Similar to variable rate plans, index rates can vary from month-to-month. This sounds scary upon first glance, however, index rate plans provide more insight into the price that you'll actually pay each month.
Whereas variable rate contract language may state, "After the initial rate, your next bill's rate is up to sole discretion of Retail Provider X", an index rate is one in which the price you pay for energy is tied directly to the price of some energy market index, in this case the last settled price of the NYMEX Natural Gas Futures Contract. This allows you to receive a "heads-up" on the direction in which your final cost of electricity is going.
In order to get to that final cost, we have to add one more pricing component to the ones that I've covered previously: An Indexed Energy Charge.
This charge is calculated using a predefined Gas Multiplier (as outlined in the rate offer):
Notice that in the screenshot above from the Reliant PowerTracker product, the Gas Multiplier is defined at four different times of the year. Why is this the case? I'm not certain, but from what I can tell, the multiplier is basically higher during the hottest months of the year (June-September).
The only other retailer besides Reliant to offer another indexed rate plan is TXU, called the "TXU Energy MarketEdge". Their Index Energy Charge is calculated in the same manner, but using just two different Gas Factors (or Multipliers), again depending on the time of year:
Taking into account this index energy charge, the calculation is simply a matter of including that with the base charge, kWh energy charges, TDSP charges and monthly kWh usage to get to your final bill. Here's the Reliant screenshot outlining the calculation:
On a related note, TXU Energy's recent "No Vari-a-Bull" rate marketing is interesting because it appears as though they are trying to distance themselves from variable rate plans in general, even though their "MarketEdge" product, being an indexed plan, is basically variable as well (changes from month-to-month).
However, to their credit (being an indexed plan), since each month's price is clearly explained (as shown in the screenshots above), their most variable product will not suffer the surprise expiration of a typical variable rate's initial promotional teaser price as exists with other retailers.
Anyways, with summer approaching soon, I'm pretty close to switching to a fixed rate again (yes, after just a few months with the indexed plan), but with natural gas prices near 10-year lows, perhaps it's now best to lock in a rate.
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