Electric companies in Texas offer a wide range of plan types, the most common of which is the fixed-rate energy plan. We generally recommend no-gimmick, straightforward fixed-rate plans for Texans because they tend to offer the most predictable monthly bills and some of the best Texas electricity rates.
What is a Fixed-Rate Electricity Plan?
A fixed-rate plan has a static energy rate per kilowatt-hour (kWh) for the duration of the plan’s contract. These plans offer contract periods ranging from six months to 60 months. Fixed-rate plans offer security from sudden price changes but also bind you in a contract, preventing you from enjoying a possible lower rate when market trends change. Because fixed-rate plans with no deceptive rate structures offer the most straightforward energy costs, we consider them the best electricity plan type.
Benefits of Fixed-Rate Plans
The main advantages of fixed-rate plans are related to the uniformity and predictability of your energy bills. Here are its three main advantages:
Price Stability
Fixed-rate plans offer price stability by allowing you to lock in an electricity rate for a length of time. Energy prices are notoriously unpredictable and have risen steadily since 2020. This is because energy deregulation in Texas opened up energy rates to the effects of the free market, meaning many factors can cause electricity prices to rise unexpectedly. Locking in a low, unchanging rate for up to a few years can help you hedge against rising power costs.
Predictable Bills
The stable energy price of a fixed-rate plan provides much-needed energy bill predictability. This helps you budget for your monthly expenses, particularly if you have a fixed income and a tight budget.
Competitive Energy Rates
Fixed-rate plans often offer some of the best electricity rates on the market. Securing a competitive, low rate from a predictable energy plan can help you consistently save on your monthly energy costs.
Potential Drawbacks
The inflexibility of fixed-rate plans brings some drawbacks with it, such as the following:
Contract Length Requirements
While fixed-rate plans may offer price stability, they bind you in a contract. If the market prices go down after you sign a fixed-rate contract, you won’t be able to take advantage of the decreased energy rates.
Early Termination Fees
If you choose to break your contract and switch to a different plan, you’ll have to pay your existing provider early termination fees (ETF), which can be several hundred dollars.
Deposit Requirements
Many electricity providers will also charge a deposit for fixed-rate plans. Deposits are typically refundable after 12 months of on-time payments. However, some retail electricity providers (REPs) offer no-deposit energy plans as an alternative for Texans who wish to avoid a deposit.
Understanding Your Fixed-Rate Contract
Despite what the name suggests, a fixed-rate plan does not necessarily mean that all components of your electricity bill will remain the same. Below is an overview of which fees are truly fixed and which can change during your contract.
What’s Actually Fixed
The fixed component of a fixed-rate plan is the energy charge, which is the rate you pay per kilowatt-hour of monthly usage. The energy charge makes up the largest portion of your electric bill, which means your bill amount will be fairly constant for uniform energy usage.
What Can Still Vary
While you’ll pay a fixed energy charge, utility delivery fees can change. Utility companies can update fees twice a year, once in the fall and once in the spring. Besides TDU fees, other factors that can affect your bill include minimum usage fees and base charges.
Contract Length Options
Fixed-rate plans come with different contract lengths. The shortest contracts are usually six months long, while the longest can be 36 months. In the case of some providers, the energy price of your fixed-rate plan can change based on the length of your contract.
Plan Discounts
Many fixed-rate plans feature discounts that aren’t guaranteed. While these discounts won’t affect your energy charge, which is fixed, they can affect your monthly energy costs if you don’t qualify for the plan’s discount. The most common types of discount plans include bill credit plans and time-of-use plans, sometimes called “free nights” plans.
TDU Charges and Fixed Rates
Your utility company levies TDU charges, and your provider can’t control these charges — even if you have a fixed-rate plan. TDU charges vary by utility but typically have a flat rate per month and a charge per kilowatt-hour.
TDU delivery charges, also known as TDU fees, can account for as much as a third of your bill. Any change to your TDU fees will affect your effective rate.
Comparing Fixed-Rate Plans
Every provider has a different set of terms and conditions for its fixed-rate plans, which means you should carefully understand a plan and estimate your bill expenses before signing up. Below are a few things to consider when comparing fixed-rate plans.
Reading the Electricity Facts Label
Reading the electricity facts label (EFL) can help you understand all charges associated with your fixed-rate plan. For instance, the EFL displays the base charge, minimum usage fee and TDU delivery charges. The EFL will also inform you of any potential discounts, as well as the requirements to secure those discounts. Failure to secure a discount can be as costly as incurring additional charges.
The EFL also informs you about the contract’s ETF and provides useful details such as the percentage of renewable energy and the provider’s contact information.
Understanding Price per kWh
Your plan’s actual price per kilowatt-hour is typically higher than the advertised price. To get a more accurate price per kilowatt-hour, multiply your monthly estimated usage by the energy charge per kilowatt-hour and the tdu delivery charge per kilowatt-hour. Then, add in all flat monthly fees to accurately estimate your monthly energy costs.
