Electricity Plan Types

Understanding Plan Types

Understanding Your Options to Make the Best Decision for You

When it comes to choosing an electricity plan in Texas, the range of options can be overwhelming. To help you make an informed decision that suits your lifestyle and preferences, we've created this guide to walk you through the different types of electricity plans available, their pros and cons, and even examples of popular providers for each plan type.

Fixed-Rate Plans

A fixed-rate electricity plan, also known as a fixed-rate energy plan or fixed-price electricity plan, is a type of electricity plan where the rate you pay for electricity remains constant throughout the duration of your contract, regardless of market fluctuations. In other words, the price you pay per kilowatt-hour (kWh) remains the same for the entire length of your agreement, which is typically expressed in months or years.

Key characteristics of a fixed-rate electricity plan include:

Price Stability - With a fixed-rate plan, you have price predictability. You know exactly how much you will pay for electricity each month, making it easier to budget and plan your finances. This stability is particularly appealing to consumers who want to avoid surprises in their monthly bills.
Protection from Market Fluctuations - Regardless of how electricity prices in the broader market rise or fall, your rate remains unaffected. This means you won't be exposed to sudden spikes in electricity prices during peak demand seasons or energy market fluctuations.
Contract Duration - Fixed-rate plans typically require you to commit to a contract for a specific period, such as 12, 24, or 36 months. While this offers stability, it also means you may be subject to early termination fees if you cancel your contract before its expiration.
Variety of Term Lengths - Providers often offer a range of contract term lengths, allowing you to choose the one that best suits your needs and preferences. Longer contract terms may come with slightly lower rates but require a more extended commitment.
Renewal Options - At the end of your fixed-rate contract, you may have the option to renew or switch to a different plan. It's essential to review your options and rates before the contract expires to ensure you continue to get the best deal.

Quick Pros and Cons to Fixed-Rate Plans

PROS

With a fixed-rate plan, your electricity rate remains constant throughout the contract term, making it easier to budget and plan your finances.
You won't be affected by market price fluctuations, ensuring your rate remains unchanged during the contract period.

CONS

Unless you break your contract, you won't be able to take advantage of more favorable pricing if the market trends more favorable.
Be cautious of early termination fees if you need to cancel your contract before its expiration.

Who Might Be Interested in a Fixed-Rate Plan?

A fixed rate electricity plan is generally suitable for individuals or households with specific preferences and circumstances that prioritize stability and predictability in their monthly electricity bills. Here are some types of people who might be interested in a fixed rate plan:

Budget-Conscious Consumers - People who prefer to have a consistent and predictable monthly budget find fixed rate plans appealing. With a fixed rate, they know exactly how much they will pay for electricity each month, making financial planning easier.
Risk-Averse Individuals - Consumers who want to avoid the potential for rate fluctuations and unexpected bill spikes are often drawn to fixed rate plans. These plans shield them from market price volatility.
Long-Term Planners - Individuals or families who like to plan for the long term, especially those who intend to stay in their current residence for several years, often opt for fixed rate plans. The stability offered by these plans aligns with their extended commitments.
Families with Fixed Expenses - Households with children or fixed expenses that need to be carefully managed appreciate the consistency of fixed rate plans. It allows them to allocate funds for other essential needs without worrying about fluctuating energy costs.
Retirees and Seniors - Retirees and older adults on fixed incomes may prefer fixed rate plans because they provide financial stability and predictability. It's easier for them to budget for known expenses.
Busy Professionals - People with busy lifestyles who may not have the time to closely monitor the energy market or adjust their usage based on market fluctuations often prefer fixed rate plans for the peace of mind they offer.
Individuals with High Energy Needs - If you have high energy needs due to a large household, home office, or energy-intensive appliances, a fixed rate plan can provide cost predictability, making it easier to manage your energy expenses.
Concerned About Future Price Increases - Consumers who anticipate that electricity prices may increase in the future may opt for fixed rate plans to lock in current, potentially lower rates for an extended period.
Financial Stability Seekers - People who prioritize financial stability and want to avoid the risk of unexpectedly high bills during peak-demand seasons or market volatility may find fixed rate plans align with their financial goals.

Fixed rate plans provide a sense of security and consistency in energy costs, making them an attractive option for those who value these attributes. However, it's essential to carefully review the terms and conditions of your fixed rate plan, including contract length and early termination fees, to ensure it meets your specific needs and preferences.

Variable-Rate Plans

A variable rate electricity plan, also known as a month-to-month or variable-price electricity plan, is a type of electricity plan in which the rate you pay for electricity can fluctuate from month to month based on various factors, including market conditions and changes in energy demand. Unlike fixed-rate plans, where the rate remains constant throughout the contract term, variable rate plans offer less price predictability because the rate can change frequently.

