The ultimate guide to energy plan lingo

For business

How to choose the right energy plan for you

If you live in a deregulated area of Texas, you probably know that shopping for an energy plan can get complicated.

What’s the difference between indexed, variable and wholesale options? Is your renewable energy really coming from renewable sources? What’s the best plan term length?

Enter Choose Energy’s ultimate guide to energy plan lingo! We’ll break it down for you, from types of plans to length of contract to green energy options. Let’s get started.

Types of Plans

An energy plan can be separated into three main components: type of plan, rate structure, and payment option. The first part, type of plan, is the overview of what you pay.

types of energy plans on a stability scale

Fixed plan

Best for: traditional set-up with high stability

Fixed plans are great for instability-adverse residents. These plans charge the same electricity supply rates throughout each month of the term, so you’re protected from skyrocketing summer temperatures and the high wholesale rates that come with them (more on that later). There is still some fluctuation in your monthly bill from your usage and utility company fees (listed as TDU or TDSP charges).

Variable plan

Best for: low seasonal rates

On a fixed plan, your electricity supply rates stay the same for the duration of your contract regardless of whether electricity is very expensive or very cheap during that period. On a variable rate plan, you’re charged based on the current market value of electricity.

These changes can be determined month-to-month or even day-to-day. People who choose variable plans can take advantage of market lows but also could be hit by market highs. Overall, variable plans come with anywhere from a little to a lot of risk depending on the rate structure your chosen plan uses.

Indexed plans

Best for: a variety of options

Indexed plans, like variable plans, fluctuate over time. While variable plans change depending on spot market values, indexed plans are calculated using a commodity index for energy. Sometimes providers calculate a stable rate for your whole contract based on the closing price of the index on a specific date. Other times your rate will change with the price of the index.

Indexed plans vary in stability depending on the formula your provider uses. Be sure to read the contract before signing up and find out if you’ll be looking at a stable indexed plan or if you might see some variation.

Rate structure

This second piece to your energy plan, rate structure, is the breakdown of how what you pay is calculated.

types of energy plan rates

Stable rate

Available for: Fixed and Indexed plans

A stable rate is when you pay the same amount for each kilowatt hour (kWh) you use. This type of rate is available for fixed plans and some indexed plans. With this rate structure you can’t take advantage of seasonal market lows, but you also don’t have to worry about seasonal market highs either.

Overall, it’s one of the most reliable options out there for residents who crave stability. If that’s what you’re looking for, enter your ZIP code above to shop today’s fixed rate offers.

Flat rate

Available for: Fixed plans

Flat rate pricing is when you are charged the same price no matter how many kilowatt hours you use, within reason. The electricity company uses your usage history to determine how much to charge, and you’ll pay that same price each month. If you go over your typical usage, however, you may be charged extra.

If you use nearly the same amount of energy each month or only need a little more every once in a while, flat rate might be a good solution. Vary too much in your usage, though, and you could find yourself paying a lot of excess fees.

Tiered rate

Available for: Fixed plans

Tiered rates happen when a provider designates certain usage buckets. For example, you might pay a flat fee of $75 for up to 1000 kWh, and another $75 for the next 1000 kWh. This means that you would pay an extra $75 whether you used 1001 kWh or 1999 kWh. These buckets are set when you sign up and stay the same for the duration of your contract period, making it a fixed plan rate structure.

If you typically use just enough energy to roll over into a higher usage bucket, this might not be the structure for you. But if you find yourself within the range of one of the usage buckets, this could be a good way to get more electricity for less.

Time of use pricing

Available for: Fixed plans

A time-of-use plan is really defined by how you use it. The rates you pay are fixed at the price listed in your contract, so it’s technically a fixed plan, but your provider will offer different rates for different times of the day or week. For example, your electricity could cost less or be free from 10 p.m. to 5 a.m. on weekdays.

These plans are good if you can be flexible and tailor energy-intensive chores like laundry to certain times such as nights or weekends. Otherwise, you might end up paying more than you would with a traditional fixed rate plan.

Bill credits

Available for: Fixed plans

Bill credits are a type of pricing on fixed plans that rewards you for falling into a certain usage bucket that month. Your provider will choose which usage bucket gets credits, and this will stay the same for the duration of your contract, making it a fixed plan option.

If you know you typically fall into the usage bucket a certain plan outlines, this could be a good way for you to earn credits for future bills. But if your energy usage fluctuates a lot from month to month, a more forgiving rate structure might work better.

