What is the Difference Between a Variable and Fixed Electricity Plan?

The implementation of energy deregulation in several states such as Texas not only provided the people the power to select their Retail Electric Provider or the Texas electric company that services and facilitates their supply of electricity, but it also provided them the option to choose their preferred choice of electricity plans. Consumers living in areas with a deregulated electric market can select between a variable and a fixed rate plan.
The atmosphere of competition that energy deregulation has provided the Texas electricity market prompted Retail Electric Providers to come up with various payment schemes and payment rate plans that would suit the lifestyle, need or capacity of the consumer. For consumers, finding the right electricity plan that would suit their needs can be a very daunting task. Making a wrong decision would have considerable repercussions on their electricity bills and may go wary from what they have planned or preferred.
The following provides a brief overview to explain the differences and mechanisms behind fixed and variable rate payment plans. It would be wise for the consumer to check the merits of each so they could eventually make the best decision for them and their household.
What is a Fixed Electricity Plan?
The term "fixed" means something that is constant or unchanging and in terms of electricity plans, a fixed-rate plan means the rates are locked or fixed for a certain period (eg. 6 months, 12 months, 24 months, etc) as agreed upon by the consumer and the Texas electric retail provider. The agreement is bound by a contract between these two parties, and the consumers are guaranteed to pay only the same rate per KWh of electricity usage.
Consumers under this plan will get the benefit of a fixed rate even if the energy market wholesale price fluctuates. However should market prices drop below the agreed fixed rates, consumers are required to pay the guaranteed price as stipulated in their contracts. Other Retail Electric Providers offer a balanced or levelized payment scheme for their users who are not delinquent on their payments, wherein the customers can pay a levelized amount calculated from their electricity usage for a certain period such as twelve months or more.
What is a Variable Electricity Plan?
The opposite of a fixed rate plan is the variable or month-to-month payment scheme wherein the Texas electric company bills consumers based on the current conditions or pricing trends of the energy market. This could be advantageous to users should there be a lowering of energy prices in the market. However, if the fluctuations in the prices result to higher rates, the consumers have no choice but to pay their Texas electricity bills based on these fluctuations.
How to Choose between Variable and Fixed Electricity Plan
The following is a short guide to aide consumers on what Texas electricity plan they would choose for their energy needs.
* Users who would not want to be burdened of fluctuating energy prices can choose to select a fixed rate for a certain period of time. Before the contract period will expire, the Texas electric retail provider will contact the consumer on whether to continue with the same plan for the next period.
* Consumers who are aware that they would be staying in their current abode for a short period of time or currently under a short term lease would do well in choosing a variable electricity plan as they will not be constrained or tied up by a fixed payment contract.
* Those that prefer to have the freedom to switch Texas electric companies or their payment plans without having to pay an early termination fee could opt to use a month-to-month plan. Regulations however, stipulate that people under a fixed-rate contract are not required to pay a pre-termination fee if the reason for their termination is to relocate to another city or state not covered by the Retail Electric Provider and not to switch to another provider.
* Choose Retail Electric Providers that offer special incentives or giveaways for consumers who pay regularly and are not delinquent on their Texas electricity bill payments. These giveaways of incentives can vary from free movie tickets to paid trips to pre-determined destinations depending on what the Retail Electric Providers offer subscribers.