Indexed Electricity Plan
Texas Electricity Glossary
An indexed electricity plan ties your per-kWh rate to a published market index — typically the ERCOT day-ahead or real-time settlement point price — plus a fixed adder set by your REP. The rate is more transparent than a standard variable plan (you can track the underlying index yourself) but still fluctuates month to month with wholesale market conditions. Indexed plans sit between fixed and variable: more flexible than fixed, more predictable than pure variable.
How Indexed Plan Pricing Works
Your monthly rate is calculated as: Published index price + REP adder = Your per-kWh rate
Common indices used by Texas REPs include:
- ERCOT day-ahead settlement point price — the average hourly wholesale price bid one day ahead
- ERCOT real-time settlement price — actual clearing prices at 15-minute intervals
- ERCOT monthly average — the average of all settlement prices across the billing period
- Trailing 12-month rolling average — used in YRAC structures to smooth volatility
Risk Profile: Indexed vs. Fixed vs. Variable
| Feature | Fixed | Indexed | Variable |
|---|---|---|---|
| Price protection | Full | Partial | None |
| Rate transparency | Locked in | High (index visible) | Low (REP discretion) |
| ETF on exit | Yes | Usually no | No |
| Risk in extreme weather | None | High | Very high |
YRAC — Smoothing Indexed Plan Volatility
Some Texas indexed plans include a YRAC (Yearly Rolling Average Credit) mechanism that calculates your rate based on the trailing 12-month average ERCOT settlement price rather than the current month's spot price. This significantly reduces month-to-month volatility and provides a buffer against short-term price spikes — though it means you benefit less from sudden price drops as well.
Related Terms
- Fixed-Rate Plan — full price protection, ETF applies
- Variable-Rate Plan — no ETF, no transparency, no protection
- YRAC — rolling average credit that smooths indexed plan volatility
- ERCOT — the market whose prices drive indexed plan rates
Frequently Asked Questions
What is an indexed electricity plan?
An indexed electricity plan sets your per-kWh rate based on a published market index — typically the ERCOT day-ahead or real-time settlement price — plus a fixed adder set by your REP. The rate changes monthly (or more frequently) based on the index, making it more transparent than a discretionary variable plan but still subject to market volatility.
Is an indexed plan safer than a variable plan?
Indexed plans are more transparent than standard variable plans — you can see what drives the rate — but they carry similar volatility risk. During extreme weather events like Winter Storm Uri, indexed plans tracking ERCOT real-time prices hit the market cap, resulting in catastrophic bills. Some indexed plans include price caps or YRAC mechanisms that limit upside risk; check the EFL carefully.
What is a YRAC on an indexed electricity plan?
YRAC stands for Yearly Rolling Average Credit — a mechanism used by some indexed plans to smooth rate volatility by averaging the ERCOT settlement price over a trailing 12-month window. Instead of billing at the spot price each month, your rate reflects the rolling average, reducing the impact of short-term price spikes.