EST. 2013
How to Choose Between Types of Electricity Plans in Texas
Fixed Rate, Variable Rate, Indexed Rate, or Prepaid?
Published on Oct 19, 2022
Here in Texas, there are three primary types of electricity plans. A fixed rate plan, where your price per kilowatt-hour doesn’t fluctuate throughout your contract, is the safest and most predictable type of electricity plan you can find in Texas, so that’s why Energy Ogre usually ends up choosing this type of plan for our customers. In contrast, variable-rate plans (month-to-month) and indexed-rate “market” plans see your price per kWh fluctuate, which can either save you some cash or cost you big time if the energy market takes a hit.
Picking the best electricity plan in your Texas neighborhood can be complicated. Not only is it a matter of choosing the right Retail Electricity Provider (REP); power companies also have a seemingly endless number of plans to choose from. Let us do the hard work for you; sign up for Energy Ogre, and we’ll automatically find and enroll you in the best contract out there. Plus, we get to share our exclusive discounted power rates with our customers, so you’ll always be paying the best electricity rates in Texas, contract-after-contract.
Table of Contents:
- Why Are There So Many Different Types of Electricity Plans in Texas?
- Pros and Cons of Fixed-Rate Electricity Plans
- Pros and Cons of Variable-Rate Month-to-Month Electricity Plans
- Pros and Cons of Indexed-Rate Electricity Plans
- Flat Rates vs Variable-Rate vs Indexed Rate Electricity Plans: Pros & Cons
- Free Nights and Weekends? How Do Time-of-Use Energy Policies Work?
- How Do Prepaid Electricity Plans Work in Texas?
- Why Wholesale Electricity Plans Don’t Work in Texas
- What’s the Best Type of Electricity Plan in Texas?
Why Are There So Many Different Types of Electricity Plans in Texas?
Here in Texas, large parts of our electricity market are deregulated, meaning that residents have the power to choose between different power companies for their home electricity needs. However, this can often lead to an overwhelming amount of choices for consumers, with each company offering a multitude of different types of plans. On the one hand, this is great because there’s bound to be a plan out there that works perfectly for your household’s electricity needs. But on the other hand, searching for electricity plans in an energy-deregulated part of Texas can require you to comb through hundreds (or even thousands) of different plans!
(Not sure if you live in a deregulated area of Texas? Visit our Energy Deregulation Map of Texas or enter your ZIP code to find out.)
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Each plan has its own perks and incentives. Some have a “time-of-use” policy where your electricity is “free” (allegedly!) on nights and weekends. Others offer power at attractive wholesale electric rates that may seem cheaper than buying a standard flat-rate plan. However, those free nights and weekends electric plans mean that your REP is increasing the price you pay per kilowatt-hour during the day, and wholesale electricity providers don’t tell you about the outrageous minute-by-minute price spikes that you may encounter paying wholesale prices. When you come across an attractive electricity plan, be sure to comb through the Electricity Facts Label (EFL) first to find out exactly what you’ll be paying for, including TDU delivery charges and other hidden fees. Or, sign up for Energy Ogre and let us analyze your energy plans for you. We’ll find you the best electricity plan available to you at the time of sign-up, guaranteed, or we’ll get you your money back.
If you want to do the combing yourself, keep reading to find out the difference between fixed-rate, variable-rate, and indexed-rate electricity plans. Plus, we throw in some tips on how to understand time-of-use policies, prepaid plans, and wholesale electricity plans in Texas, so that you can make the most informed choice when you’re shopping for your Texas electricity.
Pros and Cons of Fixed-Rate Electricity Plans in Texas
Electricity prices fluctuate based on the time of year due to electricity demand changes caused by seasonal temperature swings. Therefore, a fixed-rate plan guarantees you the same price per kilo-Watt hour (kWh) for the duration of your contract. Fixed-rates plans can last anywhere between a few months and several years. Check out this article if you’re wondering what a kilowatt-hour is and how kWhs are used to calculate your electricity bill!
For example, enrolling in a fixed-rate plan will typically cost more in the middle of winter and summer. The most important thing to understand is fixed-rate plans lock you into one electricity price for the entire contract.
Look at it this way—being locked into an overpriced plan with a long contract could lead to overspending. But if you can find a low, cost-efficient plan that is 9-12 months long, you will typically benefit from being locked into that price. Therefore, you will have saved a fair amount of money during that contract when comparing your plan to a variable or indexed-rate plan.
