We all work to forecast as accurately as possible, and having budget certainty helps. But it’s not always the norm. Sometimes, when it comes to energy purchasing, being willing to tolerate some level of risk is critical. If you're not on a rigid planning cycle and you need flexibility, a variable price plan can help you get the best reward for your risk.

Essentially, variable price plans are designed for companies seeking flexibility in pricing for their energy consumption. For both natural gas and electricity, plans are available that enable you to monitor your usage and costs with the ability to lock-in or "fix-up" your overall energy price (or in some cases individual cost components) at your discretion. Variable price plans offer consumption flexibility, with no restrictions on the amount of natural gas or electricity your business consumes. They're ideal if you expect upcoming uncertainty in your consumption patterns due to process realignment, retrofits or other operational factors.

"Fundamentally, customers that opt for variable price plans believe that there's a good chance that future prices will decline," notes Geoffrey Duda, Direct Energy Senior Director, Product Structuring and Portfolio Management. "It gives these customers the flexibility to choose what they believe is the optimum time to lock in a fixed price, or the freedom to simply ‘ride the market,' thus ensuring that they are always paying the going rate for energy."

Regarding what to look for in a variable price plan, Duda points to two key factors: clarity and flexibility. By their nature, these plans are more complex, so it's critical to compare offers on an apples-to-apples basis. On the electricity side in particular, the treatment of key cost components, like capacity and line losses, can have a material impact on the "adder," or administrative fee associated with any variable price offer. A variable price plan should also provide a customer with the flexibility to lock in a rate for energy, either by locking in a fixed price for their entire load or a portion of their load using block purchases.

"Variable price plans allow customers to take on additional short-term price risk in return for the reward associated with locking in a lower, longer-term price for energy. As such, it's important for customers considering these plans to make arrangements to monitor the market so that they can manage this risk either by locking in a rate when prices fall or before they rise to an unacceptable level," Duda advises. "Failure to actively manage the market exposure associated with a variable price plan can lead to unexpected and sometimes unpleasant outcomes. At Direct Energy, we work with you to monitor the electricity and natural gas markets so that you have access to valuable information that can help you make sound energy purchasing decisions, including optimizing the trade-offs between the risks and rewards of a variable price plan.

To learn more about how a Direct Energy variable price plan can work for your business, contact us at 1-800-968-3239.