The contract length you pick affects your electricity rate more than most people realize. A 24-month plan from the same provider can be 1-2 cents cheaper per kWh than the 6-month option—but that discount comes with strings attached.
Here’s what each contract length actually means for your wallet and your flexibility.
How Contract Length Affects Your Rate
A 2-cent rate difference sounds tiny until you multiply it by 12 months. Providers price contracts based on risk: the longer you commit, the more predictable their revenue becomes, and the lower your rate goes.
Here’s a typical rate spread from a single Texas provider (same plan, different terms):
| Contract Length | Typical Rate (per kWh) | Monthly Cost (1,000 kWh) | Annual Cost |
|---|---|---|---|
| Month-to-month | 14-16 cents | $140-160 | $1,680-1,920 |
| 6 months | 12-14 cents | $120-140 | $1,440-1,680 |
| 12 months | 11-13 cents | $110-130 | $1,320-1,560 |
| 24 months | 10-12 cents | $100-120 | $1,200-1,440 |
| 36 months | 10-11 cents | $100-110 | $1,200-1,320 |
The rate difference between a 6-month and 24-month contract is typically 1-3 cents per kWh. For a household using 1,000 kWh per month, that’s $10-30 per month or $120-360 per year.
That’s real money. But it only saves you money if you actually stay the full term.
6-Month Contracts: Maximum Flexibility
Six months is short enough to escape a bad deal and long enough to lock in a fixed rate. Here’s when that trade-off works in your favor.
Who They’re For
Six-month contracts work best when your situation is uncertain. You might be moving, your lease might not get renewed, or you just want to test a new provider without a long commitment.
The Trade-Offs
Higher rates: You’ll pay 1-2 cents more per kWh than a 12-month plan from the same provider. On 1,000 kWh monthly usage, that’s about $10-20 extra per month.
Lower ETFs: Early termination fees on short contracts tend to be smaller—often $75-100 versus $150-200 for longer terms. Some providers calculate ETFs per remaining month, which means leaving a 6-month contract early costs less.
More frequent shopping: Your contract expires twice a year. That’s twice you need to actively compare plans or risk auto-renewal into a bad rate. See our guide on what happens when your contract expires to avoid getting rolled into an expensive month-to-month plan.
When 6-Month Contracts Make Sense
- Your lease ends in 6-8 months
- You’re new to Texas and want to understand your usage patterns before locking in
- Summer is coming and you want to reassess once fall rates drop
- You’re dissatisfied with your current provider and want a trial run with someone new
Real-World Scenario
You moved to Dallas in March. You have no idea what your summer electricity usage looks like in a Texas home. Signing a 6-month contract gets you through summer on a fixed rate, and you’ll have real usage data by September to make a smarter 12-month decision.
12-Month Contracts: The Sweet Spot
About 60% of Texas residential customers land here, and for good reason.
Why Most People Choose 12 Months
Twelve-month contracts dominate the Texas residential market for good reason. They balance rate savings against commitment risk better than any other option.
The rate is meaningfully lower than month-to-month or 6-month plans. The commitment is short enough that most life changes (lease renewals, job changes, family moves) align with annual cycles.
The Trade-Offs
Moderate rates: You’ll typically save 1-2 cents per kWh versus a 6-month plan, but pay 0.5-1 cent more than a 24-month plan.
Standard ETFs: Most providers charge $150-200 to break a 12-month contract. That’s enough to think twice about switching but not catastrophic if the math works out. See our guide on early termination fees for the break-even calculation.
Annual shopping required: You need to compare plans once a year when your contract expires. This is manageable for most people.
When 12-Month Contracts Make Sense
- You’re settled in your home and planning to stay at least a year
- You want a good rate without a multi-year commitment
- You like checking in on rates annually but don’t want to do it more often
- Your lease is 12 months
Timing Matters
When you sign your 12-month contract affects how much you pay. Rates tend to be lowest in late fall and winter (October through January) when demand drops. Signing a 12-month plan in November locks in those low rates through the following fall.
Signing in July? You’re locking in peak-season pricing for the whole year. Check our guide on the best time to switch electricity companies for seasonal rate patterns.
Providers like TXU Energy, Gexa Energy, and Frontier Utilities all offer competitive 12-month fixed-rate plans. Compare them side by side in our TXU vs Gexa and Frontier vs Rhythm comparisons.
24-Month Contracts: Lowest Rate, Longest Lock-In
The biggest savings come with the biggest commitment. Two years is a long bet on both your living situation and the energy market.
Who They’re For
Twenty-four month contracts are for homeowners or long-term renters who want the lowest possible rate and won’t need to break the contract.
The Trade-Offs
Lowest rates: Typically 0.5-1.5 cents cheaper per kWh than 12-month plans. Over two years at 1,000 kWh per month, that’s $120-360 in savings.
Higher ETF exposure: ETFs on 24-month contracts are often $200-300. If you’re using a per-month ETF model ($20 per remaining month), breaking the contract after just 3 months could cost you $420.
Market risk: You’re betting that rates won’t drop significantly during your contract. If the wholesale market crashes and 12-month rates drop to 8 cents while you’re locked in at 11 cents, you’re stuck.
