Types of Energy Plans
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How to pick the right electricity plan

In deregulated energy markets, multiple energy providers compete for your business. Learning all the terminology and plan types can be overwhelming, and it’s easy to get lost in the details.

The good news is that you don’t have to sort everything out on your own. Choose Texas Power offers useful resources to help you choose the right plan. This guide will help you understand the key terms to know when considering an energy plan. If you still have questions after you read, you can call the number on your screen to speak to our energy experts.

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Types of electric plans

The first step to picking an energy plan is understanding what type of plan it is. Although it can impact your electric rate, the plan type relates to more than just cost. The different types of plans are as follows:

Fixed: A fixed electricity plan is exactly what it sounds like. The terms and rates inside will remain the same for the duration of your contract. A fixed-rate plan is a good choice for people who like stability and don’t want to worry about fluctuating market prices. Because these plans include a contract, you’ll pay an early termination fee (ETF) if you cancel before your plan expires.

Variable: A variable electricity plan provides less stability than a fixed plan, as the rate you pay for electricity changes with fluctuations in the energy market. Your plan’s stability (or instability) depends on its rate structure, but the main thing to remember is that it will change over time. The benefit is that you can typically cancel a variable plan anytime.

Indexed: Indexed plans are less common than the previous two, but you may still see them. An indexed plan is similar to a variable plan in that the rate changes over time. However, instead of calculating your rate based on the market value of electricity, your provider will base it on a commodity index. The range of variation depends on the formula your provider uses, so be sure to read the contract carefully before committing.


While you may see “prepaid plans” referenced frequently, pricing doesn’t really count as its own plan type. We’ve included it here to be clear about your options.

Prepaid: Prepaid plans require you to pay for electricity before you use it. People who choose these plans often do so because they want to stick to a budget and know ahead of time how much they will be spending. Additionally, prepaid plans are a popular option for people who want to avoid a deposit and credit check.

If you choose a prepaid plan, it’s important to note a few quirks of this payment structure:

  • Automatic disconnects: When you reach the set amount of energy you’ve paid for, the lights turn off. They’ll usually turn back on within a few hours when you add money to your account, but the threat of losing power is more immediate with these plans.
  • Limited eligibility: In Texas, residents in critical care or with chronic conditions cannot purchase prepaid plans.
  • Higher rates: Because they are deposit-free and don’t require credit checks, these plans can have higher rates than traditional electricity plans.

Postpaid: This is the most popular choice for energy bills. Like many other bills, your energy company will send you the invoice at the end of the month. All plans are postpaid unless they specifically state otherwise.

Bill credits: Bill credits are available on some fixed plans and function as a reward for using a certain amount of energy in a given month. For example, your provider may offer a reward if you use between 1,000 and 1,200 kilowatt-hours (kWh) in a month. This “usage bucket” is set in your contract and should not change. A plan with bill credits may be a good option if you know you almost always fall into the usage bucket the provider has designated.

Types of rate structures

The second key component of energy plans is the rate structure. Rate structures may be confusing, as they use similar terminology to plan types. Think of rate structure as a category within the type of plan you choose. Not all types of plans offer all rate structures. Options are broken out as follows:

  • Rate structures available for fixed plans: fixed, flat, tiered, time-of-use
  • Rate structures available for variable plans: variable, wholesale
  • Rate structures available for indexed plans: fixed, variable

Let’s look at how these rate structures behave for an example usage of 1,000 kWh. We’ll calculate supply charges — the amount you pay for your usage not including taxes and fees.

Fixed rate

While this rate structure uses the same terminology as a fixed plan, not all fixed plans have fixed rates. A fixed-rate structure in Texas really means a stable rate, where you pay the same amount for each kWh you use. It is the simplest rate structure.

Usage: 1,000 kWh
Fixed rate: 7.4¢/kWh
Supply charges: 1,000 x 7.4¢ = $74

Flat rate

If you choose a flat-rate structure, you are charged the same amount regardless of how much energy you use, within a certain range. Your electric company will use your usage history to decide your rate and may charge extra if you exceed your average usage. You will also be charged the same amount if you use less than usual. Keep in mind that a flat rate doesn’t mean you have a flat monthly electric bill, as your total bill may depend on how much energy you use.

