Fixed vs. Variable Electricity Rates in Texas

Fixed-Rate Plans

A fixed-rate plan locks in your per-kWh energy rate for the entire length of the contract. If you sign a 12-month plan at 11 cents per kWh, you pay 11 cents per kWh for all 12 months. Wholesale prices can spike, natural gas can double, a heat wave can slam the state — your rate stays the same.

Here’s what’s important to understand about what “fixed” actually means:

What IS fixed: Your energy rate per kWh and your contract length. These don’t change for the duration of the agreement.

What is NOT fixed: Your monthly bill still goes up and down based on how much electricity your home uses. You’ll pay more in August than in March because your AC runs harder, not because your rate changed. Also, TDU delivery charges can adjust once or twice a year through regulatory proceedings. These are pass-through charges from the utility, and even fixed-rate plans can’t lock them in.

Most fixed-rate plans come with an early termination fee (ETF), typically $100-200. If you cancel before the contract ends, you pay the ETF. Some plans offer no ETF, but they often carry a slightly higher rate to compensate. The ETF exists to protect the provider — they bought wholesale electricity in advance to guarantee your rate, and if you leave early, they’re stuck with the position.

Fixed-rate contracts typically run 6, 12, 24, or 36 months. Twelve months is the most common and usually the best balance between rate protection and flexibility.

Variable-Rate Plans

A variable-rate plan has no contract and no commitment. Your rate can change every single month based on wholesale energy prices, market conditions, or simply the provider’s pricing decisions. In return for that uncertainty, you get complete flexibility: you can leave anytime without paying a cancellation fee.

When wholesale prices are low — typically during mild spring and fall months — variable rates can dip below what you’d find on a fixed plan. In October, you might see variable rates at 8-9 cents per kWh while the best fixed plans are at 10-11 cents. Feels like a deal.

Then summer arrives.

During peak demand months (June through September), wholesale electricity prices in Texas can surge dramatically. Your variable rate follows. It’s common for variable rates to jump 30-50% from spring to summer. In a bad summer, the increase can be worse.

The extreme case is worth remembering: during Winter Storm Uri in February 2021, wholesale prices hit the $9/kWh cap for days. Customers on some variable and indexed plans received bills of $5,000 or more for a single month. That was an extraordinary event, but it illustrates the tail risk. Variable means variable in both directions.

Even in a normal summer, the math gets uncomfortable. A variable rate that was 9 cents in April can easily reach 14-16 cents by August. On 1,500 kWh of summer consumption, that’s the difference between a $135 bill and a $240 bill.

The Real Trade-Off

Here’s how fixed and variable compare across the dimensions that actually matter:

	Fixed Rate	Variable Rate
Price predictability	High — same rate every month	Low — changes monthly
Summer risk	None — rate is locked	High — rates spike with demand
Flexibility	Low — ETF to cancel early	High — leave anytime
Savings potential	Moderate — steady, no windfalls	Higher ceiling, lower floor
Worst case	Pay ETF ($100-200) to exit	Summer bill doubles or triples

The core trade-off is simple: fixed gives you certainty, variable gives you flexibility. The question is which one costs you more when things go wrong.

On a fixed plan, the worst that happens is you’re locked into a rate that’s higher than the current market. You can leave by paying $150. On a variable plan, the worst that happens is your August bill hits $300+ because wholesale prices surged. There’s no cap, no protection, and no warning.

For most people, the downside of variable is larger and less predictable than the downside of fixed.

When Variable Actually Wins

Variable-rate plans aren’t always the wrong choice. There are specific situations where they make sense:

You’re between homes for 2-3 months. If you need electricity for a short stretch — maybe you’re renovating, in temporary housing, or between leases — a variable plan lets you avoid paying an ETF when you leave. Even if the rate is a couple cents higher, you’re only paying it for a few months. The total cost is minimal.

Wholesale prices have crashed. Occasionally, the Texas wholesale market drops sharply due to oversupply, mild weather, or low natural gas prices. During these periods, variable rates can be genuinely cheap. If you’re comfortable monitoring the market and switching back to fixed before summer hits, you can pocket the savings. But this requires attention and timing.

You actively monitor the energy market. Some people treat electricity shopping the way others treat stock trading. They watch wholesale trends, track provider pricing, and switch plans every few months to capture the lowest rates. If that’s you, variable plans give you the flexibility to move quickly. But most people don’t want electricity to be a hobby.

Our Take

Lock in a fixed rate. For most Texans, a 12-month fixed-rate plan is the right call. It protects you from summer price spikes, gives you a predictable rate, and lets you budget without worrying about what the wholesale market is doing.

The ETF on a fixed plan is small compared to the risk of a variable plan in August. A $150 early termination fee is a known, bounded cost. A variable rate doubling during a heat wave is an unbounded one.

If you’re signing up in the fall or winter, you’ll often find the best fixed rates of the year — providers compete aggressively to sign up customers before the quiet months end. Lock in 12 months and you’ll be covered through the following summer.

One more thing: set a reminder 30 days before your contract expires. When a fixed plan ends, most providers auto-renew you onto a month-to-month variable rate at a much higher price. That’s where the real cost of inattention shows up. Shop again before your contract runs out, and you’ll stay ahead.