Understanding Variable Rates in Texas
Variable rate plans, also known as "month to month" plans, offer electricity prices that change on a monthly basis. Is this the right choice for your electricity?
Our Recommendations
| Pros | Cons |
|---|---|
| Flexibility - no long term commitment required | Unpredictable prices - high monthly price variation Most variable rate changes are at the discretion of your REP |
In general we do not recommend choosing a month to month plans, as prices tend to be highly unpredictable, and many customers have reported negative experiences with them.
What is a Variable Rate?
A variable rate for electricity changes from month to month. As variable rate plans are offered on a monthly basis, they come with no contract obligations or cancellation fees. Variable rates are based on market prices, which can change depending on a number of factors, including:
- Natural gas prices - with natural gas making up over 40% of Texas's energy generation source mix, Texas electricity prices are closely tied to changes in the natural gas market
- Electricity demand - higher demand for electricity can drive up prices, and lower demand can cause electricity prices to fall. As Texas industry is responsible for about half of Texas's total electricity demand, economic conditions can strongly impact electricity prices.
- Extreme weather - natural disasters can impact electricity supply and the delivery network, which can drive up prices. Similarly, unseasonal weather (such as very cold winters or hot summers) can increase demand for electricity.
Though variable rates are based on market prices, they can also change at the discretion of the retail electric provider (REP). While REP offer attractive rates for the first month on a variable rate, customers should keep in mind that this promotional price is not guaranteed to last. Customers who are interested in month to month plans might want to consult a record of historical variable rates from their chosen REP so that they have an idea of how much the variable rate has changed over time. Keep in mind, however, that historical price trends are not necessarily indicative of future prices.
Indexed Prices
Some retail electric providers offer another type of variable rate, called an Indexed (or Market) Rate. This rate is based on a pricing formula that is pegged to a publicly available energy index.
Why Choose a Variable Rate?
A variable rate might be right for you if:
- You may be able to take advantage of lower rates if the market price for electricity has dropped
- You don't want to be locked into a fixed rate contract
However, we still recommend fixed rates for electricity in Texas. Many retail electric providers offer short term contracts (at three, four, or six months), for customers who don't want a long-term commitment or who are worried about cancellation fees if they change their mind.
Who Offers Variable Electricity Rate Options?
Most retail electric providers in Texas offer a variable rate option along with fixed rates.
Interested in a Variable Rate?
We're here to help. Call us at 832-460-0233 to speak to an energy expert and find the lowest rates available in your area!
What Else Do I Need to Know About Variable Rates in Texas?
The fact that retail electric providers can change variable rates can lead to several situations. On the one hand, REP have an interest in keeping variable prices lower for customers, as they know that they can leave at any time. Some suggest that REP discretion might lead to smoothed price increases if the market price for electricity jumps dramatically in a month. However, many customers have reported dramatic price increases when on variable rates, particularly once their promotional period expires.
Did You Know?TXU Energy, one of the largest REP in Texas, has decided not to offer variable rates.