Evaluating Contract Terms
Understanding the fine print of a fixed-rate contract is essential to avoiding unexpected costs. We recommend checking the terms and conditions related to minimum usage, bill credit availability and automatic renewal clauses, which can bump your price when the contract ends.
We also recommend noting any disconnection fees or cancellation charges. While it’s ideal not to be in a situation where you may face these fees, it pays to be aware of them, just in case.
Sustainability Needs
If you want to reduce your home’s carbon footprint, you can find fixed-rate energy plans that meet your sustainability goals. Many fixed-rate plans also offer 100% green energy. Check the EFL to determine a given plan’s renewable energy content before signing up.
Common Pitfalls To Avoid
Although fixed-rate plans are popular for predictability, you can still end up choosing the wrong plan. Below are a few things to remember when exploring fixed-rate plans:
- Compare multiple plans: The more fixed-rate plans you compare, the more likely you are to find an option that suits your needs. We recommend comparing plans based on pricing, provider, hidden fees or unique perks.
- Read the fine print: Remember to check a plan’s EFL to see all possible charges, which can include minimum usage fees, base charges, energy charges, utility delivery fees and daily charges.
- Cheapest isn’t always best: An unusually low price can be a marketing gimmick with hidden fees or confusing discounts that can lead to high bills. Before signing up, double-check potential deals to make sure you’ll be able to take full advantage of the discounted rates.
- Avoid providers with poor ratings: Choosing the right provider is almost as important as choosing the right plan. Some providers offer subpar service, especially when it comes to customer support. Choosing an unreliable supplier can also lead to incorrect billing and inaccurate fees or penalties. Before signing up, check a provider’s complaint statistics, customer reviews and ratings.
- Avoid complex plan options: Fixed-rate plans can have sub-types, and certain types of fixed-rate plans are not as straightforward or predictable as others. A notable example of this is bill credit plans, which offer a bill credit for achieving a certain level of electricity usage. However, these plans aren’t necessarily cheaper and can also lead to billing surprises. We recommend sticking to simple, fixed-rate plans without any bells and whistles.
How To Choose the Right Fixed-Rate Plan
Choosing the perfect fixed-rate plan requires considering several important factors, such as energy consumption levels, contract lengths and provider choice.
Assessing Your Usage
Most fixed-rate plans have different rates for different energy consumption thresholds. For example, one plan may offer a low price for reaching 500 kWh of usage, while another may offer a low rate for 2,000 kWh of usage. Before choosing a plan, make sure you look at your usage history and calculate your average monthly consumption.
Evaluating Contract Length
Fixed-rate plans have contract lengths ranging from a few months to several years. The length of a contract can affect your electricity rate. However, it’s important to ensure that the contract length suits your needs. For example, if you like to shop around for new plans every few months, a longer contract may not be the best idea.
Comparing Provider Offerings
Which light company you select is an important aspect of choosing the right plan. We recommend comparing multiple providers before you sign up for a plan. Compare the supplier based on customer reviews and complaints, industry experience and their customer service track record.
Switching To a Fixed-Rate Plan
Switching to a fixed-rate plan is quite simple. Research plans to find the best option for you, then sign up online or over the phone.
Signing up is simple and takes just a few minutes. All you have to do is provide some basic information. After that, select your plan’s start date, and your new provider will handle the rest.
Cost Analysis: Fixed vs. Variable Rates
Fixed-rate energy plans tend to charge lower rates per kilowatt-hour than variable-rate energy plans. However, because variable rate plans shift based on market conditions, this plan type may be able to offer lower rates during periods of very low demand. However, you’ll find that your energy rate can — and often will — increase without warning. Fixed-rate plans provide protection from rate increases when market conditions lead to higher energy rates.
Overall, whether a fixed-rate plan will be cheaper in the long run than a comparable variable-rate plan will depend on market trends, demand and supply conditions and other factors.
When To Lock in a Fixed Rate
The best time to sign up for a new fixed-rate plan is when the market prices are low. In Texas, the prices are usually at their lowest during spring and fall, when mild weather causes demand to fall because people use their HVAC systems less.
Frequently Asked Questions About Fixed-Rate Plans
How long are fixed-rate contracts?
Fixed-rate contracts can be as short as six months and as long as 60 months. However, the most common contract lengths are 12, 24 and 36 months.
What happens when my fixed-rate contract expires?
If you don’t sign up for another energy plan when your fixed-rate plan expires, your light company will typically sign you up for a month-to-month variable-rate plan, sometimes called a holdover plan. To avoid this, we recommend shopping for a new energy plan 30 days before your current plan expires, as this plan type can cause serious bill surprises.
Can I switch providers during a fixed-rate contract?
You may need to pay an ETF if you switch providers during an active contract. However, if you are moving to a new address, you are exempt from the ETF as per regulations by the Public Utilities Commission of Texas (PUCT).
How do seasonal changes affect fixed rates?
The market prices of electricity in Texas change based on variations in demand and supply. However, unlike variable-rate plans, your fixed-rate plan’s energy charge won’t go up even if market conditions change. Note that although energy rates remain constant, your overall bill may still go up or down based on the change in your energy consumption.
