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Electric market: To lock rates or not to lock?

May 22, 2015
By Tom Jankowiak, Utility Management Group
One of the most frequently asked questions we receive regarding the electric market is when customers should lock rates. Unfortunately, no one can know what the electric market will do in the future. 
The main factors driving the electric market include temperatures, natural gas prices, the economy, hurricanes, oil prices and regulatory issues. All of these factors are difficult or impossible to predict, making future electric rates impossible to predict. 
Obviously, you want to lock your rates on the day the market reaches its low. While we cannot tell you what the market will do going forward, we can tell you where it is now, as well as how favorable the factors driving the market are. Knowing that allows us to make an educated decision whether it is currently favorable to lock your rates. If it is favorable to do so, we recommend locking them and not trying to outguess the market.
Once you’re within 12 months of your current contract expiration date, we recommend watching the market for opportunities and considering three factors. The first is whether you can lock at a rate that’s at or below your current rate. Since you have no way to know what the market will do going forward, if you can guarantee a reduction in your budget, we recommend considering locking. 
The second consideration is how the market is trending. If it is trending downward we recommend waiting until it reaches its bottom. If it’s trending up, we recommend considering locking as we don’t know how long the upward trend will continue or whether it will reverse itself before your current contract expires.
The third consideration is where the market is compared to where it has averaged historically. If the market is high by historic standards, you may want to wait as there’s no benefit to locking at that time. A market at or near its bottom is another indicator that it’s a good time to lock.
Because the above are currently favorable, it is a good time to consider options for your next contract term. Once you make the decision to consider supplier offers, issues such as what term length offers the greatest benefits, how can you receive a true apples to apples comparison of supplier offers, under what circumstances can they change your rate, what contract language impacts what you’ll truly pay and how do Com Ed’s increases impact your offers must be considered.
Utility Management Group has been providing natural gas and electric service for close to 15 years, and its services are endorsed by the CATA. Contact UMG at (630) 279-0117 to discuss your energy needs or to arrange a time to have a UMG consultant meet with you in person.