The fixed price includes all supply charges and remains constant throughout the term of the service agreement. The risk is low and consumers appreciate the budget certainty. The electric supplier shares the risk by taking a position on future costs of electricity.
The index plus fixed adder of non energy costs fluctuates monthly and uses the ISO’s Locational Marginal Price (LMP) day ahead or real time as a base line plus a fixed adder that includes non energy costs such as capacity, ancillaries, margin, Reliable Must Run (RMR),
Locational Forward Reserves (LFR) and Renewable Energies. This is for customers who anticipate a market decline and have the ability to alter usage as the market dictates. The risk is moderate to high because pricing fluctuates with the market and there is no certainty. The electric supplier bears some risk by locking-in the non energy charges.
The index with full pass through has no fixed component except for the supplier/broker fee. This is for customers who have an even higher tolerance for risk and expect the market to decline, specialize in monitoring the energy market and have a large usage during off peak hours. The consumer bears the full risk of the market while the electric supplier has no risk.
Examples include locking a percentage of the load with a fixed price with the balance floating with the market.
Businesses can easily enhance their energy strategies by procuring varying amounts of green power - up to 100% - and earning certification that validates their efforts.