Fixed-rate contracts lock in your electricity rate for 12-36 months providing budget certainty, while variable-rate contracts fluctuate monthly based on wholesale prices—most Texas businesses choose fixed rates to avoid extreme cost spikes during heat waves or cold snaps.
An electricity contract where your per-kWh energy rate remains constant for the entire contract term (typically 12-36 months). Your rate won't change regardless of market conditions, weather, or wholesale price fluctuations. TDU delivery charges and other fees may still vary, but your energy rate is locked in.
An electricity contract where your per-kWh energy rate changes monthly based on wholesale electricity prices, market conditions, and provider pricing decisions. Rates can increase or decrease significantly from month to month, with no cap on how high they can go during extreme weather events.
The cost providers pay to purchase electricity from generators in the ERCOT market. Wholesale prices fluctuate constantly based on supply and demand, natural gas prices, weather, and grid conditions. Variable-rate contracts pass these price changes directly to customers, while fixed-rate contracts absorb the volatility.
A regulated rate offered by incumbent providers in certain Texas markets as a baseline for comparison. These rates are typically higher than competitive market rates and serve as a consumer protection mechanism. Most businesses can find better rates through brokers or direct provider shopping.
A pricing structure where your rate is tied to a specific market index (like natural gas prices or ERCOT wholesale prices) plus a fixed markup. This is a type of variable pricing that provides more transparency than standard variable rates, but still exposes you to market volatility.
Why it's a problem: Businesses see lower variable rates during mild months and assume they'll save money year-round. They underestimate the financial impact of rate spikes during summer and winter.
Solution: Analyze annual costs, not monthly rates. Variable-rate customers typically pay 10-25% more annually than fixed-rate customers because extreme spikes during peak months offset savings during mild months. Fixed rates provide lower total costs and eliminate spike risk.
Why it's a problem: Businesses on variable rates wait for the "perfect" moment to lock in fixed rates, hoping to time the market. Meanwhile, they continue paying volatile rates and risk extreme spikes.
Solution: Lock in fixed rates as soon as you find competitive pricing (typically 8-12¢ per kWh for commercial accounts). Trying to time the market perfectly is impossible—you're better off securing budget certainty now than gambling on future rate drops while exposed to spike risk.
Why it's a problem: Businesses assume variable rates simply track wholesale prices, but many contracts include provider markups, rate floors, or clauses allowing providers to set rates at their discretion.
Solution: Read the Electricity Facts Label (EFL) carefully. Some variable-rate contracts have rate floors (minimum rates even when wholesale prices drop) or allow providers to set rates based on "market conditions" rather than transparent indexes. Ask your broker to explain how rates are calculated before signing.
Why it's a problem: Businesses choose 12-month fixed contracts thinking they're getting flexibility, but they're actually paying 10-15% higher rates than 24-36 month contracts while still being locked in.
Solution: If you need true flexibility, use variable rates for 1-2 months while shopping for long-term fixed contracts. If you're committing to 12 months anyway, extend to 24-36 months to secure 10-15% lower rates. The early termination fee (typically $200-500) is a small price to pay if your situation changes.
Why it's a problem: Businesses sign fixed-rate contracts whenever their current contract expires, regardless of whether market rates are high or low at that moment.
Solution: Start shopping 90 days before your contract expires so you can time your signing when market rates are favorable. Rates are typically lowest in winter (January-March) and highest in summer (June-August). If rates are high when your contract expires, consider a short-term fixed contract (3-6 months) to bridge to a better rate period.
Why it's a problem: Businesses compare only the per-kWh rate and ignore contract terms like early termination fees, minimum usage requirements, demand ratchet clauses, and pass-through charges.
Solution: Review the entire Electricity Facts Label (EFL), not just the rate. Two contracts with the same 9.5¢ per kWh rate can have vastly different total costs if one includes demand ratchet clauses, minimum usage fees, or high early termination penalties. Work with a broker to identify hidden costs before signing.
