Resources: Your Contract Options

Market Basics

Your Contract Options: Fixed, Variable, and Index Plans

Every commercial electricity contract locks in a rate structure, and that choice shapes your risk exposure for the whole term. Here’s how each one works.

Choosing How Your Rate Is Set

Every commercial electricity contract in Texas locks in one of a few basic rate structures, and that choice shapes your risk exposure for the entire contract term. It’s not just a pricing detail buried in the fine print. It determines whether your monthly bill stays flat regardless of what happens in the wholesale market, or whether it moves with ERCOT prices in real time.

The right structure depends less on which one is “better” and more on your business’s tolerance for variability and how predictable your usage is. A business with steady, consistent load has different needs than one with seasonal spikes or the flexibility to shift usage to cheaper hours. Larger accounts with sophisticated procurement can also access hybrid structures that smaller accounts typically can’t.

This page walks through the main structures REPs offer in Texas: fixed, variable, index, and hybrid plans, what each one actually does to your rate, and the factors that should drive your decision. None of these choices are permanent. Every contract has an end date, and that renewal point is when this decision gets made again.

Fixed-Rate Plans

Fixed-rate plans lock in a set price per kWh for the full contract term, typically ranging from 6 to 60 months. Your energy charge stays the same regardless of what happens in the wholesale market, which makes budgeting straightforward and protects against summer price spikes.

This is the most common structure for Texas businesses, especially those with steady usage and low risk tolerance. The tradeoff is flexibility: most fixed-rate contracts include an early termination fee (ETF) if you exit before the term ends, so the predictability comes with a commitment.

Variable-Rate Plans

Variable-rate plans reprice monthly based on current market conditions. There’s no long-term commitment, and rates can drop when the wholesale market is favorable, but they can also climb sharply during high-demand periods with little warning.

These plans suit businesses that need short-term flexibility, for example while transitioning between locations or waiting out a longer-term procurement decision, more than they suit ongoing operations. The tradeoff for flexibility is unpredictability: a business on a variable plan through a Texas summer can see meaningful swings from one bill to the next.

Index Plans

Index plans tie your rate directly to a published wholesale market index, rather than adjusting at your REP’s discretion like a variable plan does. The rate moves with the underlying market in near real time, which means more transparency into why your price changed, but also more exposure to volatility.

Index plans carry the highest risk of the three base structures and are generally better suited to businesses with strong market visibility or a genuine ability to shift usage to lower-priced hours. They’re less common as a standalone choice for smaller commercial accounts.

Hybrid and Block-and-Index Plans

Hybrid plans split your usage into two pieces: a fixed-rate block covering your predictable baseload, and the remainder priced at the floating index rate. This lets a business lock in cost certainty for the bulk of its usage while still capturing savings on the variable portion during favorable market conditions.

Many hybrid contracts include a bandwidth or swing allowance, typically a permitted variation of plus or minus 10 to 20 percent around expected usage, without triggering penalties. This matters because it’s what makes a hybrid structure workable for a business whose consumption isn’t perfectly flat month to month. Hybrid plans are generally negotiated through a broker and are more common among larger accounts with sophisticated usage data.

How to Choose

A few factors should drive this decision:

Usage predictability

Flat, consistent consumption favors fixed.
Seasonal or fluctuating usage may be better served by a hybrid structure with a bandwidth allowance.

Risk tolerance

If a volatile bill would strain your budget, fixed removes that risk entirely. If your business can absorb some swings for a shot at lower average costs, variable or index becomes viable.

Contract length

Longer terms often carry lower rates, since they give the REP more pricing certainty. But locking in for years also means living with that rate even if the market moves in your favor later.

What happens at renewal

Every plan type has an end date, and if a contract lapses without action, the account typically rolls to a variable holdover rate well above the original contract rate.

Renewable or green energy options (wind, solar, RECs) are a separate layer you can add to any of these structures. They’re not a distinct risk category. A business can have a 100% renewable fixed-rate plan or a conventional one; the rate structure and the energy source are independent decisions.

FAQ: Quick References

A variable rate is set at the REP’s discretion based on market conditions, while an index rate is tied directly to a published wholesale market benchmark. Index plans tend to move more closely and transparently with the wholesale market.

Your account typically rolls to a variable holdover rate, which is usually significantly higher than your original contract rate. Starting the renewal conversation 60 to 90 days before expiration avoids this.

They’re more common among larger, more sophisticated accounts because they require detailed usage data to structure well, but they’re not exclusively limited to any account size.

Usually, but not always. Longer terms give the REP more certainty and often come with a lower rate, but locking in for years also means you can’t take advantage of the market if prices drop later.

Generally no. Your rate structure is fixed for the term you signed. Switching typically requires waiting until renewal or paying an early termination fee, depending on your contract.