There are a lot of choices when shopping for electricity. Understanding the types of plans that are available can help you make better decisions for your home and your family’s needs.
A fixed-rate plan has a set rate that doesn't change throughout the contract period, with minor exceptions. If you choose a plan with a fixed rate, your price per kWh will not change during your contract period except for changes in Transmission and Distribution fees, changes in ERCOT or Texas Regional Entity administrative fees, or changes resulting from federal, state or local laws that impose fees beyond your REP’s control. This may help your household budgeting, but if market prices fall you may have to wait until your contract ends to enjoy a lower price.
Changing Rate (Variable)
Variable rate plans have no monthly contract or cancellation fee, but the rate you pay per kWh can vary from month to month. Your rate can go up or down based on the market and the discretion of your electric company. Variable plans allow customers to benefit from falling market prices, but they also have an increased risk for higher rates if electricity prices spike due to natural disasters, cold winters, or adverse market conditions. The rates different companies charge each month varies, but because customers can switch any time, companies have an incentive to keep their rates low.
Market Rate (Indexed)
An indexed rate plan (also called market rate plan) is similar to a variable plan in that the price per kWh can go up or down each month. The difference is that the rates for these plans are directly tied to a pricing formula connected to a publicly available index. If the index rises, your monthly rate will also, but if the index falls, your rates will be lower.
With an indexed plan, the price per kWh can change substantially each month, giving benefits and risks similar to those of variable rate plans. The difference is that the rates for indexed rate plans are tied to a publicly available index. Customers considering these plans should ask the electric company for specifics about the pricing formula as well as how and when they will receive notifications of changes to the index.
With an indexed plan, price per kWh can change substantially each month, giving benefits and risks similar to those of variable rate plans. The difference is that indexed plans remove your electric company’s ability to give you a more predictable rate. Customers considering these plans should ask the electric company for specifics related to the pricing formula and how and when they will receive notifications of changes to the index.
Some electric companies offer plans with no minimum contract length ("month-to-month" plans) and others may offer plans with contract lengths as long as three years or more. Contracts with a term of three months or more may have a penalty if you cancel before the contract period ends. Make sure you understand what happens at the end of the contract period with respect to the pricing of your service. Many plans will default to a month-to-month basis if you allow your existing contract to expire without having a new contract in place. The month-to-month default price will likely be much higher. Be sure to have a new contract in place before your current contract expires. Ask your electric company if you are unsure.
Prepaid plans provide service on a "pay-as-you-go" basis. These plans don’t require a deposit and don’t always have a contract, but they do require you to prepay for your electricity in a timely manner. With prepaid plans, you will not receive a monthly bill. Many companies send emails or text messages to let you know how much electricity you have used and how much money is left in your prepaid account. If your current account balance falls below the required amount, your service can be disconnected with little notice. These plans require close monitoring and the ability to receive electronic or phone notifications for important communications such as balance updates. These plans generally charge a higher rate than non-prepaid plans.
Electric companies may require a security deposit for new customers. Your deposit might be lowered or waived based on your payment history or credit history. Your electric company may require the security deposit to be paid in full on your first bill. Some companies may let you pay the deposit over several months. Your deposit is refundable and will be returned to you if you are in good standing when ending your service with your electric provider.
Many plans offer electricity generated from renewable energy sources such as wind, solar, hydroelectric, geothermal, landfill gas, or biomass. You can check a plan's Electricity Facts Label to see what percentage of the plan's electricity is generated from these renewable sources. Providers are allowed to designate products that use electricity generated by Texas-produced natural gas, which is a relatively clean fuel, as "green." Make sure you understand these distinctions when researching your options.Learn more about selling renewable power.
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