Variable Rate Electricity

It’s time to say that thing that’s on everyone’s mind. Online shopping is kind of difficult! 

You might think that you know what you want, and you might think that you’ve successfully purchased that thing, but the next thing you know, you are looking at your brand new shoes you ordered and realizing that they are somehow the wrong size, color, and material!

This gets even more difficult when you are shopping online for an electricity plan and you’re not even sure what you want. Do you need a fixed-rate plan or a variable-rate plan? Which companies can you trust? 

With big online shopping decisions, it’s great to have someone knowledgeable in your corner with you! 

Fortunately, Power Wizard is here to save the day! 

With their innovative Shopping Tool, you can find the perfect electric rate in minutes. 

They can’t help you return those orange velvet shoes though. 

 

What Is a Variable Electricity Rate?

A variable-rate electricity plan is a fairly simple concept: the rate you pay per kilowatt-hour (kWh) can vary from month to month.

Variable-rate plans have no monthly contract or cancellation fee, but your rate can go up or down based on the market and the discretion of your electric company.

The rates can change for a number of reasons-and we’ll get into that a little bit later.

Remember, Texas is a deregulated state as of January 2002.

This means 85% of Texas power consumers can choose their electricity service from a variety of Retail Electric Providers (REPs).

The energy market was monopolized by large energy companies, and deregulation introduced competition to the market by allowing REPs to enter the market.

Thanks to deregulation you, as the consumer:

• Get the ultimate control
• Benefit from reduced generation costs and customer prices
• Are allowed to choose from multiple energy providers based on what rate and plan best fits your needs

With a variable-rate plan, you will have increased flexibility and freedom, but a lack of reliability with your monthly electric bill.

How Does Variable Rate Electricity Work?

With variable-rate electricity plans, you will have a rate that varies based on the market price of electricity.

With this type of plan, seasonal and market fluctuations can affect the rate you’re getting and the amount you see on your monthly bill.

While you have the potential to profit when the market price is low, you’re also taking the risk that you’ll be paying for higher rates when demand is at its peak, like those hot summer months and in the dead of winter.

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On the flip side, a variable electricity plan does offer a lot of flexibility.

As you research, keep in mind there are advantages and disadvantages to variable-rate electricity plans.

Advantages of Variable Rate Electricity in Texas

There are two main advantages that you’ll find with variable-rate electricity plans:

1. Savings
2. Flexibility

Let’s review these in more detail.

Advantage #1: The Possibility for Significant Savings

Variable-rate electricity plans offer the chance for significant savings when electricity rates are low.

For example,

• When the price of natural gas is down

OR

• The demand for energy is low, like during an unusually warm winter

During these instances, you will see these savings directly reflected in your monthly bill, whereas someone with a fixed-rate electricity plan wouldn’t.

Advantage #2: Flexibility

Variable-rate plans can offer flexibility in a number of ways:

1. No contracts. You can try a variable plan for a few months, and if it’s not for you, you’re free to switch.
2. No cancellation fees. If you do decide to switch plans, you won’t pay cancellation or early termination fees.
3. Move as you please. If you’re unsure of your future living situation or are between permanent homes, this type of plan may be a good fit for you.

Disadvantages of Variable Rate Electricity in Texas

A big factor in variable-rate electricity is the market price.

When the market price of electricity goes up or down, so does the rate you pay.

But there are other disadvantages to a variable rate electricity plan, including:

• The possibility of paying higher rates
• The difficulty of trying to estimate or predict your monthly bill

Disadvantage #1: You Risk Paying Higher Rates

Variable-rate electricity plans allow customers to benefit from falling market prices.

But they also have an increased risk for higher rates if electricity prices spike due to:

• The price of natural gas
• Extreme weather
• Consumer demand
• Power plant outages

Any change in the price of natural gas can directly affect the rates you’re getting each month.

In the case of extreme heat waves or in the dead of winter, the price of electricity will fluctuate based on demand.

If Mother Nature is relentless, or a power plant suffers an outage, chances are prices will surge, and you will be seeing that surge on your next monthly bill.

