Fixed Rate vs Variable Rate Electricity: How to Choose One

In a state with retail choice, you choose between plans. Elsewhere your utility sets one regulated rate, though even regulated bills move with fuel and other adjustments. A regulated rate is not a fixed rate in the sense of this guide.

A home uses 900 kWh a month. A fixed plan charges 14.00 cents. A variable plan starts at 11 cents and moves with the market. Over a year the variable price looks like this:

The fixed plan costs $1,512 for the year and the variable plan $1,422. In this example the variable plan wins by $90, and the fixed plan pays for peace of mind. In another year the variable price could climb above fixed for many months. Nobody knows the path in advance, and that uncertainty is the thing you are buying or selling.

Source: All prices and usage here are invented to show the arithmetic.

A fixed term ends. What comes next depends on the contract and the state. Many suppliers move you to a month-to-month variable plan unless you choose a new one, and that default can be priced higher than a fresh offer. Ask when the supplier must warn you, and put the date in your calendar. In Texas, for example, rules require written expiration notices and make the default a month-to-month plan with no cancellation fee. See the Texas 12 month plan guide.

Two plans with the same headline price can cost different amounts once you add the extras. A fixed monthly base charge raises the cost per kWh for small users. A bill credit that applies only above a usage level helps big users and hurts small ones. A minimum usage fee punishes empty or small homes. A plan that gives free power at night often charges more at other hours.

The way to see through it is to price each plan at your own monthly usage, month by month, and add the fees. A plan label in a choice state is meant to help with that, and the Texas plans guide shows how to use one.

A fixed price protects you only if it is not far above what you would have paid anyway. A fixed rate set well above the market for the whole term costs more every month, and you pay a fee if you try to leave. Always compare a fixed offer against the default price and against variable plans, and check how long you would be locked in.

1. Confirm the start date of the new price.
2. Open the first bill and check the price per kWh against the contract.
3. Note the end date of the term and set a reminder a month before it.
4. Save the contract and the confirmation where you can find them.

• Pick fixed if you will stay for the term, want a steady bill and can compare offers once a year.
• Pick variable if you may move soon, want to leave without a fee, or can watch the price each month.
• Ask for the price history of any variable plan. A supplier that changes the price often is telling you what to expect.
• Compare against your utility default, not only against other suppliers.

• 16 Tex. Admin. Code § 25.475, Information disclosures to residential and small commercial customers