Usage: 1,000 kWh
Flat rate: $74 for 800-900 kWh, $30 overage fee
Supply charges: 1,000 kWh at $74 + $30 = $104

Tiered rate

In a tiered rate structure, the energy company designates certain usage buckets and charges differently for each one. This can work in a number of ways, with a flat rate up to a certain usage and a traditional rate after that, or a different rate for every usage bucket.

Usage: 1,000 kWh
Tiered rate: 7.4¢/kWh up to 800 kWh, 9.5¢/kWh for 801-1,300 kWh 8.3¢/kWh for 1,300+ kWh
Supply charges: (7.4¢ x 800) + (9.5¢ x 200) = $78.20

Time-of-use rate

Time-of-use rates are found in plans that offer, for example, free electricity at night or on weekends. Your provider can offer different rates for different times of the day or week to incentivize you to use less energy during peak demand times. These time buckets stay the same for the duration of your contract.

Usage: 400 kWh (weekday) + 600 kWh (weekend) = 1,000 kWh
Time-of-use rate: 7.4¢/kWh on weekdays and 4.3¢/kWh on weekends
Supply charges: (7.4¢ x 400) + (4.3¢ x 600) = $55.40

Variable rate

Although they use the same terminology, not all variable plans use a variable rate structure. A variable rate structure means the rate you pay changes based on the status of the energy market. When demand is high, your rate is high. When demand is low, your rate is low.

Usually, this rate will fluctuate from month to month, depending on how your provider calculates it. The benefit of these plans is that they often do not have early termination fees, so you can switch when price spikes are imminent and hop from low rate to low rate. However, that brings a lot more risk of facing high bills.

Usage: 1,000 kWh
Variable rate: 7.4¢/kWh in June and 9.5¢/kWh in July
Supply charges (June): 7.4¢ x 1,000 = $74
Supply charges (July): 9.5¢ x 1,000 = $95

Wholesale rate

A wholesale rate structure is the riskiest of all plan and rate options. Wholesale rates are directly connected to the spot price of electricity, which changes minute by minute. That means the rate you pay for electricity can also change each minute.

For the average customer, it is impossible to constantly monitor wholesale prices and turn off devices, lights, and HVAC systems whenever prices spike. When temperatures and prices in Texas jump in the summer, wholesale bills can add up to hundreds of dollars in a matter of days. For this reason, we do not list wholesale options in our marketplace.

Length of contract

The final piece to understand when picking an energy plan is the length of contract. This part is the most straightforward, and the ideal length depends on your preference. Renters may choose shorter contracts, while homeowners may be comfortable committing for longer. Contracts are available in the following lengths:

  • Month to month
  • Three to six months
  • 12 months
  • 24 to 36 months

A month-to-month structure is the most common option for variable or indexed plans with variable rate structures because the price changes so frequently based on factors outside of the your control. Beyond that, it primarily depends on how often you want to shop for a plan. Three- and six-month plans require more effort on your part than 24- to 36-month plans, but longer plans require more commitment to an electric company or willingness to pay early termination fees.

Whichever term length you choose, it is important to read the full contract before you commit. It will give you important details about what happens when your contract expires. Often, you’ll be enrolled at a higher rate unless you expressly switch to a different plan or provider.

Electricity plan cheat sheet

Buying electricity requires you to sift through a lot of information. However, a little research and due diligence can help you find an energy plan that fits your needs and budget. 

  • Type of energy plan: Fixed, variable, or indexed, which can be prepaid or postpaid
  • Type of rate structure: Fixed, flat, tiered, time-of-use, variable, wholesale
  • Length of contract: One-, three-, six-, 12-, 24-, or 36-month

The most important part of choosing an energy plan is finding one you are comfortable with. If you’re unsure what you need or are having trouble sorting through the options, call the number on your screen, and one of our team members can answer your questions. If you have all the information you need, enter your ZIP code to start exploring electricity plans and rates near you.

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