If your monthly budget doesn’t have the flexibility to recover from a surge in energy pricing, this plan is not for you.

Disadvantage #2: Your REP Can Change Your Rate At Any Time

Although variable-rate electricity is largely based on market prices, be aware that your retail electric provider (REP) is able to change your electricity price at its own discretion.

Because you aren’t under a contract with a variable rate, REPs do have an incentive to keep rates low in order to keep your business.

And as you’re researching variable-rate electricity plans, you may come across great first-month rates.

But, keep in mind that these promotional low prices are not always indicative of what your rate will look like regularly.

It’s tempting to jump on the most cost-effective rate, but avoid picking an electricity plan solely because it is the cheapest.

Disadvantage #3: Variable Rate Electricity Prices Can Be Hard to Predict

Doing your own research on variable rate electricity plans and rates can be extraordinarily difficult.

Ideally, you’d want to take historical variable rates into account to try and gauge how much the rate from your chosen REP has changed over time.

But, finding detailed price histories of variable-rate electricity plans can be challenging.

On that same note, any trends you find in historical rates are not a guarantee for future prices.

When Should you Shop for a Variable Rate Plan?

With variable-rate electricity plans, timing can be everything.

Here are a few things to keep in mind if you’re considering a variable rate plan:

30-60 Days Out From Contract Expiration

This timeline will allow you to compare plan options for a seamless transition.

Manually shopping and researching electricity plans can take days and way more comparison time than you care to spend.

Power Wizard’s Shopping Tool will do all the shopping and researching for you in just minutes.

All you have to do is enter your…

• Texas zip code
• The size of your home
• A few other pieces of information

…and you’ll be looking at the plan that can best meet the energy needs of you and your family.

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Take Kevin and Kristina, for example:

They have lived in an apartment outside of Dallas for years.

But they recently decided to start looking to buy their first house.

They’ve had a fixed-rate electricity plan for years and are coming up on their contract expiration.

They consider signing up for another contract, but since they aren’t sure…

• What exact zip code their new home will be in
• What the size of their future home will be
• What their new energy usage will look like

…they opt to switch to a variable rate plan so they aren’t locked into a contract or plan that their new home won’t be eligible for.

When Moving to A New Home

A new home will have all new factors to consider when choosing a plan.

For example:

• The age of the home
• The size of the home
• The style of home (ranch-style, two-story, etc.)
• What appliances will be used
• Location of the home
• And more

Now, Meet Harry:

Harry is a savvy homeowner living in Fort Worth.

He recently retired and downsized to a single-story ranch-style home.

Electricity prices were high when he moved, so he chose a variable rate plan in an effort to watch the market and wait for the lowest electricity price.

He plans to switch to a fixed-rate electricity plan once rates drop.

If You Aren’t in a Current Contract

But rather in a month-to-month contract, your rate might be fixed OR variable.

If your current rate is fixed, you might consider shopping for a variable rate to try out for a few months.

You’ll still be month-to-month, and you might be able to play the market and see lower electricity bills for a few months.

If you decide a variable-rate plan isn’t working for you, but don’t like the idea of spending your precious free time researching a new plan, you can have a new plan in under 5 minutes with Power Wizard.

Fixed-Rate vs Variable Rate Electricity

There are many variables that will factor into how you decide what rate, plan, and REP you choose to use.

Ask yourself the following questions:

• What is the size and age of your home?
• Do you have a ranch-style home?
• Is your home a newer build?
• How many stories does your home have?
• When was your home built?
• What type of lifestyle do you and your family live?
• What area of Texas do you live in?

All of these factors and more will narrow down and even eliminate certain REPs and plans for you.

Since picking the right plan is highly individualized, you will need to examine your own situation to determine what the “best” electricity plan means for you.

Who Variable Rate Electricity Is For

A variable-rate electricity plan is not for everyone.

Generally speaking, if you are…

• Living in temporary housing
• In between moves
• In the market for a fixed-rate plan but want to wait for prices to decrease

…you might consider this type of plan.

