Here’s what electricity companies won’t tell you upfront: the choice between fixed and variable rates is designed to benefit them, not you.
Variable plans look cheaper at first glance. That’s intentional. They’re priced to lure you in during calm months, then spike when summer hits or the grid gets stressed. Fixed plans have higher baseline rates because they include what’s essentially insurance—insurance that providers profit from in most years.
Neither option is inherently evil. But understanding which one actually saves you money requires seeing through the marketing. Let’s break down what each plan type really means, who benefits from each, and which traps to avoid.
The Truth About Fixed-Rate Plans
A fixed-rate plan locks in your energy rate for the duration of your contract. If you sign a 12-month plan at 11 cents per kWh, you’ll pay 11 cents for those entire 12 months regardless of what happens in the wholesale electricity market.
What stays the same: Your energy charge per kWh—the main component of your bill.
What can still change: TDU delivery charges (regulated separately), taxes, and your total bill if your usage changes.
What they don’t advertise: That “fixed” rate includes a risk premium. You’re paying extra for certainty—and in most years, the provider pockets that premium.
How Fixed Rates Work
When you sign a fixed-rate contract, your retail electric provider (REP) is essentially making a bet. They’re agreeing to sell you electricity at a specific price, but they’re buying it at wholesale rates that fluctuate constantly.
To protect themselves, REPs build a margin into fixed rates. That’s why a fixed-rate plan might cost 12 cents when the current wholesale price suggests 10 cents would be fair. You’re paying for price stability.
Typical Fixed-Rate Contract Terms
- 6-month contracts: Usually higher rates for shorter commitment
- 12-month contracts: The most common option, often the best value
- 24-month contracts: Lower rates, but longer commitment
- 36-month contracts: Lowest rates, but a lot can change in three years
Most fixed-rate plans include an early termination fee (ETF) if you leave before your contract ends. Typical ETFs range from $150 to $300, though some providers offer low or no ETF options. Check out our best month-to-month providers if you want flexibility without commitment.
What Is a Variable-Rate Electricity Plan?
A variable-rate plan has no long-term contract. Your rate can change month to month based on wholesale electricity prices and your provider’s pricing decisions.
Variable plans go by several names:
- Month-to-month plans
- No-contract plans
- Flexible plans
- Market-rate plans
The appeal: No commitment. You can switch providers anytime without penalty.
The risk: Your rate can jump significantly with little notice.
How Variable Rates Work
Your provider calculates your rate each billing period based on current market conditions. When wholesale prices are low, your rate might drop. When demand spikes—hot Texas summers, cold snaps—your rate can surge.
Most variable plans require providers to give you notice before rate changes, but “notice” might just mean a line item on your bill you don’t read carefully.
The February 2021 Wake-Up Call
During Winter Storm Uri in February 2021, wholesale electricity prices in Texas hit $9,000 per megawatt-hour. Some variable-rate customers received bills in the thousands of dollars for a single month.
Griddy, a provider that passed wholesale prices directly to customers, charged some households over $5,000 in one billing period. The company eventually went bankrupt, but not before those bills came due.
That’s an extreme example, but it shows the real risk of variable-rate plans. When markets go crazy, your bill goes with them.
Fixed vs Variable: The Real Comparison
Price Stability
Fixed: Your rate is your rate. Summer heat wave? Your rate stays the same. Natural gas prices spike? Your rate stays the same.
Variable: Your rate follows the market. You might get lucky and pay less during mild months. You might get burned during price spikes.
Contract Commitment
Fixed: You’re locked in for the contract term. Leaving early costs money. If you move, most providers will either transfer your service or waive the ETF.
Variable: Total flexibility. Switch tomorrow if you find a better deal. No penalties, no paperwork beyond signing up with a new provider.
Pricing
Fixed: Usually higher baseline rates because providers build in a risk premium. You’re paying for certainty.
Variable: Often lower starting rates. Sometimes significantly lower. But that low rate isn’t guaranteed to last.
Best Case Scenario
Fixed: You locked in a great rate right before prices jumped. You pay 11 cents while the market hits 15 cents. You win.
Variable: Prices stay low or drop throughout the year. You pay 9-10 cents while fixed-rate customers pay their locked-in 12 cents. You win.
Worst Case Scenario
Fixed: You locked in at 14 cents, then prices dropped to 10 cents. You’re overpaying, but you know exactly how much.
Variable: Prices spike during a heat wave or cold snap. Your rate jumps from 10 cents to 25 cents. Your summer bill doubles or triples.
When to Choose a Fixed-Rate Plan
Fixed-rate plans make sense when:
You Value Predictability
If budget certainty matters more than potential savings, fixed is for you. You’ll know roughly what your bill will be each month (accounting for usage changes), and you can plan accordingly.
You’re Staying Put
Signing a 12-month or longer contract makes sense if you’re not planning to move. If you might relocate in six months, a long contract could cost you.
It’s Summer or Winter
Locking in rates during peak demand seasons protects you from seasonal price spikes. Signing a fixed contract in July, just before the August heat wave pricing hits, can save you hundreds.
