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How to pick the right electricity plan
Energy deregulation puts consumers in control of their energy provider and rate plans. Electricity providers sell energy directly to customers across Texas while utility companies transport the power. In Texas, where most cities operate with deregulated energy markets, residents and businesses can choose from a wide range of energy providers and plan options.
With so many choices, finding the right electricity rates and plans can be a big undertaking. There’s a lot to navigate, from understanding plan types to exploring green energy options. Thankfully, you don’t have to do it on your own.
Choose Texas Power has everything you need to compare Texas energy plans. Our resources will help you understand how deregulated energy works and sign up for the right plan for your budget. In this guide, we’ll cover everything you need to know to get started and find the best energy plans in Texas.
Types of electric plans
The first step to picking an electric plan is understanding the different types of energy plans you’ll encounter. Although it can impact your electric rate, the plan type relates to more than cost alone — it also affects how predictable your rates will be over time. 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 plan is a good option for people who prefer 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 changes when wholesale energy costs fluctuate. Your plan’s stability (or instability) depends on its rate structure, but the main feature to remember is that it will change over time. The key advantage is that you can cancel a variable plan anytime because there is no contract.
Indexed: Indexed plans are less common than the previous two, but you may still see them. As with a variable plan, the rates in an indexed plan can change over time. However, instead of calculating your rate based on the market value of electricity, your provider bases 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 technically count as a separate 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 often choose these plans because they want to stick to a budget and better predict their spending. Prepaid plans are also a popular option for those who want to avoid a deposit and credit check.
Having a prepaid plan doesn’t mean you’ll have a flat monthly electric bill — you’ll still have to pay for what you use, which may increase during extreme temperatures. However, this can be a way to exercise a little more control over your monthly energy costs.
If you choose a prepaid plan, be sure you understand the following 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. To avoid this problem, you can typically turn on alerts from your provider to be notified when you need to add more money.
- Limited eligibility: Residents in critical care or with chronic conditions cannot purchase prepaid energy plans in Texas.
- Higher rates: Because they don’t require deposits or credit checks, these plans often have higher rates than traditional electricity plans.
Postpaid: This is the most popular payment choice for energy bills. Like many other bills, your energy company will send you the invoice for the energy you’ve used at the end of the month. All Texas energy plans are postpaid unless they specifically state otherwise.
Bill credits: Bill credits are available on some Texas fixed-rate electricity plans as a reward for meeting a specific energy usage threshold 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 your energy consumption typically fits into the provider’s discounted usage bucket.
While this rate structure uses the same terminology as a fixed plan, not all fixed plans have fixed rates. Ultimately, a fixed-rate electricity plan in Texas means a stable rate, where you pay the same amount for each kWh you use throughout your contract. This is the simplest rate structure.
Usage: 1,000 kWh
Fixed rate: 7.4¢/kWh
Supply charges: 1,000 x 7.4¢ = $74
If you choose flat-rate electricity in Texas, you are charged the same amount — within a certain range — regardless of how much energy you use. Your electric company will decide your rate based on your usage history and may charge extra if you exceed your average usage. You will also be charged the same amount if you consume less electricity than usual. Flat-rate electricity doesn’t mean you have a flat monthly electric bill, as your total bill depends 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
In a tiered rate structure, the energy company designates several usage buckets and charges differently for each one. These Texas energy plans can work in a few ways. For instance, you might pay a flat rate up to a certain usage level and a traditional per-kWh rate after that, or you may pay 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
You’ll find time-of-use rates in Texas energy plans that offer, for example, free electricity at night or on weekends. Electricity providers offer different rates for different times of the day or week to incentivize you to use less energy during peak-demand times or when more renewable energy is available. These time buckets stay the same for the duration of your contract. If you use most of your energy at night or on weekends, time-of-use pricing can help you create an affordable energy plan.
Usage: 400 kWh (weekday) + 600 kWh (weekend) = 1,000 kWh
Time-of-use rate: 9.4¢/kWh on weekdays and 4.3¢/kWh on weekends
Supply charges: (9.4¢ x 400) + (4.3¢ x 600) = $63.40
Although they use the same terminology, not all variable plans use a variable rate structure. A variable rate structure means your rate 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 plans with variable rate structures is that they often don’t have early termination fees — you can switch plans when price spikes are imminent and hop from low rate to low rate. However, you risk being hit with some high bills when you’re unable to dodge the price hikes. It’s also difficult to forecast your energy costs this way.
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
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.
The average customer would find it impossible to constantly monitor wholesale prices and turn off devices, lights, and HVAC systems whenever prices spike. When temperatures and prices 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 Texas energy plans in our marketplace.
Length of contract
The final piece to understand when you compare energy plans is the length of the contract. This part is the most straightforward, and the ideal length depends on your plans and preferences. Renters may choose shorter contracts, while homeowners may be comfortable committing for longer. Contracts are typically available in the following lengths:
- Month to month
- Three to six months
- 12, 24, or 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 frequently. Beyond that, it primarily depends on when you want to shop for a plan. Three- and six-month plans require more effort than 24- to 36-month plans, but longer plans require a commitment to an electric company or a willingness to pay early termination fees if you change services sooner rather than later.
Whatever term length you choose, it is important to read the full contract before you commit. It will provide important details about what happens when your contract expires. At that time, you’ll often be enrolled at a higher rate unless you expressly switch to a different Texas energy plan or provider.
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, or wholesale
- Length of contract: One, three, six, 12, 24, or 36 months
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. One of our team members can answer your questions, whether you’re looking for fixed-rate electricity, flat-rate energy plans in Texas, or plans powered by solar energy. Start exploring the best energy plans in Texas by entering your ZIP code on our marketplace.