Fixed-Rate Electricity Plans Explained
A fixed-rate plan is the most popular electricity product in deregulated markets — and for good reason. Here's everything you need to know before signing up.
How Fixed-Rate Plans Work
When you sign up for a fixed-rate electricity plan, your retail electricity provider guarantees a set price per kilowatt-hour (kWh) for the length of your contract. This supply rate — the portion of your bill that covers the actual generation of electricity — stays the same whether natural gas prices spike, a heat wave hits, or wholesale markets go haywire.
Important: "fixed rate" means fixed price per kWh, not a fixed monthly bill. Your total bill still fluctuates based on how much electricity you use each month. If you crank the AC in August, you'll use more kWh and your bill will be higher — but each kWh costs the same as in January.
Fixed vs. Variable vs. Indexed Plans
| Feature | Fixed-Rate | Variable-Rate | Indexed |
|---|---|---|---|
| Price per kWh | Locked for contract term | Changes monthly | Tied to market index + margin |
| Contract length | 6–36 months | Month-to-month | Varies |
| Budget predictability | High | Low | Low |
| Risk of price spikes | None during contract | High (summer/winter) | Medium |
| Early termination fee | Usually $50–$200 | Usually none | Varies |
| Best for | Most consumers | Short-term/flexible | Sophisticated buyers |
When to Lock In a Fixed Rate
Electricity prices follow seasonal patterns driven by demand and wholesale market conditions:
- Best: Late fall (Oct–Nov) and early spring (Mar–Apr). Demand is low, wholesale prices are typically at their cheapest, and providers offer competitive rates to attract customers before peak season.
- Good: Early winter (Dec–Jan) or late spring (May). Still moderate demand, decent rates available.
- Avoid: Mid-summer (Jun–Aug). Peak cooling demand drives wholesale prices up, and providers bake that risk into fixed rates. You'll pay a premium for locking in during summer.
- Shop 30–60 days before your contract expires. Most providers send renewal notices with rates that are often higher than what you can find by shopping. Don't auto-renew without comparing.
What to Watch For in Fixed-Rate Contracts
- Early termination fees (ETFs). Most fixed plans charge $50–$200 if you cancel before the term ends. Some providers offer no-ETF plans at slightly higher rates.
- Minimum usage charges. In Texas, some plans advertise low rates that assume 1,000+ kWh usage. If you use less, a base charge kicks in and your effective rate is higher.
- Renewal terms. Many contracts auto-renew to a variable rate when they expire. Set a calendar reminder 30 days before expiration to shop again.
- Rate includes delivery? In some states, the advertised rate includes delivery charges; in others (like Texas), delivery (TDU) charges are separate. Make sure you're comparing apples to apples.
Related Articles
- How to Sign Up for New Electricity Service
- How to Break a Contract with Your Provider
- Why Is My Electric Bill So High?
- What Is Electricity Deregulation?
- Supply Rates vs. Delivery Rates
Sources
- Public Utility Commission of Texas — puc.texas.gov
- U.S. Energy Information Administration — eia.gov