Simple, right? There’s a little more to the story. There are two different forms of fixed-rate plans. The first is an “all-in rate plan”, which is rare, mainly because REPs assume a level of risk when they offer these types of plans. Essentially, the REP names a price that encompasses the energy rate, delivery fees, taxes, and fees assessed by the Public Utility Commission (PUC).
Next, you have the “pass through rate plan.” This is the most common form of fixed-rate plan that most Texans have. It may seem complicated, but I assure you it’s not.
“Pass-through” means the delivery charges and PUC-assessed fees are subject to change during your contract. In fact, TDSP fees usually change twice a year. Therefore, your REP will “pass through” those charges onto your bill. This type of plan is more transparent and is typically cheaper than the “all-in” alternative.
Pros and Cons of Variable-Rate Electricity Plans (Month-to-Month Energy Plans)
As the name would suggest, the prices of variable-rate plans change monthly. The variable rate changes at the discrepancy of each REP—there are no other underlying factors that determine your rate.
In Texas, these month-to-month energy plans have no long contracts or cancellation fees, but the rate you’re locked into for the month can vary wildly between months depending on a variety of factors, including demand, weather, supply-chain, grid problems, etc. But it’s ultimately up to the Retail Electricity Providers (REPs) to determine these variable rates, and they can decide to hike up your electricity prices for any reason, even if it’s just because they think they can get more money from you. Learn more about how Retail Electricity Providers work here!
Luckily, variable-rate plans do offer you the flexibility to switch electricity providers every month, but what happens when you’re stuck at the end of the month without a plan and your only options at the time are exorbitantly pricey due to rate spikes? These plans are a gamble because nobody can bank on when these rates will drop, but nobody can foresee when these rates will rise.
In fact, 90% of Texans are paying more for electricity than they could, resulting in the loss of over $400 a year per household due to greedy power companies changing your rates. Interested to see how much you can save? Check out our Savings Calculator to find out how little you could be paying on your current Texas electricity bill.
It’s worth noting variable rates are the biggest money-makers for REPs. Some plans may start with a low rate for a month or two, but they typically jump to a higher rate later on. That’s why it’s important to avoid variable-rate plans if possible.
Pros and Cons of Indexed-Rate Electricity Plans
Finally, indexed-rate plans are the most complicated and most uncommon of the three types of plans. So we’ll just cover the basics. With an index rate, your electricity price is directly connected to an underlying variable, or index, which is typically the cost of natural gas.
Therefore, the price you pay is tied to the fluctuations of that index. Indexed-rate plans are rare, and you usually won’t see them advertised or offered by REPs. The electricity rates for indexed electricity plans vary month to month, like variable-rate plans.
The differences between variable-rate vs indexed-rate electricity plans in Texas are minimal. Since indexed energy charges are directly tied to an index, these plans’ rates can’t just increase because the REP’s want more money. However, this type of plan requires a lot of research and awareness into the Texas electricity market, and you’ll need to be prepared for intense electricity price spikes if anything happens to the grid or our natural gas supply. Make sure you know exactly how the price of your electricity is determined by requesting the index your plan would use, and by asking for updates every time the indexed rate changes.
Trying to find the best type of electricity plan in Texas? Use our energy plan comparison chart to decide whether indexed-rate, fixed-rate, or variable-rate electricity is better for your home energy needs.
Flat Rates vs Variable-Rate vs Indexed Rate Electricity Plans: Pros & Cons
| Electricity Contract Type | Advantages | Disadvantages | ||
Fixed Rate | - Fixed Rate energy plans will not increase if market prices rise - Fixed Rate energy plans make budgeting each month easier because your electricity costs will remain relative to the month prior--approximately a little more or a little less | - Fixed Rate energy plans will not decrease if market prices drop - Fixed Rate energy plans require contracts, and you may be subject to an early termination fee (ETF) if you end your contract before the expiration date | ||
Variable Rate | - Variable Rate energy plans can decrease if electricity prices decrease - Variable Rate energy plans typically aren't contracts, so you won’t have to worry about paying an Early Termination Fee (ETF) | - Variable Rate energy plans make monthly budgeting difficult because your rate can change - Variable Rate energy plans your bill is subject to increase when electricity prices spike | ||
Market or Indexed Rate | - Index Rate energy plan prices can decrease according to the variable or index you originally agreed to | - Indexed Rate energy plan variables can increase, making your monthly electricity costs unpredictable - You must actively monitor Indexed Rate energy plans because the price of the variable or index and how it affects your electric bill - Indexed Rate energy plans demand the most research and knowledge of all three types of plans | ||
Prepaid Electricity | - Prepaid energy plans don't require a credit check - Prepaid energy plans don't have an ETF - Prepaid energy plans let you decide how much money to put into your account to be used for energy costs - Prepaid energy plans offer daily communication of how much energy you are using and how much money is left in your account | - Prepaid energy plans have high late fees and disconnect fees - Prepaid energy plans are usually more expensive than other types of plans - Prepaid energy plans require the customer to monitor their account more than other plans to make sure their balance doesn't hit zero |
Free Nights and Weekends? How Do Time-of-Use Energy Plans Work?
