When you procure commercial energy, one decision shapes everything else: how your price is structured. Fixed, indexed, and blended contracts each carry a different balance of certainty and opportunity. This guide explains how each works and how to choose the right one for your business.
Fixed pricing: certainty first
A fixed contract locks your commodity rate per unit for the entire term. No matter what the market does, your rate stays the same — delivering complete budget certainty for the supply portion of your bill.
Advantages
- Predictable budgeting with no market surprises.
- Simple to manage and easy to explain to finance teams.
- Removes price risk from planning.
Disadvantages
- You may pay a premium for that certainty.
- You won't benefit if the market falls during your term.
Indexed pricing: opportunity with risk
An indexed (or variable) contract ties your rate to a published wholesale market index, so it rises and falls with the market. It can capture savings when prices drop but exposes you to volatility when they climb.
Advantages
- Potential to save when markets soften.
- Transparency into the underlying market.
- Flexibility for sophisticated buyers.
Disadvantages
- Budget uncertainty and exposure to spikes.
- Requires active monitoring and risk appetite.
Blended (hybrid) pricing: the middle path
A blended structure fixes a portion of your load while leaving the rest indexed — for example, fixing 70% for stability while keeping 30% exposed to benefit if prices fall. Layered purchasing extends this idea across time.
Most sophisticated commercial buyers don't view this as all-or-nothing. Blending and layering let you tailor risk precisely.
How to choose
Start with your risk tolerance and objectives. If budget certainty is paramount — say, for a nonprofit or a business with thin margins — fixed is often the right anchor. If you can absorb volatility and want to pursue savings, indexed or blended structures may fit. The size and predictability of your load also matter.
- Prioritize certainty → lean fixed.
- Comfortable with risk, want upside → indexed or blended.
- Want a balance → blend and layer over time.
Common misconceptions
- "Fixed is always safer" — fixed removes price risk but can lock in a high rate if timed poorly.
- "Indexed is always cheaper" — it can be, but only if you can weather volatility.
- "I must choose one" — blended and layered strategies exist precisely to avoid an all-or-nothing bet.
