Independent resource. Not affiliated with any utility or energy provider.
Fixed vs Variable Electricity Rates: Which Plan Type Saves More?
The quick answer: fixed rates are better for most households. Here is the full breakdown of how each works, when variable makes sense, and the risks involved.
Bottom Line
Fixed rates protect you from price spikes and provide predictable bills. Variable rates can save a few dollars during mild months but carry the risk of dramatic increases during extreme weather. For a household paying $150 per month, the potential savings of $5 to $15 per month on variable during mild months is not worth the risk of $100 to $500+ increases during peak months.
How Fixed Rates Work
A fixed rate plan locks in your electricity supply rate for a set period, typically 12 to 36 months. Your rate per kWh stays the same regardless of what happens in the wholesale energy market. If natural gas prices spike, if a polar vortex hits, or if summer demand breaks records, your rate does not change.
Advantages
- Predictable monthly costs for budgeting
- Protection from seasonal price spikes
- No market monitoring required
- Peace of mind during extreme weather
Drawbacks
- Early termination fee ($75 to $200 typical)
- Cannot benefit if market rates drop
- Locked in even if better plans appear
- Auto-renewal may default to higher rate
How Variable Rates Work
A variable rate plan charges you based on the current market price for electricity, which fluctuates monthly or even daily. There is no contract lock-in, which means you can cancel at any time without a fee. Rates tend to be lower during mild spring and fall months when demand is low, but can spike dramatically during summer heat waves and winter cold snaps.
Advantages
- No contract or early termination fee
- Can be cheaper during mild months
- Freedom to switch providers any time
- Good for temporary or short-term housing
Drawbacks
- Bills are unpredictable month to month
- Spikes of 30 to 100%+ during peak demand
- Requires active monitoring of rates
- Catastrophic risk during extreme weather
Side-by-Side Comparison
| Factor | Fixed Rate | Variable Rate |
|---|---|---|
| Rate Stability | Locked for 12-36 months | Changes monthly or daily |
| Contract Required | Yes, with ETF | No contract |
| Best Season | Year-round protection | Spring and fall only |
| Risk Level | Low | High |
| Typical Rate | Slightly above market avg | Below avg mild / above avg peak |
| Peak Month Cost | Same as any month | 30-100%+ above normal |
| Extreme Event Risk | None | Catastrophic ($5,000+ bills) |
| Best For | Most households | Short stays, mild climate |
The Texas 2021 Cautionary Tale
During the February 2021 winter storm in Texas, wholesale electricity prices spiked from around $50 per megawatt-hour to $9,000 per megawatt-hour. The Public Utility Commission of Texas allowed prices to remain at this extreme level for several days.
Customers on variable rate plans through Griddy (a real-time wholesale pricing provider) received bills of $5,000 to $17,000 for a single month. Many households reported bills exceeding their monthly mortgage. Griddy filed for bankruptcy shortly after, and class-action lawsuits followed.
Meanwhile, customers on fixed rate plans paid their normal monthly amount, typically $100 to $200. The storm did not change their rate by a single cent.
This event demonstrated in the starkest possible terms why fixed rates are the safer choice for most households. The potential savings from variable rates during mild months cannot justify the catastrophic downside risk.
When to Choose Each Type
Choose Fixed If...
- You plan to stay at your address for 12+ months
- You want predictable, budgetable bills
- You live in a hot or cold climate with peak demand seasons
- You do not want to monitor wholesale energy prices
- You prefer the lowest possible risk
- You use more than 800 kWh per month
Consider Variable If...
- You are in temporary housing for less than 6 months
- You live in a mild climate with little seasonal variation
- You are comfortable with rate fluctuations
- You use very little electricity (under 500 kWh per month)
- You are between fixed contracts and shopping for a new one
- It is spring or fall (mild demand season)
Seasonal Rate Strategy
The best time to lock in a fixed rate is during spring (March to May) when wholesale electricity prices are at their annual low. Demand is lowest during mild months, which pushes contract rates down. Avoid signing up for a new fixed contract during summer or winter when high demand inflates rates.
Spring
Best time to lock in fixed rate. Lowest wholesale prices.
Summer
Highest demand. Fixed rates cost more. Avoid variable.
Fall
Good time to lock in before winter. Moderate prices.
Winter
High heating demand. Variable rates spike. Stay on fixed.
Early Termination Fees Explained
Most fixed rate plans charge an early termination fee (ETF) if you cancel before the contract ends. Typical ETFs range from $75 to $200 as a flat fee. Some plans charge per remaining month ($10 to $25 per month left on the contract), which can add up to more than a flat fee.
ETFs are waived in most states if you are moving out of the utility service area. Some plans also waive the ETF if you have been a customer for a certain percentage of the contract term (such as 80% or more).
Before signing a contract, always calculate the worst case. A $150 ETF on a 12-month contract is reasonable. A per-month charge of $25 with 18 months remaining ($450) is not.
What Happens When Your Contract Expires
When your fixed rate contract expires, most providers automatically renew you at a higher rate. This is the single most common way consumers end up overpaying for electricity in deregulated states. The auto-renewal rate is typically 20 to 50% above your previous locked-in rate.
Set a calendar reminder 60 days before your contract expiration date. Use that time to shop for a new plan using your state comparison tool. Do not wait until the contract expires.