When you sign a fixed-rate contract, your electricity provider locks in your per-kWh energy rate for the entire contract term—typically 12, 24, or 36 months. This rate is based on the provider's forecast of wholesale electricity costs over that period, plus their profit margin and operational costs.
The provider assumes the risk of wholesale price fluctuations. If wholesale prices spike during a heat wave, you continue paying your locked-in rate while the provider absorbs the higher costs. Conversely, if wholesale prices drop, you still pay your contracted rate even though the provider's costs decreased.
Your energy rate never changes, making it easy to forecast electricity costs and manage budgets. This is critical for businesses with tight margins or fixed operating budgets.
You're insulated from extreme market volatility during heat waves, cold snaps, or supply disruptions. Your rate stays constant even when wholesale prices increase 500-1000%.
Your bills are predictable and easy to understand. You can calculate expected costs by multiplying your usage by your fixed rate, with no surprises.
If you lock in during low-rate periods (typically winter), you can secure below-market rates for years. A 36-month contract signed in January 2026 protects you through 2028.
If wholesale prices decline significantly during your contract term, you're locked into your higher rate. You can't take advantage of lower market rates without paying early termination fees (typically $200-500).
Breaking your contract before expiration triggers early termination fees that can range from $200-500 for small accounts to $5,000+ for large commercial accounts. This limits flexibility if your business needs change.
Fixed rates may be slightly higher than current variable rates when you sign, since providers build in a risk premium to cover potential wholesale price increases. However, this premium is usually 0.5-1¢ per kWh—far less than the risk of variable rate spikes.
Variable-rate contracts have no fixed term—they're month-to-month agreements where your per-kWh energy rate changes monthly based on wholesale electricity prices, market conditions, and the provider's pricing decisions. Providers typically notify you of next month's rate 7-14 days before it takes effect.
Your rate directly reflects current market conditions. During mild weather when electricity demand is low, your rate may drop to 7-9¢ per kWh. During extreme heat or cold when demand spikes and wholesale prices surge, your rate can jump to 15-20¢ per kWh or higher. There's typically no cap on how high rates can go.
You can cancel or switch providers anytime without early termination fees. This flexibility is valuable if your business is relocating, closing, or uncertain about future needs.
When wholesale prices are low (typically spring and fall), variable rates can be 10-20% cheaper than fixed rates. You benefit immediately from favorable market conditions.
If you find a better rate or need to close your account, you can switch immediately without penalties. This makes variable rates attractive for temporary locations or short-term needs.
If wholesale prices decline significantly, your rate drops the following month. You're not locked into above-market rates like fixed-rate contracts.
Rates can spike 200-500% during heat waves, cold snaps, or grid emergencies. Texas businesses on variable rates during the February 2021 winter storm saw rates jump to $0.50-2.00 per kWh, causing bills to increase 1000% for that month. This risk alone makes variable rates unsuitable for most commercial accounts.
Your monthly electricity costs can vary by 30-50% or more, making it impossible to accurately forecast expenses. This is problematic for businesses with tight margins or fixed operating budgets.
While variable rates may be lower during mild months, the extreme spikes during summer and winter often result in higher average annual costs compared to fixed rates. Data shows variable-rate customers typically pay 10-25% more annually than fixed-rate customers.
