The Quick Answer
- • Fixed-rate: Your per-kWh price is locked for the contract term (6-36 months). Predictable bills, but an early termination fee if you leave early.
- • Variable-rate: No contract, no ETF, but your provider can change the rate between billing periods under its disclosed pricing method; advance notice of each change is not guaranteed.
- • Most Texas residential customers choose fixed-rate specifically to avoid the downside risk of a variable plan during extreme weather demand spikes.
What Is a Fixed-Rate Plan?
A fixed-rate plan sets your energy price (the cents-per-kWh charge from your retail provider, separate from TDU delivery charges) for the entire length of your contract. Whether wholesale power prices spike during an August heat wave or a winter freeze, your rate stays exactly what you signed up for.
In exchange for that certainty, fixed-rate plans almost always come with an early termination fee (ETF) — typically $150-295 — if you cancel before your term ends. Some providers offer a satisfaction guarantee period that waives the ETF for the first 30-90 days.
Fixed-Rate at a Glance
- • Price locked for 6, 12, 24, or 36 months (12 and 24 are most common in Texas)
- • Early termination fee applies if you cancel mid-contract
- • ETF is waived if you move (with proof) or switch in the last 14 days of the term
- • Best for: predictable budgeting, protection against price spikes
What Is a Variable-Rate Plan?
A variable-rate plan has no fixed contract term. Your provider can adjust the per-kWh rate between billing periods under the method disclosed in its EFL. Do not assume advance notice of each price change. Because there's no contract to break, these plans carry no early termination fee — you can switch away the moment a better rate appears elsewhere.
The tradeoff is that there's no ceiling on how high the rate can go. Texas's wholesale electricity market (ERCOT) can spike dramatically during extreme weather. During Winter Storm Uri in February 2021, wholesale prices hit the ERCOT system-wide offer cap of $9,000/MWh (versus a typical price closer to $30-50/MWh), and customers on plans that passed the wholesale price directly through — most infamously Griddy, a subscription-model provider that has since exited the market — received bills in the thousands of dollars for a single week. This is a historical example: Texas now prohibits wholesale-indexed retail products for residential and small commercial customers. See Texas Utilities Code §39.110.
Not All Variable Plans Are Wholesale-Indexed
Most mainstream variable-rate plans from major Texas providers set their own month-to-month rate rather than passing through raw wholesale prices in real time — the Uri-era bill shock was concentrated among a small number of true wholesale-indexed products. Still, any variable plan can be repriced upward under its disclosed method, which is the structural risk you're accepting either way. Read the Electricity Facts Label (EFL) to see exactly how a specific plan sets its rate before enrolling.
Variable-Rate at a Glance
- • No contract, no early termination fee
- • Rate can change between billing periods under the disclosed pricing method
- • Wholesale-indexed retail products are prohibited for residential and small commercial customers in Texas
- • Best for: short-term flexibility, or actively monitoring rates and willing to switch often
Side-by-Side Comparison
| Fixed-Rate | Variable-Rate | |
|---|---|---|
| Rate stability | Locked for full contract term | Changes under the disclosed pricing method |
| Contract term | 6-36 months | None (month-to-month) |
| Early termination fee | Typically $150-295 | None |
| Exposure to price spikes | None — rate is locked | Rate can rise under the disclosed pricing method |
| Flexibility to switch | Locked in until term ends (or pay ETF) | Switch anytime, no penalty |
| Best for | Budgeting certainty, longer stays | Short stays, active rate-shopping |
Which Should You Choose?
Choose Fixed-Rate If
- ✓You plan to stay at the address for the length of the contract
- ✓You want a predictable monthly bill for budgeting
- ✓You don't want to think about rates again until renewal
- ✓You want protection from summer or winter demand spikes
Choose Variable-Rate If
- →You're in a short-term living situation (renting month-to-month, subletting, between moves)
- →You actively monitor rates and are willing to switch often to chase the best price
- →You can absorb an unexpectedly high bill in a bad month without financial strain
- →You've read the EFL and understand exactly how the specific plan sets its rate
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Frequently Asked Questions
What is the difference between fixed-rate and variable-rate electricity in Texas?
A fixed-rate plan locks your per-kWh energy price for the length of your contract (usually 6-36 months), so your rate cannot change even if wholesale power prices spike. A variable-rate plan has no fixed contract term and lets the provider change your per-kWh price between billing periods under the disclosed method, without guaranteed advance notice of each change.
Is fixed-rate or variable-rate cheaper in Texas?
It depends on the market at signup and how long you stay. Variable-rate plans sometimes start a bit lower since they carry no early termination fee, but they can rise sharply during high-demand periods like a summer heat wave or a winter freeze. Fixed-rate plans trade a small rate premium for price certainty over the whole contract.
Can a variable electricity rate in Texas go up without warning?
The price can change between billing periods under the method disclosed in your Electricity Facts Label (EFL); do not assume advance notice of each price change. During February 2021's Winter Storm Uri, some Texas customers on wholesale-indexed variable plans saw bills spike into the thousands of dollars as grid prices hit the state's $9,000/MWh cap. Those wholesale-indexed retail products are now prohibited for residential and small commercial customers in Texas.
Do variable-rate plans have an early termination fee?
Most true variable-rate, month-to-month plans have no contract and no early termination fee, since there is no fixed term to break. That is their main appeal: you can leave anytime a better rate shows up. Fixed-rate plans almost always carry an ETF, typically $150-295, if you cancel before the contract ends.