The Difference Between Fixed-Rate and Variable-Rate Energy Plans

Choosing the right electricity plan can make a big difference in your monthly utility bill—especially in deregulated markets like Texas, Ohio, Pennsylvania, and Maryland. Two of the most common types of plans are fixed-rate and variable-rate plans. Each has pros and cons depending on your lifestyle, risk tolerance, and energy usage patterns.

Understanding the differences between these plans is key to avoiding surprise charges and making the most of your energy dollars.

1. What Is a Fixed-Rate Energy Plan?

A fixed-rate plan locks in your electricity rate for the duration of your contract. That means your price per kilowatt-hour (kWh) won’t change regardless of market conditions or seasonality.

Pros:

• Predictable billing each month

• Protection from price spikes during high-demand periods

• Great for budgeting and long-term stability

Considerations:

• You may pay a little more during low-demand months

• Early termination fees may apply if you end the contract early

This type of plan is ideal for homeowners and renters who want consistency and are staying in their residence for the duration of the contract.

2. What Is a Variable-Rate Energy Plan?

A variable-rate plan changes monthly depending on the wholesale electricity market. While these plans sometimes offer lower introductory rates, prices can rise quickly, especially in summer or winter when demand spikes.

Pros:

• Flexible with no long-term commitment

• Potential to benefit from low rates during off-peak months

Considerations:

• Rates fluctuate and can increase without warning

• Harder to budget monthly costs

These plans are best for short-term residents or those who closely monitor the market and can adjust usage habits accordingly.

3. Beware of Tiered Pricing Plans

In Texas especially, some energy plans include tiered pricing, which means the rate you pay per kWh changes depending on how much electricity you use. This can be tricky if you're not aware of how the pricing structure works.

For example:

• 0–500 kWh: 13¢/kWh

• 501–1,000 kWh: 9¢/kWh

• Over 1,000 kWh: 11¢/kWh

At first glance, these plans may seem cost-effective, but if your usage changes month-to-month, you could end up in a higher-cost tier without realizing it. Be sure to evaluate your average usage and determine if a tiered plan aligns with your habits.

4. What Is an EFL?

In Texas, every electricity plan comes with an Electricity Facts Label (EFL). This document breaks down:

• The rate per kWh at different usage levels

• Any additional fees or charges

• Contract length and early termination fees

• Whether the rate is fixed, variable, or indexed

Before signing up for a new plan, always review the EFL. It’s your most powerful tool for comparing options apples-to-apples and making an informed decision.

5. So, Which Plan Is Right for You?

It depends on your needs:

• Fixed-rate plans are great if you want stability and don’t want to think about your bill fluctuating.

• Variable-rate plans work if you need flexibility and are comfortable with changes in monthly costs.

• Tiered pricing plans may offer savings but can be confusing—read the EFL carefully to understand where your usage typically falls.

No matter which plan you choose, always monitor your electricity usage and know your contract terms. Choosing the right plan today can help you avoid surprise charges and better manage your energy efficiency, especially as we head into the spring season.