Providers can adjust variable rates based on their own pricing strategies, not just wholesale costs. Some providers keep rates artificially high even when wholesale prices drop, or add excessive markups during high-demand periods.
| Factor | Fixed-Rate | Variable-Rate |
|---|---|---|
| Rate Stability | Locked in for 12-36 months | Changes monthly |
| Budget Predictability | High (rate never changes) | Low (costs vary 30-50%+) |
| Price Spike Risk | Zero (protected) | High (200-500% spikes possible) |
| Contract Term | 12-36 months | Month-to-month |
| Early Termination Fee | $200-500+ (varies by contract) | $0 (cancel anytime) |
| Typical Rate Range | 8-12¢ per kWh (consistent) | 7-20¢+ per kWh (fluctuates) |
| Average Annual Cost | Lower (10-25% savings vs variable) | Higher (spikes offset low periods) |
| Best For | Most businesses (90%+ of commercial accounts) | Temporary locations, short-term needs |
| Risk Level | Low (provider absorbs market risk) | High (you absorb all market risk) |
Recommendation: 90%+ of Texas commercial accounts should choose fixed-rate contracts for budget certainty and protection from market volatility.
Caution: Variable rates expose you to extreme financial risk. Only choose variable if you have a specific short-term need and can absorb potential cost spikes.
Most Texas businesses should choose fixed-rate contracts for budget certainty and protection from extreme price spikes. Fixed rates lock in your per-kWh rate for 12-36 months, preventing 200-500% cost increases during heat waves or cold snaps. Variable rates may be slightly lower during mild months, but annual costs typically run 10-25% higher due to summer/winter spikes. Only choose variable rates for temporary locations (under 6 months) or while actively shopping for fixed contracts.
Variable electricity rates can spike 200-500% or more during extreme weather events. During the February 2021 Texas winter storm, some variable-rate customers saw rates jump from 8-10¢ per kWh to $0.50-2.00 per kWh, causing monthly bills to increase 1000%. Summer heat waves can also cause 100-200% rate spikes. Fixed-rate contracts protect you completely from these increases by locking in your rate regardless of market conditions.
Most Texas businesses should choose 24-36 month fixed-rate contracts to secure the lowest rates and maximum budget certainty. Longer contracts offer rates 10-15% lower than 12-month contracts because providers reward commitment. A 36-month contract at 9¢ per kWh saves significantly more than a 12-month contract at 10.5¢ per kWh. If you're concerned about flexibility, the early termination fee (typically $200-500) is a small price to pay if your situation changes.
Yes, variable-rate contracts are month-to-month with no early termination fees, so you can switch to a fixed-rate contract anytime. The switch process takes 7-14 days. If you're currently on a variable rate, start shopping for fixed contracts immediately—work with a broker to compare rates from extensive network of providers and lock in budget certainty. Don't wait for rates to drop further; the risk of price spikes outweighs potential savings.
The best time to sign fixed-rate contracts is typically winter months (January-March) when electricity demand is lower and wholesale prices are more stable. Rates are usually highest in summer (June-August) when demand peaks. Start shopping 90 days before your contract expires so you can time your signing when rates are favorable. If rates are high when your contract expires, consider a short-term fixed contract (3-6 months) to bridge to a better rate period.
Variable rates make sense only for specific short-term situations: temporary locations operating less than 6 months, businesses actively shopping for fixed contracts who need 1-2 months of coverage, or very low-usage accounts (under 2,000 kWh/month) where spikes won't significantly impact finances. For 90%+ of commercial accounts, fixed rates provide lower total annual costs, budget certainty, and protection from extreme price volatility.
Canceling a fixed-rate contract before expiration triggers an early termination fee (ETF) that typically ranges from $200-500 for small commercial accounts to $5,000+ for large accounts. The ETF compensates the provider for lost revenue. Before signing, review the ETF amount in your Electricity Facts Label. If you're uncertain about your future needs, choose a 12-month contract or variable rate for flexibility, then switch to a longer fixed contract once your situation stabilizes.
Good fixed rates for Texas commercial accounts typically range from 8-12¢ per kWh for the energy charge, depending on your usage volume and contract length. Small businesses (5,000 kWh/month) should target 10-12¢, medium businesses (25,000 kWh/month) should target 9-11¢, and large businesses (100,000+ kWh/month) should target 8-10¢. Work with a broker to compare quotes from extensive network of providers—they'll identify whether current market rates are favorable and recommend optimal timing for signing.
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