Fixed, Variable, and Indexed Plans: What's the Difference?

Three Types of Electricity Plans

When you shop for electricity in Texas, every plan falls into one of three categories: fixed-rate, variable-rate, or indexed. Each type handles pricing differently, and the right choice depends on your comfort with risk and how closely you want to watch the market.

Fixed-Rate Plans

A fixed-rate plan locks in your energy charge per kWh for the entire contract, typically 6 to 36 months. Your total bill still changes month to month because the amount of electricity your home needs varies with the seasons, but the price per kWh stays the same.

When fixed plans make sense:

• You want predictable bills
• You are locking in during a period of low rates
• You do not want to monitor the electricity market

What to watch for:

• Early termination fees (ETFs). Most fixed plans charge $150-$200 if you cancel before the contract ends. Some plans have no ETF at all, though they may have a slightly higher rate.
• Auto-renewal. When your contract ends, most fixed plans roll into an expensive month-to-month variable rate. Mark your contract end date and shop for a new plan 2-4 weeks before it expires.
• Contract length. Longer contracts sometimes offer lower rates, but you are locked in. A 36-month plan at 11 cents might be worse than a 12-month plan at 11.5 cents if rates drop during that period.

Variable-Rate Plans

A variable-rate plan has no fixed contract. Your rate can change every month at the REP’s discretion. Some variable plans adjust based on market conditions while others are simply set by the provider each billing cycle.

When variable plans make sense:

• You need short-term flexibility (moving soon, between homes)
• You want to test a provider before committing
• You are comfortable with rate changes and can switch quickly if prices rise

What to watch for:

• Summer spikes. Variable rates often jump significantly in June through September when electricity demand peaks. A 10-cent variable rate in March might become a 16-cent rate in August.
• No price protection. There is no cap on how high a variable rate can go. Your REP can raise the rate with as little as one billing cycle of notice.
• Ease of leaving. The upside is that most variable plans have no ETF, so you can switch to a fixed plan whenever you find a good deal.

Indexed Plans

An indexed plan ties your rate directly to a market benchmark, usually the wholesale price of electricity on the ERCOT market. Your rate goes up and down with the market, often adjusted daily or in real time.

When indexed plans make sense:

• You understand wholesale electricity markets
• You can shift your heaviest electricity needs to off-peak hours
• You have a high risk tolerance and can absorb occasional price spikes

What to watch for:

• Extreme price spikes. Wholesale electricity prices in Texas can spike from a few cents per kWh to several dollars per kWh during peak demand events. During Winter Storm Uri in February 2021, wholesale prices hit the $9 per kWh cap for days.
• Complexity. Indexed plans often have pass-through charges, ancillary service fees, and other components that make the final bill harder to predict.
• Not for everyone. Most families are better off with the predictability of a fixed-rate plan. Indexed plans reward people who actively manage their electricity and understand the risks.

Comparing the Three Types

Feature	Fixed	Variable	Indexed
Rate changes	Never during contract	Monthly	Daily or real-time
Contract length	6-36 months	Month-to-month	Varies
Early termination fee	Usually $150-$200	Usually none	Varies
Price predictability	High	Low	Very low
Risk level	Low	Medium	High
Best for	Most households	Short-term needs	Savvy energy managers

How to Decide

For most Texas households, a fixed-rate plan with a 12-month contract is the best starting point. It gives you price stability through the expensive summer months and a clear endpoint to reassess and shop again.

If you are between homes, waiting for a better deal, or just moved to Texas and want to explore options, a variable plan with no ETF gives you flexibility without commitment.

Indexed plans are a niche choice. If you are willing to put in the work — shifting laundry and dishwashing to off-peak hours, watching wholesale prices, and accepting the occasional high bill — they can save money over time. But one bad month can wipe out months of savings.

The Bottom Line

The type of plan you choose matters as much as the rate itself. Fixed plans offer peace of mind. Variable plans offer flexibility. Indexed plans offer potential savings with real risk. Start with fixed if you are unsure, and explore other types as you learn more about how your home’s electricity needs change through the year.