The hidden cost of variable-rate electricity in 2026

How a variable supply rate actually re-prices each month

A variable supply contract has no fixed rate. Instead, the supplier passes through the wholesale electricity price — typically the day-ahead settlement at your zone's hub on the regional grid operator (PJM, ERCOT, ISO-NE) — plus an administrative margin of 1 to 3 cents per kWh, plus capacity and ancillary cost recovery. The result is a per-kWh rate that re-prices monthly with a 30-to-60-day lag.

Suppliers like the variable structure because they bear no hedging risk. The customer absorbs every wholesale move. When wholesale prices fall in shoulder months, the customer's bill drops modestly. When wholesale prices spike during a polar vortex or summer heat dome, the customer's bill spikes proportionally. The supplier collects their margin either way.

The 2025 gap — variable ran 18 percent above fixed across PJM

EIA Form-861 panel data shows that across the PJM footprint in 2025, the average residential variable supply rate ran 18 percent above the average locked rate signed in September 2024. The gap widened in winter (December 2025 variable was 32 percent above the locked baseline) and narrowed in spring (May 2025 variable was 4 percent above).

The same pattern held in ERCOT. Texas REPs offering variable plans through the Power-to-Choose portal ran 14 percent above the same provider's 24-month locked rate for the year. The fixed rate signed the prior summer captured the entire 2025 wholesale move because the supplier had hedged the curve at signing.

When variable still wins — two narrow cases

Case one: a steep wholesale reversion is imminent and the futures curve confirms it. If the wholesale forward curve at your zone is pricing the next 6 months 8 to 12 percent below current variable rates, and the next-quarter contract rates from suppliers have not yet caught up, holding variable for a quarter and re-locking after the reversion can outperform locking today.

Case two: your existing locked rate is already above the next-quarter forward curve and you have no exit fee. Some suppliers offer no-exit-fee fixed contracts for the first 12 months. If wholesale falls hard during your locked term, switching to variable mid-term and re-locking later can recover a few percent. This is rare and requires active management.

Why suppliers offer both products at all

Suppliers run both books because they hedge differently. The fixed book is hedged in the wholesale futures market — the supplier locks in their cost when you sign, and their margin is the spread between your contract rate and their hedge price plus operating cost.

The variable book is not hedged. The supplier passes the wholesale market through to the customer and earns a clean margin per kWh delivered. Variable customers are also stickier than locked customers because there is no contract end date to prompt a switch, which makes the lifetime value of a variable account higher on average for the supplier.

What to do this month — the 3-question decision tree

Question one: what is the next-quarter wholesale forward at your zone? If the forward is materially below your current variable rate AND you do not yet have a locked offer that beats both, hold variable for a quarter and re-lock after the reversion.

Question two: how does your current rate compare to fresh supplier offers? If fresh fixed-rate offers are 8 percent or more below your current rate, lock today regardless of the forward curve. The lock window for the next year typically opens August through October.

Question three: are you within 60 days of an existing contract expiry? If yes, re-shop now. Auto-renewal is the single biggest source of overpayment in the deregulated retail market. Suppliers know the rollover risk and price the rollover rate accordingly.