Fixed-rate plans
The per-kWh energy rate is locked for the length of your contract. Typical terms: 6, 12, 24, 36 months. Your rate doesn't move during that window no matter what happens in the wholesale market.
Pros: Predictable. Protected from wholesale spikes. Easy to budget. Most Texans are on fixed-rate plans.
Cons: Cancellation fee if you leave early (usually $150-$295). If rates drop across the market during your term, you can't easily take advantage unless you pay the cancellation fee to switch.
Variable-rate plans
The per-kWh rate can change month to month. Usually no contract commitment, no cancellation fee. Your REP can raise (or lower) the rate with 30-60 days notice.
Pros: No cancellation fee. Easy to leave. Rate can drop when the market drops.
Cons: Rate can spike when the market spikes. The 2021 Winter Storm Uri: wholesale rates hit $9,000/MWh for nearly a week. Some variable-rate customers saw single-month bills of $5,000-$15,000. That's not a typo.
Texas law changed after 2021 to prevent the worst abuses (REPs can no longer pass real-time wholesale spot pricing through to residential customers on indexed products), but variable plans still have meaningful rate volatility.
Indexed-rate plans (rare)
A small subset of variable plans where the rate is tied explicitly to a wholesale market index. Almost no residential customer should be on one. If you see a plan called "indexed" or "pass-through," read the EFL carefully. These are what caused the Uri bills.
Which should you pick?
Go fixed if: You plan to be at this address for the contract term. You want your budget to be predictable. You don't want to think about electricity pricing every month. (This is 90% of Texans.)
Go variable if: You're moving in 30-60 days. You're between contracts and don't want a long commitment yet. You're actively monitoring rates and plan to switch when the market moves.
Avoid indexed plans for residential service unless you really know what you're doing.
How long should a fixed term be?
Short (6-12 months): gives you flexibility to re-shop soon. Good when rates are high and you expect them to fall.
Medium (12-24 months): the sweet spot for most Texans. Low enough commitment that you can adjust; long enough to avoid the renewal shuffle twice a year.
Long (24-36 months): best when rates are low and you want to lock in. Downside: if rates fall further, you're stuck.
Cancellation fees are usually flat dollar amounts ($150-$295) regardless of term. So a 36-month plan and a 12-month plan typically have similar exit cost — the real decision is how long you want to commit.