Demystifying Energy Contracts: What Texans Need to Know

Understanding Electricity Rates

Electricity rates are classified into three types, depending on how they behave month-by-month:

• Fixed-rate plans: You get a fixed kilowatt-hour (kWh) price during the entire term of the plan, which can range from 3 to 60 months. You can rest assured that your energy price will not go up, but there is an early termination fee if you end the plan early.
• Variable-rate plans: These plans give you the flexibility to switch at any time with no penalties. However, your kWh price can change at any time – at the discretion of your electricity provider.
• Indexed-rate plans: These plans are similar to variable-rate options, since your kWh price can change every month. The main difference is that your electricity rate follows a pricing index from the local energy market.

Fixed-rate electricity plans offer predictable energy costs during a specified contract term. Variable-rate and indexed-rate plans give you flexibility to switch at any time, but your kWh price can increase without warning.

Electricity Plan Lengths and Their Implications

The length of your electricity plan is normally determined by its type. Variable-rate and indexed-rate plans are renewed monthly, while fixed-rate plans last up to 60 months. Here are some common plan lengths you will find when comparing electricity options in Texas:

• Month-by-month
• 3 months
• 6 months
• 12 months
• 18 months
• 24 months
• 36 months
• 60 months

When comparing energy plans of different lengths, make sure you check the month when the plan is scheduled to end. You will want to avoid electricity contracts that end in summer, since this is when energy prices reach the highest point of the year. For example, starting a 3-month electricity plan in May is not a good idea, since it will end exactly in August – a month with historically high electricity prices in Texas.

A good strategy is starting a 12, 24 or 36-month energy plan in spring, when kWh prices are generally at their lowest point. When the contract ends it will be springtime again, and you can start another plan with favorable prices.

What Is an Early Termination Fee or ETF?

Electricity contracts with a term of several months have an early termination fee (ETF), which is a financial penalty for ending the plan early. Keep in mind that some plans have an ETF of over $300 – you should be 100% sure of your decision before signing up.

If your energy plan has an ETF and you move to another address, there is no need to worry. In this case you are allowed to choose another electricity plan without penalties.

Renewable Energy Options

Texas generates 66% of its electricity with coal and gas according to the US Energy Information Administration. However, some energy providers like Chariot Energy and Gexa Energy have 100% renewable electricity contracts. If you choose one of these plans, all the energy provided comes from clean sources like solar panels and wind turbines.

TDU Charges Explained

When you get a power bill in Texas, you are actually being billed by two different companies. The electricity you consume is billed by your chosen provider, according to the terms of your contract. However, there is also a local transmission and distribution utility (TDU) company who brings that electricity to your home.

• The utility company charges you for this service by adding TDU fees to your power bill.
• There is a fixed monthly fee plus a variable fee per kWh delivered.
• TDU charges are included in both residential and business electricity rates in Texas.

You can choose your retail electric provider, but your TDU is determined by your geographic location. There are six main transmission and distribution utilities in Texas:

• Oncor Electric Delivery
• CenterPoint Energy
• AEP Texas Central
• AEP Texas North
• Texas-New Mexico Power (TNMP)
• Lubbock Power and Light (LP&L)

Here you can read more about TDU charges in Texas and the service area of each company:

https://quickelectricity.com/tdu-delivery-charges-update/

https://quickelectricity.com/resources/texas-energy-deregulation-map/

TDU fees are typically updated twice per year in March and September, but they can change at any time. TDU fees can change even if you are on a fixed-rate energy plan, although the energy price will remain constant.

Billing and Payment Flexibility

Most electricity consumers get a monthly bill, which is based on the measured consumption during the previous billing period. In other words, you use electricity first and pay for it later. However, you can find electricity contracts with other payment options:

• Autopay or automatic payments: Some electricity providers offer small discounts if you enroll in autopay.
• Prepaid electricity plans: Instead of being billed once per month, you can make payments at any time and energy consumption is subtracted from your balance. For example, if you spend $200 in monthly power bills, you can pay $100 twice per month or $600 to cover three months in advance.

Prepaid plans also have the advantage of not requiring a credit check or security deposit, since you pay for electricity upfront. Here you can compare the best prepaid electricity plans in Texas:

https://quickelectricity.com/electricity-plans/texas-prepaid-electricity/

Conclusion

Electricity options in Texas can seem complex at first, but the right energy plan can offer many benefits for your home. For example, you can lock in a low electricity price for several years with a fixed-rate plan. You can also find plans with perks like 100% renewable electricity, or being able to pay-as-you-go instead of once per month.

Quick Electricity can help you compare energy companies in Fort Worth, Dallas, Houston and other cities in Texas. Use our comparison tools to check the kWh prices and contract terms of energy plans side-by-side:

https://quickelectricity.com/companies/