OR

If you feel confident in your knowledge of the electricity market where you live, a variable rate electricity plan may also be right for you.

Just know that with this type of plan, you’re taking a risk and could end up being surprised — for better or for worse — when you get your monthly bill.

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Ask yourself the following questions:

• Do you keep up with the energy market in Texas?
• Do you think energy prices are going to fall?
• Do you like freedom and flexibility in your electricity plan?
• Does being locked into a contract sound like a nightmare?
• Are you considering a move soon?

If you answered “yes” to any of these questions, a variable rate electricity plan could be right for you.

Who Fixed-rate Electricity Is For

A fixed-rate plan provides much more reliability and stability in your rate and the bill you get each month. This is especially helpful if you like to budget your expenses every month.

Fixed-rate plans means your rate won’t change based on how hot or cold the month is and how much energy you use to keep cool or warm.

It’s a promise made by an electricity company to not change the price you pay per kilowatt-hour for your contract term.

Remember Harry?

He kept an eye on the price of electricity and waited until prices bottomed out.

It was then that he switched from a variable rate electricity plan to a fixed-rate plan, and was able to secure a low fixed rate.

How Much Does Variable Rate Electricity Cost?

You may be one to never pass up a good deal. But, when it comes to picking the best electricity plan, try to avoid signing up with the cheapest plan simply because it’s the cheapest.

A lot of the time, these plans are cheap for a reason. They may have hidden fees or are strictly promotional.

Especially with variable-rate electricity plans, your first month’s rate can be enticingly affordable. But this rate won’t be consistent.

In order to find the best plan for you and your family, you will need to take the following factors into consideration:

• The size of your home
• Age of your home
• How much electricity you use
• The length of your contract
• Any additional fees
• Your home’s location
• And more

Where to Find the Cheapest Variable Rate Electricity in Texas

Cheap electricity rates are cheap for a reason and often lack transparency.

The rate per kWh doesn’t tell the whole story about what your final bill will be.

The “cheapest” electricity rate could change every 15 minutes as the market fluctuates.

One day you have a great rate but because it is variable, if the market drops down, you could be grossly overpaying.

The most cost-effective rate will largely depend on your personal circumstances.

Alternatives to Variable Rate Electricity Plans

Variable-rate plans and fixed-rate plans are just two of a handful of types of electricity plans available to you in Texas.

It’s daunting to try and dedicate hours of research to finding the best plan for you and your family.

Power Wizard’s Shopping Tool will allow you to find that answer in under five minutes.

All you have to do is enter your zip code and a few other pieces of information and you are one step closer to finding the electricity plan that is right for you.

Unlimited Plans

Unlimited plans are helpful if your electricity usage varies significantly each month.

If you run a business out of your home, if you have a very large house, or if you just need to know without a doubt what your bill will be each month, this type of electricity plan might be a good fit for you.

Prepaid Plans

Think of this type of electricity plan just like a prepaid phone.

You load your account with funds on the front end, and as you use, you continue to replenish the account.

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There’s no need to sign a contract and you don’t need a credit check or deposit to get started.

These plans are especially helpful if you:

• Are in the middle of a move
• Are looking for a flexible plan
• Want to pay your bill any time of the month

Keep in mind:

• The rate might be high
• There may be high fees and penalties for letting your account drop below a certain threshold
• You will need to keep track of your account throughout the month

With prepaid service, you can choose from either a fixed, variable, or indexed plan.

Should You Sign Up for a Variable Rate Electricity Plan in Texas?

Maybe a variable rate electricity plan is right for you and maybe it isn’t.

The important thing is to make sure you are signing up for the best plan available on the market that matches your unique energy needs.

Make sure you are considering all factors when deciding on the right plan for your family.

You can save yourself hours of time and energy by using Power Wizard’s Shopping Tool.

All you have to do is enter:

• Your zip code
• The size of your home
• A few other relevant pieces of information

Power Wizard’s Shopping Tool will compare all of the plans available in your area and give you the best overall option.

The best part? It takes less than five minutes.