Rates Are Currently Low
If wholesale prices are low and experts predict they’ll rise, locking in now captures that low rate. Of course, nobody can predict the market perfectly.
You Don’t Want to Think About Electricity
Fixed-rate plans are set-and-forget. Sign up, set a calendar reminder for when it expires, and don’t worry about it until then. Providers like TXU Energy and Reliant Energy offer a range of fixed-rate terms.
When to Choose a Variable-Rate Plan
Variable-rate plans make sense when:
You’re Moving Soon
No point paying an ETF when you’re leaving in two months anyway. A variable plan bridges the gap without commitment.
You’re Between Plans
Your contract ended, you need time to shop, and you don’t want to rush into a bad fixed-rate deal. A month or two on variable while you compare options is reasonable.
You Watch the Market
Some people genuinely follow electricity prices. If you’re willing to switch providers every few months to chase the best rates, variable plans give you that flexibility.
It’s Spring or Fall
Mild weather months typically have lower wholesale prices. Variable rates during shoulder seasons are often cheaper than fixed rates, though you’re gambling that you’ll switch before the next peak season.
You Have Low Usage
If you use very little electricity—under 500 kWh monthly—the price difference between fixed and variable has less impact on your total bill. The risk of a spike is smaller in absolute dollars.
Real-World Price Examples
Let’s look at how these plans perform in different scenarios. We’ll use a household with 1,000 kWh monthly usage.
Scenario 1: Stable Market
Fixed rate: 12 cents/kWh locked in for 12 months Variable rate: 10 cents/kWh starting rate
If prices stay stable:
- Fixed customer pays: $120/month = $1,440/year
- Variable customer pays: ~$100/month = ~$1,200/year
Winner: Variable, by about $240/year
Scenario 2: Summer Price Spike
Fixed rate: 12 cents/kWh locked in Variable rate: 10 cents/kWh spring, jumps to 18 cents/kWh for July-August
Annual calculation:
- Fixed customer: $120 x 12 = $1,440
- Variable customer: $100 x 10 + $180 x 2 = $1,360
Winner: Still variable, but the gap closed significantly
Scenario 3: Major Price Spike (Uri-Style Event)
Fixed rate: 12 cents/kWh locked in Variable rate: 10 cents normally, spikes to 35 cents for one month
Annual calculation:
- Fixed customer: $1,440
- Variable customer: $100 x 11 + $350 = $1,450
Winner: Fixed, by $10. But that one bad month wiped out all the savings.
Scenario 4: Extended High Prices
Fixed rate: 12 cents locked in before prices rose Variable rate: Started at 10 cents, then market shifted to 16 cents for half the year
Annual calculation:
- Fixed customer: $1,440
- Variable customer: $100 x 6 + $160 x 6 = $1,560
Winner: Fixed, by $120
The point isn’t that one is always better. It’s that variable plans trade predictability for potential savings—and potential losses.
Hybrid Options: Indexed Plans
Some Texas providers offer indexed plans that split the difference. These plans tie your rate to a published market index—usually the wholesale price set by ERCOT—plus a fixed margin.
How they work: You pay the current market rate plus, say, 3 cents per kWh. If wholesale is 8 cents, you pay 11 cents. If wholesale jumps to 15 cents, you pay 18 cents.
The appeal: Transparency. You’re not wondering how your provider calculated your variable rate—it’s right there in the formula.
The risk: Same as variable. Market spikes hit your wallet directly. Griddy was an extreme version of this model.
Indexed plans work for engaged customers who want market exposure but also want to understand exactly what they’re paying and why.
How to Compare Fixed and Variable Plans
Step 1: Know Your Usage
Check your past 12 months of electricity usage. Your average monthly kWh determines which plans work for you and how much rate differences actually cost.
Step 2: Read the EFL
Every Texas plan has an Electricity Facts Label. For fixed plans, check the rate at your usage level. For variable plans, note that the current rate isn’t guaranteed.
Step 3: Calculate Annual Costs
Don’t just compare monthly rates. Calculate what you’d pay over a year at each plan’s rate, factoring in seasonal usage changes.
Step 4: Factor in Risk
A variable plan that saves $10/month looks less attractive when you consider a potential $200 spike month. Decide how much price risk you’re comfortable with.
Step 5: Check Contract Terms
For fixed plans: What’s the ETF? What happens if you move? Does the rate auto-renew at a higher price?
For variable plans: How much notice do you get before rate changes? What’s the historical rate range?
The Bottom Line
Choose fixed if: You want predictability, you’re staying put, and you’d rather pay a small premium than risk a big spike.
Choose variable if: You’re in transition, you watch the market closely, or you’re willing to trade price stability for potential savings.
Most Texas households are better served by fixed-rate plans. The premium you pay for price stability is usually worth it, especially given how volatile the Texas market can be.
But if you’re strategic, pay attention, and are willing to switch providers when needed, variable rates can save money. Just remember February 2021. That risk is real.
Ready to compare specific providers? Check out our provider comparisons to see which companies offer the best fixed and variable plans for your needs. And if you’re ready to shop, head to ComparePower to see current rates in your area.