When a Massachusetts business shops the competitive electricity market, one of the first decisions is contract structure: fixed rate or variable rate. The choice is more consequential than it looks, particularly in New England, where electricity prices can be highly volatile in winter months when natural gas supply gets tight and wholesale prices spike.
Here’s a clear breakdown of how each structure works and when each makes sense for a commercial electricity buyer.
Fixed-Rate Contracts: What They Are and When They Work
A fixed-rate electricity contract locks in your supply price — expressed as cents per kWh — for the entire contract term, typically 12, 24, or 36 months. Your supply cost per kWh doesn’t change regardless of what happens in the wholesale market during the term.
Fixed-rate contracts work well for:
- Businesses that need budget certainty. Manufacturing operations, commercial tenants, and businesses with tight margins benefit from predictable energy costs over a defined period.
- Any commercial buyer in New England. The region’s dependence on natural gas for generation means winter electricity prices can spike dramatically during cold snaps. Fixed-rate contracts provide insulation against those events.
- Longer planning horizons. If you’re signing a multi-year lease, planning capital expenditure, or managing a multi-year budget cycle, locking in supply costs for 24-36 months aligns your energy spend with your planning horizon.
The tradeoff: if wholesale market prices fall significantly after you lock in your rate, you’ll pay above-market prices for the remainder of your term. Fixed rates include a hedging premium — the supplier’s cost of managing the price risk they’re taking on.
Variable Rate Contracts: How They Work and the Risks
A variable-rate (or index) electricity contract ties your supply price to a market index — typically ISO-NE’s day-ahead or real-time energy prices, plus a fixed margin. Your supply cost changes monthly (or more frequently) as the market moves.
Variable rates can save money when:
- Wholesale prices are falling and forward fixed rates are elevated
- You have the sophistication and tolerance to absorb monthly price variability
- Your contract structure includes price caps or collars that limit downside exposure
The risk is significant in New England: during the cold weather events of January 2018, January 2022, and December 2022, ISO-NE real-time prices spiked to many times the average rate — sometimes above $1/kWh for brief periods. Variable-rate commercial customers on wholesale-tracking contracts absorbed those spikes directly.
Massachusetts law significantly restricts variable-rate products for residential customers, but commercial and industrial buyers are not subject to those restrictions. As a C&I buyer, you’re responsible for understanding what you’re agreeing to.
Block-and-Index and Hybrid Products
A third option for larger commercial buyers: block-and-index contracts, where a portion of your supply is fixed and the remainder floats with the market. This structure can be tailored to your risk tolerance and load profile, and is typically available from competitive suppliers for accounts above 500 kW in peak demand.
The Massachusetts Regulatory Context
In 2015, Connecticut banned variable-rate contracts for residential customers. Massachusetts has not gone that far for residential customers, and C&I variable products remain legal. However, the policy debate about variable-rate consumer products has intensified across New England. For commercial buyers, the practical lesson is that variable products require active management — they are not a set-it-and-forget-it structure.
Bottom Line
For most Massachusetts commercial electricity buyers, a fixed-rate contract for 12-24 months is the right default choice. It eliminates price risk, simplifies budgeting, and in New England’s winter-volatile market, provides real protection against the highest-risk months for energy costs.
Contact Gridwealth Electric: Gridwealth Electric offers fixed, index, and hybrid supply products for Massachusetts and Rhode Island C&I customers. Contact us at tford@gridwealth.com.
