Quick Answer
Fixed-rate plans (12-36 months) lock your rate at 8-12¢/kWh from providers like TXU, Reliant, and Constellation. Variable rates follow ERCOT wholesale prices—cheaper in spring/fall but risky in summer. For most Texas homes, fixed rates provide budget certainty. Compare both on ElectricRates.org.
Understanding the Fundamental Difference
Fixed-rate plans lock in your energy price for the contract duration—typically 6 to 36 months. Your per-kWh rate stays constant regardless of market fluctuations.
Variable-rate plans adjust monthly based on market conditions.
Quick comparison:
| Feature | Fixed Rate | Variable Rate |
|---|---|---|
| Rate changes | Never during contract | Monthly |
| Price risk | None (locked in) | High during peaks |
| Cancellation fee | Yes (ETF) | None |
The risk trade-off:
- Fixed rates eliminate price surprises but might cost more during favorable market conditions
- Variable rates offer potential savings with risk of dramatic cost increases during market stress
Benefits of Fixed-Rate Plans
Fixed-rate plans provide budget certainty—you know exactly what you'll pay per kWh every month.
Key benefits:
| Benefit | Why It Matters |
|---|---|
| Price predictability | Know your exact cost per kWh |
| Budget certainty | Plan monthly expenses accurately |
| Storm protection | Shielded from price spikes |
Protection during extreme events:
During price spikes, fixed-rate customers are protected while variable-rate customers see dramatic bill increases.
Who fixed rates benefit most:
- Households with tight budgets
- Anyone who prefers avoiding financial surprises
- Those who don't want to monitor energy markets
The peace of mind factor: Fixed-rate plans offer predictability that variable plans simply cannot match.
Drawbacks of Fixed-Rate Plans
Fixed-rate pricing builds in a risk premium—providers price slightly higher than current market rates to protect against future price increases.
Key drawbacks:
| Drawback | Impact |
|---|---|
| Risk premium | Slightly higher than current market |
| Early termination fee | $50-200 to break contract |
| Missed savings | Can't benefit from rate drops |
When this hurts:
- During extended periods of low wholesale prices
- If rates drop significantly after you sign
- When you need to move before contract ends
The cost of stability:
The predictability of fixed rates comes at a cost of flexibility and potential savings during favorable market periods.
Before signing: Calculate whether the ETF cost makes sense if you might move.
Benefits of Variable-Rate Plans
Variable-rate plans offer flexibility without long-term commitment.
Key benefits:
| Benefit | Why It Matters |
|---|---|
| No cancellation fees | Switch anytime, no ETF |
| Low-rate opportunities | Benefit from market drops |
| Short-term flexibility | Perfect for temporary housing |
When variable rates shine:
- Spring and fall when wholesale prices drop
- Short-term rentals (3-6 months)
- When market conditions favor buyers
Strategic use:
Some sophisticated consumers use variable rates strategically—riding low prices in mild seasons, then switching to fixed plans before summer.
The catch:
Variable rates can outperform fixed rates over time, but this requires active market monitoring.
Risks of Variable-Rate Plans
Variable-rate plans carry significant risk during high-demand periods.
The Winter Storm Uri disaster (February 2021):
| Normal Bill | Variable-Rate Bill | Wholesale Rate |
|---|---|---|
| ~$150 | $5,000+ | $9,000/MWh (market cap) |
Seasonal volatility:
| Event | Impact on Variable Rates |
|---|---|
| Summer heat waves | Prices triple or quadruple |
| Winter storms | Extreme price spikes possible |
The real risks:
- Budgeting becomes difficult with unpredictable bills
- Extreme events can cause genuine financial hardship
- Month-to-month uncertainty adds mental overhead
- Sometimes no time to switch before the spike hits
The vigilance requirement:
Variable plans require constant market monitoring—and even then, you can get caught by a price spike before you can react.
Indexed and Hybrid Rate Plans
Beyond pure fixed and variable, some Texas plans offer hybrid structures.
Plan type comparison:
| Plan Type | How It Works | Best For |
|---|---|---|
| Indexed | Tied to wholesale + fixed margin | Transparency-seekers |
| Hybrid | Part fixed, part variable | Moderate risk tolerance |
| Free Nights | Fixed day, free off-peak hours | Night-shift workers |
Indexed plans explained:
- Tied to specific benchmarks (like ERCOT wholesale)
- More transparency than pure variable—you can track the benchmark
- Still carries market risk, but predictable formula
Hybrid plans:
- Fix a portion of your rate while letting part float
- Offers partial protection with partial upside potential
Free nights/weekends as hybrid:
- Fixed daytime rates (often high)
- Free electricity during specified off-peak hours
- Works great if you shift 50%+ of usage to free hours
Before signing: Evaluate these structures carefully using the EFL to understand exactly how your rate will be calculated.
Choosing the Right Structure for Your Situation
Which rate type fits your situation?
| Your Situation | Best Rate Type |
|---|---|
| Family with tight budget | Fixed |
| Short-term rental (3-6 months) | Variable |
| Market-savvy, high savings | Variable or Indexed |
| Mostly home evenings | Free Nights |
The $500 test:
If a $500 surprise electricity bill would cause financial stress → fixed rates are worth the premium.
Fixed rates are for you if:
- You value predictability
- You have an inflexible budget
- You don't want to think about electricity after signing
Variable rates are for you if:
- You have significant savings to buffer high bills
- You enjoy following energy markets
- You're willing to actively manage your plan
Most Texas households: Fixed-rate plans offer the best balance of price certainty and peace of mind.
Current Market Recommendations
Late 2025 Texas electricity market snapshot:
| Plan Type | Typical Rate | Risk Level |
|---|---|---|
| Fixed (12-mo) | 10-14¢/kWh | Low |
| Fixed (24-mo) | 11-15¢/kWh | Low |
| Variable | 8-20¢/kWh | High |
Why lock in now?
- Competitive pricing by historical standards
- Ongoing grid challenges
- Increasing demand (population growth, data centers)
- Protection through 2026 or 2027
For most Texas households:
A 12-24 month fixed plan offers the best balance of price certainty and flexibility.
The strategic approach (for high risk tolerance):
1. Use variable rates during fall and winter
2. Monitor wholesale market trends
3. Switch to fixed before summer demand pushes prices higher
Our recommendation: Lock in a 12-month fixed rate now unless you're prepared to actively manage a variable plan.
Frequently Asked Questions
Can I switch from variable to fixed rate at any time?
How often do variable rates change?
Are fixed rates always higher than variable rates?
What happens at the end of my fixed-rate contract?
Can extreme weather really cause $1000+ bills on variable rates?
Looking for more? Explore all our Texas Energy guides for more helpful resources.
About the author
Consumer Advocate
Enri knows the regulations, the fine print, and the tricks some suppliers use. He's spent years learning how to spot hidden fees, misleading teaser rates, and contracts that sound good but cost more. His goal: help people avoid the traps and find plans that save money.
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Topics covered
Sources & References
- Public Utility Commission of Texas (Public Utility Commission of Texas): "The PUCT requires clear disclosure of fixed vs. variable rate structures"Accessed Dec 2025
- Texas Tribune (Texas Tribune): "Winter Storm Uri caused extreme wholesale price spikes affecting variable-rate customers"Accessed Dec 2025
Last updated: December 31, 2025
