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 amounts to insurance—insurance the company profits from in most years.
Neither option is inherently evil. But understanding which one 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 13 cents per kWh, you’ll pay 13 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 company pockets that premium.
How Fixed Rates Work
When you sign a fixed-rate contract, your electric company is making a bet. It agrees to sell you electricity at a specific price, but it buys that electricity at wholesale rates that move constantly.
To protect themselves, companies build a margin into fixed rates. That’s why a fixed-rate plan might cost 13 cents when the current wholesale price suggests 11 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 middle-of-the-road 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. Expect $150 on most 12-month plans, about $295 on 24-month plans, and up to $395 on 36-month plans at the largest companies (TXU, Reliant, Gexa, Direct). Some companies, Rhythm among them, charge $20 per month remaining instead. Check out our best month-to-month companies 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 electric company’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 companies anytime without penalty.
The risk: Your rate can jump significantly with little notice.
How Variable Rates Work
Your electric company 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.
Texas rules don’t require advance notice of a variable price change. Each bill has to tell you how to find the price that will apply on your next bill, and the electric company must post its current price and a one-year price history on its website and through a toll-free number.
The February 2021 Wake-Up Call
During Winter Storm Uri in February 2021, wholesale electricity prices in Texas hit $9,000 per megawatt-hour, the market’s price cap at the time (it was lowered to $5,000 in January 2022). Some variable-rate customers received bills in the thousands of dollars for a single month.
Griddy, a company that passed wholesale prices directly to customers, charged some households over $5,000 in one billing period. It 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, Texas rules bar the electric company from charging an ETF, as long as you give a forwarding address and, if asked, proof you’ve moved (16 TAC §25.475(c)(2)(C)).
Variable: Total flexibility. Switch tomorrow if you find a better deal. No penalties, no paperwork beyond signing up with a new company.
Pricing
Fixed: Usually higher baseline rates because companies 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, on top of the higher usage the weather is already driving. Your 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.
You Want the Weather Out of the Equation
A fixed rate takes the wholesale market off your bill entirely. That matters most in the months when you use the most, because a variable rate and high usage land in the same billing cycle. Don’t expect to beat the market by timing the season, though: retail 12-month fixed prices move only a few percent across the year, and the pattern doesn’t repeat. The summer premium was about 9% against October in 2024, absent in 2025 (April was that year’s high), and summer 2026 was the cheapest stretch of the year.
Rates Are Currently Low
If wholesale prices are low and forecasters expect them to 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. Companies 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 companies every few months to chase the best rates, variable plans give you that flexibility.
You’re Between Seasons and Paying Attention
A variable rate hurts least in the months when you use the least, because a bad month costs you fewer kWh. That’s a reason to ride one out in spring or fall while you shop, not a reason to plan around it: you’re still gambling that you’ll switch before the market turns.
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. The rates below are illustrative, not quotes; competitive 12-month fixed plans ran about 12 to 15 cents per kWh in September 2026.
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: A Stressed Market for Two Months
Fixed rate: 12 cents/kWh locked in Variable rate: 10 cents/kWh most of the year, jumps to 18 cents/kWh for two months
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.
What About Indexed Plans? Texas Homes Can’t Buy Them
You’ll still see indexed plans described as a middle path between fixed and variable: your rate tracks a published index, often the wholesale price set by ERCOT, plus a fixed margin. Pay the market rate plus 3 cents, and you always know the formula.
That option is closed to Texas homes. After Uri, the Legislature barred wholesale-indexed plans for residential and small commercial customers from September 1, 2021 (Utilities Code §39.110), and state rules went further, barring companies from offering any indexed product to those customers from February 1, 2022 (16 TAC §25.475(c)(3)(F)).
Griddy was the extreme version of the model, and the bills it produced are why the rules changed. If a salesperson pitches you an indexed residential plan today, that alone tells you what you need to know about them.
Your residential choice in Texas is fixed or variable. That’s it.
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 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? What is the default month-to-month rate if you do nothing when it ends?
For variable plans: where does the company post its current price and one-year price history? (State rules make it publish both on its website and through a toll-free number.)
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 companies when needed, variable rates can save money. Just remember February 2021. That risk is real.
Ready to compare specific companies? Check out our company comparisons to see which ones 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.
Frequently Asked Questions
What is the difference between fixed and variable rate electricity plans?
Fixed-rate plans lock in your energy rate for the entire contract term (6-36 months), protecting you from price spikes. Variable-rate plans have no contract and can change monthly based on market conditions—cheaper during calm periods, but potentially much higher during extreme weather or high demand.
Which is better: fixed or variable rate electricity?
For most Texas households, fixed-rate plans are better. The small premium you pay for price certainty is worth it given how volatile the Texas market can be. Variable rates only make sense if you’re moving soon, actively watch the market, or want to bridge between fixed contracts.
Can my variable rate spike dramatically?
Yes. During Winter Storm Uri in February 2021, some variable-rate customers saw bills in the thousands of dollars as wholesale prices hit $9,000 per megawatt-hour. That was extreme, but the mechanism is the same in any heat wave or cold snap: your rate follows the market up.
Can I get an indexed electricity plan in Texas?
Not as a residential customer. An indexed plan ties your rate to a published market index plus a fixed margin, and Griddy’s version of it produced the five-figure bills of February 2021. Texas barred wholesale-indexed residential plans in September 2021 and closed off every other indexed residential product in February 2022. Your choice at home is fixed or variable.