Life changes: Two years is a long time. Job transfers, family changes, divorces, home purchases—any of these could force an early exit with a penalty.
When 24-Month Contracts Make Sense
- You own your home and aren’t planning to move
- Current rates are historically low and you want to lock them in
- You value set-it-and-forget-it simplicity
- You’re comfortable with the ETF risk
When to Avoid Them
- You’re renting with a standard 12-month lease
- Rates are currently high and likely to drop
- Your employment situation is uncertain
- You’ve never lived in your current home through a full summer (you don’t know your true usage yet)
36-Month Contracts: The Long Game
Three years ago, natural gas prices were half what they are today. That’s the gamble you’re making with a 36-month contract. A few providers offer them with the absolute lowest per-kWh rates in the market.
The problem: three years is an eternity in the electricity market. Wholesale prices can shift dramatically, new providers enter, and regulations evolve. Your life changes too.
Unless you’re a homeowner with extremely stable circumstances and current rates are at historic lows, 36-month contracts introduce more risk than the marginal rate savings justify. The difference between a 24-month and 36-month rate is usually only 0.25-0.5 cents per kWh—not enough to compensate for the extra year of lock-in.
Month-to-Month: No Contract at All
Freedom has a price tag: 2-4 cents per kWh. Month-to-month plans (also called variable-rate plans) have no commitment and no ETF, but your rate changes monthly based on market conditions.
At 1,000 kWh monthly, that premium adds $240-480 extra per year compared to a 12-month fixed plan.
Month-to-month makes sense as a bridge—between contracts, between moves, or while you shop for the right plan. It’s expensive as a permanent choice. See our full breakdown in fixed vs variable rate plans.
How to Choose the Right Length
Four factors separate a smart contract choice from an expensive mistake. Work through each one before you sign.
Factor 1: How Long Are You Staying?
Match your contract to your housing timeline:
- Moving in 3-6 months: Month-to-month or 6-month contract
- 12-month lease: 12-month contract, timed to expire with your lease
- Own your home: 12-month or 24-month contract depending on rate outlook
Factor 2: What Are Current Rates Doing?
If rates are low relative to recent history, locking in longer saves money. If rates are high, a shorter contract lets you renegotiate sooner.
You can check rate trends on ComparePower to see where current offers stand.
Factor 3: What’s Your Risk Tolerance?
Shorter contracts carry higher rates but more flexibility. Longer contracts carry lower rates but more commitment. There’s no right answer—it depends on how much you value certainty versus optionality.
Factor 4: What’s the ETF Structure?
A flat $150 ETF on a 24-month contract is different from a $20-per-month ETF. With the flat fee, the penalty is the same whether you leave after month 2 or month 22. With per-month pricing, leaving early is expensive but leaving late is almost free.
Per-month ETFs favor longer contracts because the penalty shrinks as you approach the end. Flat ETFs make shorter contracts less risky.
The Contract Length Decision Matrix
Not sure where you land? Match your situation to the right contract length.
| Your Situation | Best Contract Length | Why |
|---|---|---|
| New to Texas, first summer | 6 months | Learn your usage before committing |
| Standard 12-month lease | 12 months | Matches your housing commitment |
| Homeowner, rates are low | 24 months | Lock in the rate while it’s good |
| Homeowner, rates are high | 12 months | Renegotiate sooner when rates drop |
| Moving in 3 months | Month-to-month | Avoid any ETF risk |
| Between contracts | Month-to-month | Bridge until you find the right plan |
The Bottom Line
For most Texas households, 12-month contracts offer the best balance of rate savings and flexibility. You get meaningful discounts over month-to-month pricing without the multi-year commitment of a 24-month plan.
If you’re a homeowner who knows they’re staying put and rates look good right now, stretching to 24 months can save an extra $120-360 over two years. Just make sure you’re comfortable with the ETF if life throws you a curveball.
The worst move is defaulting to month-to-month because you didn’t get around to shopping. That inertia costs Texas households hundreds of dollars every year.
Ready to compare contract options? Head to ComparePower to see current rates at different contract lengths in your area.
Frequently Asked Questions
What is the most common electricity contract length in Texas?
Twelve-month contracts are the most popular choice for Texas residential customers. They offer a solid discount over month-to-month plans (usually 2-4 cents per kWh cheaper) while keeping the commitment manageable. Most lease cycles also run 12 months, making the timing natural.
Can I switch electricity providers before my contract ends?
Yes, but you’ll pay an early termination fee (ETF), typically $100-$300 depending on the provider and contract length. Sometimes paying the ETF saves money if you’re switching from a significantly higher rate—do the math to compare the ETF against your remaining overpayment.
Do longer electricity contracts always have lower rates?
Generally yes, but the savings diminish with each additional year. The jump from month-to-month to 12 months saves 2-4 cents per kWh. The jump from 12 months to 24 months saves only 0.5-1.5 cents. Going beyond 24 months rarely saves enough to justify the extra commitment and market risk.
Should I sign a 24-month electricity contract?
It depends on your stability. If you own your home, aren’t planning major life changes, and current rates are attractive, a 24-month contract locks in savings. If you’re renting, might move, or rates are currently high, a 12-month contract gives you the option to renegotiate sooner.