Fixed, Variable, Indexed or Prepaid?

There are a lot of options when it comes to choosing an electricity plan. ElectricityTexas.com is here to help you navigate through the various plan types and figure out what is best for you and your budget. First, let’s define each of these plan types.

  • Fixed Rate: A fixed rate plan has a set cost per unit of electricity (kWh). Fixed rates are locked in for the duration of a contract, which can range from 6 months to 2+ years.
  • Variable Rate: A variable rate may change each month. There are no contracts with variable rates.
  • Indexed Rate: Indexed rates have a rate that may change from month-to-month, but the formula for how the rate is determined is published and available to consumers. These are usually month-to-month plans, though some companies have created contract plans with indexed rates.
  • Prepaid: Prepaid plans are becoming increasingly popular with the installation of smart meters. Think of smart meter prepaid plans like filling up your car with gas: you pay for electricity as you need it. First, you buy some electricity today to get your account started. Each day as you use your electricity, your usage is deducted from your balance. You can “refill” your account at any time.

Now, to determine which type of plan is best for you.

  • Do you like things to run on auto-pilot? Once you set your account up, do you want to forget about it? If so, a long-term fixed rate plan is best. Your monthly bill will vary based on how much electricity you use, but the price you pay for each unit of electricity will stay constant. On ElectricityTexas.com, you can lock in a low rate for up to 2 years.
  • Are you constantly searching for the best deal? If you monitor your bill often and know how much you pay per kWh, a variable plan or month-to-month indexed plan may be your best bet. There’s no cost to switch electricity companies, it only takes a few days for your switch to occur, and there’s no interruption in service, so you can switch every month if you want. If you have the discipline, a variable plan allows you to constantly be searching for and getting the best deal.
  • Would you prefer to pay for electricity as you use it rather than getting one big bill at the end of the month? A lot of customers find it easier to budget if they can pay for electricity ahead of time and at various times throughout the month. Those customers should choose a prepaid plan tied to a smart meter. What that means is that any customer who has a new digital meter installed at their house (meters are being switched out automatically by the utility) can sign up for a prepaid plan with a low rate and low start-up fee. Then, just like a tank of gas, you “refill” your account balance whenever you are running low. Your electricity company will send you plenty of notifications about your usage and remaining balance, so just like your car’s gas gauge, you are always informed about how much electricity you are using and when you’ll need to put more money in. This also allows you to budget however you want… if you want to pay $1000 today and not worry about your electricity bill for months, you can do that. If you want to pay $25 every week, you can do that. And if something happens and your account hits zero, you can It really is an electricity plan built by you.
  • How conservative are you with investments? While you are not actually investing in the energy marketplace, you are choosing to lock in or not lock in a rate based on market conditions. Locking in a rate is usually a safe bet in the long run, but there have been times in the past where the wholesale price of electricity spiked, so companies raised prices, consumers got worried, and people locked in a really high rate, which guaranteed they’d be overpaying for years to come. On the flip side, a fixed rate can help you avoid the monthly ups-and-downs of the market, plus it ensures you are not lured in by a low variable rate that spikes after your first month of service because it was a promotional introductory rate.