In addition to term lengths and rates, an electricity plan may include a time-of-use policy. In Texas, time-of-use electricity rates will increase or decrease based on the time of day or week. For example, a plan may advertise “free nights and weekends” like Reliant’s “Keep Your Cash” Nights & Weekends Plan. This effectively means your energy rate during nights and weekends is ¢0 cents per kWh. However, this means that your electricity rate can end up wildly inflated during the weekdays or business hours. Read more about why “Free Nights and Weekends” aren’t actually free, and how Time-of-Use policies may end up costing you more.
How Do Prepaid Electricity Plans Work in Texas?
Some electricity customers in Texas opt for a prepaid electricity plan. These can be fixed-rate, variable-rate, or indexed-rate plans, but they are less common because a customer pre-pays for their electricity up front. Usually, a customer will make regular deposits to their Retail Electricity Provider, and the REP will deduct money from that account as the household uses electricity. These plans usually have a deposit, but don’t often check your credit score, so they’re a good way to make sure you stay in touch with your electricity usage without the risk of unknowingly overpaying for electricity. However, if you don’t keep up with your deposits, you may be disconnected.
Stay safe from getting your electricity disconnected and always pay the lowest electricity rates in Texas year-round by signing up for Energy Ogre. We actively monitor thousands of electricity plans and rates, and we’ll automatically sign you up for the ones that best suit your personal electricity needs whenever your current plan expires.
Why Wholesale Electricity Plans Don’t Work in Texas
You may have heard about Retail Electricity Providers claiming to sell electricity at wholesale prices directly to the public. Since electricity rates vary considerably throughout the day and throughout the year, wholesale electricity plans allowed Texans to assume the risk of any price fluctuations in the Texas electricity market by letting them pay real-time wholesale prices for their electricity. Since wholesale electricity prices update every 15 minutes in Texas, customers on wholesale plans could end up paying between -$27 to over $2,100 for their electricity!
If that sounds crazy, that’s because it is! In fact, Texas’ leading wholesale electricity provider Griddy just recently ended up bankrupt and rejected from ERCOT after settling a lawsuit from customers who were charged over $5,000 for just five days of electricity during the February 2021 Texas Power Crisis. Needless to say, residential wholesale electricity plans in Texas are scams, and they’re not worth considering when it comes to choosing the right electricity plan for your household power needs.
What’s the Best Type of Electricity Plan in Texas?
We’ve tried to explain what each type of plan entails while showing some of the pros and cons of each. Hopefully, things were simple and easy to digest.
If not, allow me to sum everything up quickly.
Fixed-rate plans are stable and predictable--you may not always have the lowest price on the market, but you won’t be subject to high price spikes. If in the right plan, you will still save the most money in the long run.
Variable-rate plans don’t have contracts and can be cost-effective, but they can also expose you to high price spikes.
Indexed-rate plans can offer low prices, but they require the most effort and monitoring, in addition to research and an understanding of the electricity market.
Energy Ogre prefers fixed-rate plans for our members. As we’ve said, fixed rates offer stability, predictability, and savings when data is used to choose the right plan. Knowing how much electricity you typically use each month is vital to making the right decision.
Additionally, fixed rates allow our members to live the way they want—doing laundry, running the dishwasher, and overall, using electricity when and how they would like. We find most people, especially our members, prefer not to drastically alter their lifestyle in avoidance of expensive electricity bills.
With Energy Ogre, our members get to spend less while living more—and that’s a beautiful thing. They have the assurance of knowing they’re in the best plan. If you’re not a member yet, please review our benefits page to learn more about what we can offer you—all for the low price of $10. Yep, that’s just two iced coffees. Speaking of money, are you curious to see how much money we could save you with a new, fixed-rate plan?
If so, run our savings calculator to learn how much money you could save! Grab a recent bill, put in a few numbers, and then prepare to do your happy dance. The whole process, dance included, should take less than three minutes!
Your life could be simpler and more affordable. After all, you deserve the right plan with the best rate! Sign up today and get a free month of our service. Click the button below to get started!
