A commercial electricity contract sets the price formula, allocates market risk, and defines which charges can change during the term.
Fixed, indexed, and hybrid structures place risk in different locations. The right choice depends on the organization’s load, operating plan, budget requirements, and view of the market.
Most commodity cost is locked for a defined term. This supports budget certainty but can carry a premium for transferred risk.
Price follows a published market index. The buyer retains more market exposure and can see greater month-to-month variability.
A portion is fixed while another remains market-responsive, balancing budget protection with participation in market moves.
Read the fixed-price definition carefully
Most fixed contracts lock the commodity component. Utility delivery charges, taxes, regulatory changes, capacity costs, and transmission costs may still pass through. Volume tolerances also affect the invoice when usage moves outside an agreed band.
Ask which components are fixed, which can change, and what happens when the operation uses more or less than expected.
How indexed pricing works
Indexed pricing can be an intentional choice for an organization able to absorb variability, manage load, or hedge exposure in stages. Before choosing it, the buyer should model a high-price case and confirm that the operating budget can absorb the exposure.
When a hybrid structure fits
Hybrid structures can separate baseload from variable usage, fix portions over time, or combine a protected core with indexed exposure. The fixed and indexed portions should follow the actual load shape and the buyer’s budget tolerance.
The decision should begin before the quote
A supplier bid answers the requirement it receives. Sector 7 defines the structure around the organization’s risk, watches the market window, and then runs a normalized RFP.