Texas Guide
Consumer Advocate · 7+ years in energy markets
Energy market veteran focused on making electricity shopping simple and transparent.
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Since 2009, the team at ElectricRates.org has helped over 5 million energy consumers find better electricity rates. Supplier information comes from state regulators, company filings, and documented customer feedback. Read the editorial standards & see our methodology.
What Is an Indexed Electricity Plan?
An indexed plan ties your electricity rate directly to a public wholesale price index—usually the ERCOT real-time or day-ahead market price for your zone, plus a fixed margin. Your rate = wholesale price + provider markup. When wholesale prices drop to 3¢/kWh at 2 AM, your rate drops too. When they spike to $1/kWh on a July afternoon, so does yours.
How your indexed rate is calculated:
Honest assessment:
Most People Should Not Get an Indexed Plan
Indexed plans are the most transparent way to buy electricity in Texas. You see exactly what wholesale power costs, and your provider's margin is fixed and visible. That transparency appeals to people who like understanding what they're paying for.
But transparency doesn't mean safety. ERCOT wholesale prices have no cap on volatility. During peak summer afternoons, prices can hit $1-$5/kWh for hours at a time. During grid emergencies, they can stay elevated for days.
Winter Storm Uri in 2021 was the extreme example: wholesale prices stayed at the $9/kWh ceiling for days. Customers on indexed plans received bills of $5,000-$10,000+ for a single billing period. While regulations have improved since then, the fundamental risk hasn't gone away.
Who should consider indexed plans:
People who actively monitor ERCOT wholesale prices, have smart home automation to shift load, understand financial risk, and have the budget to absorb occasional spikes. If that doesn't sound like you, a fixed-rate plan is the better choice.
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Who Are Indexed Plans For?
Good fit if you:
- ✓Monitor ERCOT prices or use price-tracking apps
- ✓Have smart thermostats and load-shifting capability
- ✓Have home battery storage or solar panels
- ✓Can tolerate bill volatility (some months high, some low)
- ✓Understand wholesale electricity markets
Not for you if you:
- ✗Want predictable monthly bills
- ✗Can't shift when you use electricity
- ✗Are on a tight budget with no buffer
- ✗Don't want to actively manage your plan
- ✗Have never heard of ERCOT before this page
How Indexed Pricing Works
Real-time vs. monthly average
Some plans use real-time pricing (your rate changes every 15 minutes based on ERCOT spot prices). Others use a monthly average of wholesale prices. Real-time is more volatile but can reward active load-shifting. Monthly average smooths out spikes but still exposes you to high-demand months.
The fixed margin
Your provider adds a fixed margin (typically 2-5¢/kWh) on top of the wholesale price. This margin covers their costs and profit. Unlike variable plans, this margin is specified upfront—you can verify the math on your bill by checking the published wholesale prices.
ERCOT zones matter
Texas has multiple pricing zones (Houston, North, South, West). Your indexed rate is based on the zone where you live. West Texas often has the lowest wholesale prices (lots of wind generation), while Houston and Dallas can see higher peaks due to demand concentration.
Indexed vs. Fixed vs. Variable
| Feature | Indexed | Fixed | Variable |
|---|---|---|---|
| Transparency | High (public index) | Medium (EFL shows rate) | Low (provider decides) |
| Price risk | Very high | None (during term) | High |
| Potential savings | Highest (8-9 months/yr) | Moderate, stable | Some (mild months) |
| Worst-case bill | $1,000+ possible | Predictable | 2-3x normal |
| Active management | Required | Set and forget | Monitor monthly |
If You Choose an Indexed Plan: Risk Management
Use ERCOT price alerts
Set up alerts for when wholesale prices exceed a threshold. Reduce usage (raise thermostat, defer appliances) during price spikes.
Choose plans with price caps
Some indexed plans include a ceiling on your rate. You'll pay slightly more in margin, but you're protected from extreme events.
Shift usage to off-peak
Wholesale prices are cheapest overnight (11 PM - 6 AM) and peak on summer afternoons (2 PM - 7 PM). Schedule heavy-draw appliances for off-peak hours.
Keep a budget buffer
Set aside $200-$400 as a "price spike fund." Your average bill may be lower than fixed, but 1-2 months per year will be significantly higher.
Frequently Asked Questions
What is an indexed electricity plan?
An indexed electricity plan ties your rate directly to a public price index—usually the real-time wholesale electricity price on the ERCOT grid. Your rate equals the index price plus a fixed margin (the provider's markup). When wholesale prices are low, you pay less. When they spike, you pay more. Unlike variable plans where the provider sets the rate, indexed plans are transparent—you can see the index price yourself.
How is an indexed plan different from a variable plan?
Both fluctuate, but the pricing mechanism is different. Variable plans: the provider decides your rate each month with no published formula. Indexed plans: your rate is a published wholesale index plus a fixed margin—you can verify the math. Indexed plans are more transparent but can be more volatile, since they move with real-time market prices rather than a monthly average.
What index do Texas plans use?
Most Texas indexed plans use the ERCOT real-time settlement point price (SPP) for your zone, or the day-ahead market price. The specific index and zone (Houston, North, South, West) are specified in your contract. Some plans use a monthly average of the wholesale price, while others use the actual real-time price for each 15-minute interval—the latter is more volatile.
How high can indexed rates go?
There is technically no cap on ERCOT wholesale prices—they can hit $5,000/MWh ($5.00/kWh) during extreme grid stress events. In practice, summer afternoon spikes of $1-$3/kWh can happen during heat waves, though they typically last only a few hours. Some indexed plans include a rate cap for consumer protection, but many do not. Always check whether your plan has a price ceiling.
Can I save money on an indexed plan?
Yes, if wholesale prices stay low—which they do most of the year. During mild months (8-9 months), indexed rates can be 2-5¢/kWh cheaper than fixed rates because you're paying close to wholesale cost. But a single summer month of spikes can erase those savings. Customers who save the most are those who actively monitor prices and reduce usage during peak hours.
Are indexed plans good for homes with solar panels?
They can be. If you have solar panels and a battery, you can draw from your battery during price spikes and use grid power during cheap overnight hours. Some solar buyback plans also use indexed pricing, crediting you at wholesale rates when you export power during high-demand periods. However, without a battery, you're still exposed to spikes during evening hours when solar production drops.
What happens to indexed rates during a grid emergency?
During grid emergencies (like Winter Storm Uri in 2021), ERCOT wholesale prices can hit the maximum cap for sustained periods—potentially hours or days. This is when indexed plans become extremely expensive. Some customers during Uri saw bills of $5,000-$10,000+ for a single billing period. Most indexed plans now include better consumer protections, but read the terms carefully.
Should most people avoid indexed plans?
Yes, for the vast majority of Texas households, a fixed-rate plan is the smarter choice. Indexed plans are designed for sophisticated energy consumers who actively monitor wholesale prices, can shift usage away from peak hours, and are comfortable with financial risk. If you're reading this guide for the first time, an indexed plan probably isn't right for you.
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