Key characteristics of a variable rate electricity plan include:

Rate Fluctuations - With a variable rate plan, the price you pay for electricity can vary each billing cycle. This means your electricity bill can go up or down depending on market conditions, supply and demand, and other factors affecting the energy market.
No Long-Term Commitment - Variable rate plans typically do not require a long-term contract. You are usually billed on a month-to-month basis, which offers flexibility and allows you to switch to a different plan or provider with little notice.
Immediate Market Influence - Your rate can change in response to real-time or short-term market fluctuations. For example, during periods of high energy demand (such as summer heatwaves), your rate may increase temporarily.
No Early Termination Fees - Since there is no long-term contract associated with variable rate plans, you generally won't face early termination fees if you decide to switch to a different plan or provider.
Price Volatility - Variable rate plans can be appealing when electricity prices are low, as you may benefit from reduced rates. However, they can also lead to higher bills during periods of high demand or energy market volatility.
Less Budget Predictability - Due to the variability in rates, it can be challenging to predict your monthly electricity expenses accurately. Consumers on variable rate plans need to be prepared for potential fluctuations in their bills.

Quick Pros and Cons to Variable-Rate Plans

PROS

Variable-rate plans don't lock you into a long-term contract, providing flexibility. You're essentially going month-to-month.
These types of plans allow you to "try out" a new Retail Electricity Provider without having to make a long term commitment. If you're unhappy with that provider's rate, customer service, etc, you can switch to another. If you're happy with your experience, most providers will allow you to switch to one of their fixed rate plans at any time if you wish to lock in your rate.

CONS

Your rate can change from month to month, making it challenging to predict your monthly bill, especially during peak-demand seasons.
During periods of high market prices, your electricity bills could increase significantly.

Who Might Be Interested in a Variable-Rate Plan?

A variable rate electricity plan can be appealing to certain types of consumers who have specific preferences and circumstances. Here are some types of people who might be interested in a variable rate plan:

Flexible Budgeters - Individuals or households who can comfortably manage fluctuations in their monthly electricity bills may prefer variable rate plans. They have the flexibility to adapt to changing energy prices without causing financial strain.
Risk-Tolerant Consumers - Some consumers are willing to take on the risk of variable rates in exchange for the potential of lower electricity costs when market prices are favorable. They are comfortable with the uncertainty that comes with market-driven rates.
Short-Term Residents - People who expect to move or change residences in the near future might find variable rate plans convenient because they typically don't require long-term contracts. This flexibility suits renters or individuals with temporary living arrangements.
Market Watchers - Savvy consumers who closely monitor energy market conditions may choose variable rate plans to take advantage of lower rates during periods of reduced demand or market fluctuations. They are proactive in adjusting their electricity usage to minimize costs.
No Early Termination Fees - People who are averse to long-term commitments or concerned about early termination fees may opt for variable rate plans since they generally allow for easy plan changes or provider switches without penalties.
Risk Mitigators - Consumers who believe that market prices will remain relatively stable may be comfortable with variable rate plans. While rates can fluctuate, they may not anticipate significant price swings in the near future.

It's important to note that variable rate plans can be less predictable, and the potential for higher bills during certain periods exists. Consumers considering these plans should be vigilant about monitoring their electricity bills and staying informed about market conditions.

Before choosing a variable rate plan, individuals should carefully assess their financial stability and risk tolerance to ensure that rate fluctuations align with their energy consumption habits and budgeting capabilities. Additionally, it's advisable to periodically review plan options to determine if a fixed-rate plan might offer more stability and peace of mind.

Pricing: Fixed-Rate vs Variable-Rate

It's tough to educate you on whether a fixed plan or a variable plan will be more beneficial from a cost perspective. There are many variables that play into how your electicity is priced, including weather, market conditions, and seasonality just to name a few. There might be times during the year where variable rates could be lower than fixed rates (at least for your first month). Then, there are times when fixed rates generally carry lower rates. Even within the category of fixed-rate plans, rates will be priced very differently. There are times when your Retail Electric Provider will try and get you to lock in for longer term (say... 36 months) and offer you a lower rate than their variable rate and their 12-month term. And then there are times when the provider might make a 6-month term more enticing.

Confusing? Probably so. That's why the key is to make sure you're educated about the market. Understand these different plan types and know what type of plan you're comfortable with and what will fit you, your family and your lifestyle the best.

Here's a few additional tidbits to keep in mind:

Know how your rate may fluctuate and watch it if you're on a variable plan.
Know when you're contract ends. If you're contract ends without you switching or renewing, your provider will most likely automatically "roll" you to a variable plan with a rate that's higher than what you were paying.
We recommend signing up for a fixed plan and term length that doesn't end during the summer. Summer is when the market has traditionally been at it's most expensive.

Other Plan Types

There are other types of plans that occassionaly make their way into market. Many have come and gone. Some have even been banned by the PUC.

One other type of plan you might see is called an Index-Rate Plan. This is a type of electricity plan in which the rate you pay for electricity is directly tied to a specific index or market benchmark, such as the wholesale electricity market price. The rate can fluctuate regularly, often on a monthly basis, based on changes in the chosen index. Indexed rate plans are less common than fixed-rate and variable-rate plans but offer a unique approach to pricing electricity. However, for the most part, they offer the same Pros and Cons as a variable-rate plan.