Comparing Electricity Plans

Types of Electricity Plans: Fixed, Variable, and Indexed

  • Written By: Shannon Bedrich
  • Edited By: Kelly Bedrich

  • 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.

    Types Of Electricity Plans

    Here are the main types of electricity plans, defined:

    1. 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.
    2. Variable Rate Electricity Plan: A variable rate electricity plan is a month-to-month electricity plan. Your rate can change every month. Your provider is required to publish the next month’s rate to give you notice of what rate you’ll pay.
    3. 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. The difference between a variable rate plan and an indexed rate electricity plan is the formula. Indexed rate electricity plans are tied to a published market price, like the cost of natural gas.

    These definitions are consistent across all deregulated electricity markets.

    Within Texas, there are a lot of types of electricity plans.

    Within Fixed Rates, you will also find electricity plans with tiered rates and bill credits, where your average price per kWh will vary with your usage. You’ll still find them on our site, but below we’ll tell you how to identify a good deal or not. You can also choose from Green Energy fixed rate plans.

    The Public Utility Commission of Texas categorizes Free Nights and Weekends Electricity Plans as a fixed rate.

    And if you have bad credit, you can get a prepaid electricity month to month plan with a variable rate or for 12 months on a fixed rate.

    Fixed Rate Electricity Plans – No Gimmicks

    Fixed-rate electricity plans are the most popular option with electricity customers. These types of plans give you 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. That’s the big benefit of fixed rate electricity vs. variable rate electricity.

    On the flip side, fixed-rate electricity plans can also cost you a lot of money. What happens if you have entered into a long-term contract and electricity prices suddenly go down. Some long-term contracts can commit you for as long as three to five years.

    Breaking the contract on one of these long term plans 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 a couple hundred dollars for early termination.

    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 contracts for 6 or 12 months give you a short-term fixed rate option. A short term fixed rate contract could offer the lowest price. And sometime long term fixed rate contracts are cheaper. It all depends on market conditions.

    We recommend fixed rate plans that are a set rate, without tiers or bill credits. In our years of evaluating electricity rates, these basic electricity offer the best value to the most consumers.

    When you shop online with, you’ll find these plans described as “Basic Plans.” And you can opt to see only those plans by using the Advanced Search feature. Or use this link to find out more about Fixed Electricity Rate No Gimmicks (Basic Electricity plans in Texas).

    Types of Fixed Rate Plans in Texas

    Texas always has to be different. In addition to Basic Fixed Rate plans, here are the other types of Fixed Rate plans in Texas:

    • 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.
    • 100% Renewable 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.
    • Electricity Plans with Free Stuff: Some retail electricity providers will include a free gadget with your electricity plan. Examples include a Google Hub or a free Nest smart thermostat. These plans are usually priced at a higher rate to cover the cost of the free item.

    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.

    Variable Electricity Rates – Keep Your Options Open

    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. You can jump ship whenever you choose.

    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. Beware of variable-rate plans in August, especially in the south. These plans can jump 30% or more for this one month.

    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 – Time Of Use

    An indexed electricity rate simply means that the price of your electricity is tied to another underlying variable.

    For some electricity providers, this underlying variable is the price of a publicly available index. One example is the monthly closing price of the NYMEX natural gas futures contract.

    The underlying variable that your electricity provider uses to calculate your bill must be fully disclosed in your contract. The electricity rates for indexed electricity plans can vary month to month like variable-rate plans. Or the indexed rate may be fixed for the length of your contract based on the closing price of a certain index on a certain date.

    As of July 2021, residential consumers and small businesses no longer have the option of buying an indexed plan that is tied to a commodity.

    In Texas, electricity suppliers previously labeled time of use plans as indexed plans.

    The Texas free nights and weekends electricity plans is a time of use plan. You get free electricity at certain times as defined by the contract that you sign with your electricity provider. These type of plans also require a smart meter. That lets your electricity provider accurately measure the amount of electricity that you use during your “free” time.

    Are you willing and able to shift a large portion of your electricity usage to the measured free period? If so, this type of plan might save your money.

    Indexed plans are interesting but can be challenging. Because they require a fair amount of monitoring on the customer’s part in order to ensure any savings.

    Take a chance on these plans if you’re looking for a deal and you don’t mind policing yourself.

    Is Fixed Rate or Variable Electricity Rate Electricity Plan Better?

    There is no perfect electricity rate type for everyone.

    If you’re not sure what type to choose, a variable-rate plan on a month to month contract is probably your best bet. This gives you time to decide if you like the provider you’re working with. You can watch rates to figure out when the best time is to leap into a longer term fixed-rate plan.

    If you aren’t the type who likes to gamble or you’d prefer to just buy a plan and forget it, the fixed-rate plans are perfect for you. This is what most consumers buy. There’s a lot of security with them. You know exactly how much you’ll pay per kWh. You’ll save yourself from having to monitor your electricity rate all the time. Fixed rates are our top recommendation for best type of electricity plan.

    What’s a Flat-Rate Electricity Plan?

    A flat rate electricity plan charges a set amount of electricity per month, no matter how much power you use. This is similar to an average billing approach.

    Make sure you read the find print on any flat rate electricity plans. Most of them will give you a certain fixed price per month, up to a certain usage level. Any usage over that is more expensive per kWh.

    When you are shopping for a flat-rate electricity plan, make sure you understand your electricity usage. If you use less than the targeted usage level, your price per kWh will be higher than what you want to pay. But, if budget certainty is what you are looking for, these could be a good option.

    About Shannon Bedrich

    Shannon Bedrich, co-founded ElectricityPlans in 2016 after shopping for electricity rates using a confusing state-sponsored website. A CPA and our CFO, Shannon is the one that deciphers the fine print on each electricity plan. Outside of work, Shannon enjoys spending time with family, rooting for the Aggies, and exploring all that Houston has to offer.

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