Variable rate

Available for: Variable and Indexed plans

Variable rates follow the flow of the energy market. Much like in the stock market, high demand equals a higher price. Low demand equals a lower price. Depending on the weather, your rate could fluctuate in either direction from one month to the next. Your provider determines how your rate will change, so be sure to read your contract carefully.

If you don’t scan the news constantly for hints of an oncoming price spike, this may not be for you. But if you’re OK with more risk for a chance at a greater payoff, variable rate could be a solution.

Wholesale pricing

Available for: Variable plans

Wholesale pricing is the biggest gamble of the energy bunch. “Wholesale” refers to buying energy in bulk, and essentially allows consumers to skip the retail electric provider middleman. The final bill is usually comprised of the service subscription fee, the wholesale price of electricity, plus fees from the utility company and state electricity grid.

Wholesale electricity can get you a lower price than retail value, but there’s substantial risk involved. When energy is in high demand (think summer and winter), wholesale prices can surge toward the Texas state cap of $9000/MW while bills jump to hundreds of dollars in a matter of days. Because of this, most wholesale providers do not have an early termination fee.

Wholesale subscribers must constantly monitor the market (prices change every 5 minutes) and have the flexibility to turn off big energy users in their homes as soon as the price spikes. If you want any sort of stability for your bill, enter your ZIP code above to shop retail electricity with one of the above options.

Payment options

The final part of the energy plan bundle, the payment option, determines when you pay.

energy plan payment options

Prepaid plan

Prepaid plans allow you to pay for a certain amount of electricity before you use it. If you’re a budgeter, or just want motivation to use less energy, this might be a good fit. Prepaid options are available for stable and variable rate structures.

There are a few caveats to be mindful of with these plans. Once you’ve hit the set amount you’ve paid for, the lights disconnect. They’ll be reconnected, usually within a few hours, once you add money to your account. Additionally, not everyone is eligible for a prepaid plan. In Texas, for example, residents who require electric medical equipment cannot choose prepaid. Finally, prepaid rates can be a little higher than other types of plans.

Prepaid plans are all about keeping an eye on your usage. If you do that already, consider going prepaid to get the most security in your price range. Prepaid plans also provide a no-deposit option for customers with bad credit.

Postpaid plan

This is the way most people choose to pay their energy bill – and most other bills, for that matter. Your company will bill you at the end of each month once they’ve calculated your total price based on your usage. Almost any plan you choose will have you pay after the fact, unless it specifically states that it is a prepaid plan.

Length of contract

Energy plans are available with different term lengths, which will also determine if you’ll have early termination fees should you decide to switch.

energy contract length options

Month-to-month

Month-to-month terms are typically only available for variable rate and indexed plans, because energy companies understand that the fluctuating market and commodity index are out of your control. This length allows you the freedom to switch plans but offer little stability.

Three- to six-month

Three- to six-month plans are good options for renters or people who don’t mind shopping around a few times a year. These plans work in favor of seasonality but require more effort on your part. Forget to shop before your plan expires and you could end up re-enrolled at a much higher rate than you want.

12-month

12-month plans are similar to three- or six- months plans but give you more time in between shopping. These plans are good for people who don’t want to frequently shop for a new plan but also might move in the next year or so.

24- to 36-month

24- to 36-month plans are only available at fixed rates and allow homeowners and long-term renters to have maximum security in their pricing. There are early termination fees if you cancel before the term is up, but you won’t have to worry about market fluctuations for a few years.

Renewable energy

Many electric retail providers are now offering renewable energy plans to their customers, but they don’t all add up to the same thing. Different plans combine different options, so be sure to read your contract to know what type of renewable energy you’re getting. When you’re ready, enter your ZIP code above to learn about renewable options in your area.

green energy plan options

100 percent renewable energy

This is the most straightforward option. These plans provide your home with energy directly from renewable sources, usually wind energy or solar power.

Renewable energy credits (RECs)

Renewable energy credit options provide a way for a company to offset your energy consumption by purchasing enough credits from green energy resources to equal your usage. Your home’s energy may or may not come directly from renewable sources with this program.

Carbon offsets

Carbon offsets are similar to RECs in that they neutralize the energy that you use. Under a carbon offset plan, your home’s energy may be sourced through fossil fuels, but the electricity company will invest in CO2-reducing projects to offset that.

Buyback programs

If you have solar panels on or wind turbines at your home, some companies offer buyback programs. If your panels or turbines produce more energy than you use, your company will buy the energy back from you or give you credits to use on the months when your home requires more energy than it produced.