Choosing the electricity plan type is just one of many choices you’ll have when choosing your new electricity plan. There are fixed, variable and indexed electricity plans. It can be confusing to sort through the different options available, especially if you’ve never bought an electricity plan before.
Take a breath, because finding the perfect plan rate type for your family or small business is a lot easier than it looks. We’ll walk you through what you need to know about electricity pricing. And we’ll call out things that are different in Texas, the biggest deregulated electricity market in the U.S.A.
What’s in this Article
- Types Of Electricity Plans
- Fixed Rate Electricity Plans – Recommended Best Plan Type
- Variable Electricity Rates – Flexibility
- Indexed Electricity Rates – Playing the Market
- Types of Electricity Plans in Texas
- Is Fixed Rate or Variable Electricity Rate Electricity Plan Better?
Types Of Electricity Plans
Here are the main types of electricity plans. These definitions are consistent across all deregulated electricity markets.
- Fixed Rate Electricity Plan: A fixed rate electricity plan charges the same rate per kWh of electricity for the term of your agreement. The price is the same no matter how much electricity you use. The only way your price will change is if there are changes in the delivery fees.
- Variable Rate Electricity Plan: A variable rate electricity plan is a month-to-month electricity plan. Your rate can change every month, typically with no limits. Your provider is required to publish the next month’s rate. This gives you notice of what you’ll pay each month.
- Indexed Rate Electricity Plan: An indexed rate electricity plan is similar to a variable rate plan, in that your price will change on a regular basis based on a formula. Indexed rate electricity plans are typically tied to the trading markets for electricity.
Fixed Rate Electricity Plans – Recommended Best Plan Type
Fixed-rate electricity plans are the most popular option with electricity customers and the type of plan we recommend. You’ll get a fixed rate for electricity, no matter what happens in the electricity market.
When prices rise for other electricity customers, a fixed-rate electricity plan doesn’t budge. The price remains stable throughout the length of the contract.
On the down-side, if prices drop, you may regret locking in. And breaking the contract can be costly, depending in what state you are in.
Some states limit the amount that retailers can charge for an early termination fee. But in Texas, you could pay $150 – $300 to terminate your contract. That’s why some electricity providers in Texas will pay for your early termination fee to get you to switch. For example, Rhythm will reimburse your ETF up to $150.
Fixed rate electricity plans can vary in term length. Some of the most common contact terms are 6, 12, 24 and 36 months. But if you see an odd term, like 8, 15 or 22 months, take a look. Those odd term plans typically give great value.
We recommend Basic Fixed Rate plans. These are plans without tiered rates, bill credits or other gimmicks. In 20+ years of evaluating electricity rates, these basic electricity offer the best value to the most consumers.
Variable Electricity Rates – Flexibility
Variable-rate electricity plans change in cost from month to month, based largely on the cost of wholesale electricity.
Variable rate electricity plans are a great option if you’re not ready to commit to a long-term plan. Or if fixed rate plans are too expensive at that moment (which usually happens in August.) Since most variable-rate plans are month to month, there won’t be a cancellation fee if you want to switch.
On the downside, variable-rate plans offer absolutely no protections from fluctuations in the cost of electricity.
This means you’ll want to carefully research this option. Most suppliers show the historical pricing of their variable-rate plans somewhere on their website.
Variable rate electricity plans are perfect if you’re in temporary housing or have rental properties. Or, they’re a good stop-gap measure if you want to wait out the summer market. You can go month to month, then lock in a cheaper fixed-rate plan when rates drop.
However, the price fluctuation can make these dangerous for customers who can’t absorb a large, sudden increase in electricity costs.
Indexed Electricity Rates – Playing the Market
An indexed electricity rate simply means that the price of your electricity is tied to another underlying variable. For most indexed electricity rates, the underlying variable is the price of a publicly available index.
For example, your indexed rate might be tied to the monthly closing price of the NYMEX natural gas futures contract. Or your indexed rate might be tied to the price of electricity in wholesale markets, which change every 15 minutes.
Indexed plans are interesting but can be challenging. They require a fair amount of monitoring on the customer’s part in order to ensure any savings. Take a chance on these plans only if you like riding the market and don’t mind taking risks.
Note: Indexed market rates are not allowed in Texas since 2021.
Types of Electricity Plans in Texas
Texas has been deregulated since 2001, with over 85% of Texans having their choice of electricity provider. With over 40 providers to choose from, there are a lot of different types of fixed rate plans to choose from.
- Basic Fixed Rate Electricity Plans: This is our top recommendation for type of electricity plan in Texas. You’ll pay the same rate for every kWh of power you use, with delivery fees passed through at cost. Once you enter your zip code, select basic fixed rate using Advanced Search.
- Tiered Rate Electricity Plans: Tiered rate electricity plans charge a different price per kWh depending on how much electricity you use during the month. These look like low prices but make sure you know your usage before you sign up. Search by tiered rate/bill credit plans using Advanced Search.
- Bill Credit Electricity Plans: Bill credit electricity plans give you a bill credit when you use a certain amount of electricity. Make sure you know your usage and how many times each month you will hit the required level. Search by tiered rate/bill credit plans using Advanced Search.
- No-Deposit Electricity Plans: Prepaid electric plans let you pay upfront with no credit check. You also pay as you go, checking your monthly balance to your energy usage to add more funds.
- Time-of-Use Electricity Plans: Often offering free nights and free weekends, these electricity plans lower rates during off-peak hours. If you can shift your electricity usage to certain times, these can give you a lower average price.
- Green Energy Plans: Green energy plans let you contribute to a cleaner environment in Texas. Renewable Energy Certificates back these plans. That means you will support wind and power resources.
- Solar Buyback Plans: More and more Texas residents have opted for solar panels. Solar buyback plans ultimately reward you for this choice. Any excess energy generated gets sent to the grid, and you’ll receive a credit you can put toward future bills.
- Plans for EV Owners: Did you invest in an electric vehicle (EV)? If you charge at home, these plans offer savings when you power your vehicle during certain hours.
Want to learn more about shopping for electricity in Texas? We thought you might. That’s why we wrote The Definitive Guide to Shopping for Electricity in Texas. In 10 minutes you’ll know everything there is to know.
Compare Electricity Plans & Rates in Texas
Is Fixed Rate or Variable Electricity Rate Electricity Plan Better?
There is no perfect electricity rate type for everyone. As we discuss above, there are lots of options.
But in our 20+ years of experience with deregulated electricity, fixed rates are our top recommendation for best type of electricity plan.
With a fixed rate plan, you will know your price per kilowatt hour for the term of your agreement. That lets you budget and plan ahead.
A variable-rate plan or a month to month contract is only a good option if you are trying to shift your contract expiration date, are moving soon, or are waiting until prices drop before you commit.
