain better predictability on your energy bills and manage your risk.

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