Variable-Rate Electricity Plan
Texas Electricity Glossary
A variable-rate electricity plan has a per-kWh rate that changes each billing period based on wholesale market conditions or the REP's pricing decisions. There is no early termination fee (ETF), so you can switch at any time without penalty. The trade-off: no price protection. When ERCOT wholesale prices spike during heat waves or winter storms, variable-rate customers absorb those increases directly.
How Variable Rates Are Set
Unlike fixed plans — where the rate is locked at enrollment — variable-rate plans allow your REP to reset the per-kWh rate each month. REPs typically base the variable rate on ERCOT wholesale settlement prices, their own procurement costs, and a margin. The rate is disclosed on your bill each month, and you have the right to switch to another plan or provider at any time.
Winter Storm Uri — February 2021
ERCOT wholesale prices hit the $5,000/MWh market cap for approximately 96 hours. Variable-rate customers billed at those prices received electric bills of $5,000–$17,000 for a single month. One well-publicized case involved a Dallas customer who received a $16,752 bill. This event is the clearest illustration of the downside risk of variable-rate plans in Texas.
When a Variable-Rate Plan Makes Sense
Variable-rate plans have legitimate use cases:
- Bridge period: Between contracts, when you need a short-term plan without committing to a new fixed-rate term
- Short-term housing: Apartments or rentals where you may not stay for a full 12-month contract
- Market timing: If you actively monitor ERCOT prices and plan to lock in a fixed-rate at favorable times
- Low-risk seasons: Spring and fall months see lower ERCOT price volatility; variable rates can be competitive
Variable vs. Indexed Plans
Indexed plans are a middle ground — the rate is tied to a published price index rather than the REP's discretion, making movements more transparent. Some indexed plans also include price caps. Both are more volatile than fixed-rate plans.
Related Terms
- Fixed-Rate Plan — the alternative; locked rate, price protection, ETF applies
- Indexed Plan — variable but tied to a published market index
- ERCOT — the wholesale market that drives variable rate changes
- ETF — not applicable to variable plans; you can switch freely
Frequently Asked Questions
What is a variable-rate electricity plan?
A variable-rate electricity plan has a per-kWh rate that changes each month based on market conditions set by your REP. There is no early termination fee, so you can switch at any time. The rate may be lower than fixed rates in calm market conditions but can spike dramatically during weather emergencies or grid stress events.
Is a variable-rate electricity plan a good idea in Texas?
For most Texas households, variable-rate plans carry significant risk. Texas sits on the isolated ERCOT grid with extreme weather exposure. During Winter Storm Uri (February 2021), ERCOT prices hit the $5,000/MWh market cap for several days. Customers on variable or indexed plans received bills of thousands of dollars for a single month. Variable plans work best for short-term stays, properties between contract renewals, or sophisticated users who actively monitor the market.
Can my variable-rate electricity price go negative?
ERCOT wholesale prices can and do go negative — typically overnight when wind generation exceeds demand. However, most variable-rate retail plans do not pass negative prices to consumers; instead, the REP keeps the spread. Some indexed plans do pass through low prices but cap the upside risk with a price ceiling.