Fixed-Rate vs Variable-Rate Electricity Plans: Which Should You Choose?

A fixed-rate electricity plan locks your supply price per kilowatt-hour (kWh) for a set contract term, so your bill moves mainly with how much power you use. A variable-rate plan lets the supplier change the price, often month to month, which can help when markets fall but can hurt when they spike. Most households that want predictable bills choose fixed, while variable plans suit people who want flexibility and can watch their rate closely.

This choice only exists if you live somewhere with retail electric choice. In those areas your local utility still delivers the power, and you pick who supplies it. The rules below come from the state regulators that oversee these markets, because the details, such as what counts as "fixed," differ by state.

What a fixed-rate electricity plan is

A fixed-rate plan sets the price you pay for the electricity supply portion of your bill for the length of a contract. The exact legal definition depends on your state:

• In Texas, the Public Utility Commission defines a fixed rate product as one with a term of at least three months. Under the same rule, the price can still move "solely to reflect actual changes" in the Transmission and Distribution Utility (TDU) charges, plus certain other pass-through and government-imposed charges (PUCT Substantive Rule 25.475).
• Pennsylvania's official shopping site describes a fixed rate as a "predictable per kWh rate" that "stays the same for at least 3 billing cycles" (PAPowerSwitch).

The key point: "fixed" usually applies to the supply price per kWh. Your total bill still changes with usage, and delivery charges set by the utility can change on their own schedule. If you use 30% more power in a hot July, a fixed-rate bill will still be noticeably higher.

Pros of a fixed rate

• Easier budgeting, because the per-kWh supply price does not change with wholesale markets during the term.
• Protection from short-term price spikes during extreme weather.
• Clear comparison: you can line the fixed price up against your utility's default supply price or other offers.

Cons of a fixed rate

• Many fixed contracts carry an early termination fee if you leave before the end date.
• If market prices fall, you keep paying the contract price until the term ends.
• When the term ends, you may roll onto a different, often variable, price unless you act.

What a variable-rate electricity plan is

A variable-rate plan lets the supplier change your price. PAPowerSwitch describes variable rates as "rates that can change by the hour, day or month - depending on market fluctuations" (PAPowerSwitch). The Pennsylvania Public Utility Commission has warned that "customers on a variable rate are subject to continual fluctuations in the price of their electric consumption" (PA PUC).

States put guardrails on these plans:

• In Texas, a variable price product for residential customers "can be only a month-to-month contract" (PUCT Rule 25.475). The Texas Office of Public Utility Counsel repeats that "all variable rate plans should be month-to-month contracts" (OPUC).
• In Pennsylvania, suppliers offering a variable price must provide up to two years of historical pricing on request, and a supplier that puts you on a variable rate must give advance notice of future price changes (PAPowerSwitch; PAPowerSwitch FAQ).
• In New York, since April 16, 2021, an energy services company (ESCO) variable rate product sold to residential customers must guarantee savings on an annual basis (NY Department of Public Service).

Pros of a variable rate

• Usually no long commitment, which makes it easy to leave.
• Your price can drop if the supplier lowers rates.
• Useful as a short bridge while you shop for a better fixed offer.

Cons of a variable rate

• Harder to budget, since the price can change from one bill to the next.
• Exposure to price spikes, especially in very hot or very cold periods.
• The initial price may be an introductory "teaser." Ohio's consumer advocate tells shoppers to ask whether a rate is "fixed, variable or a 'teaser'" (Ohio Consumers' Counsel).

Indexed plans and other variations

Some states recognize additional plan types. Texas defines an indexed product as one whose price can vary "according to a pre-defined pricing formula" based on publicly available indices (PUCT Rule 25.475). Pennsylvania's shopping site also lists "unlimited" plans, which are subscription-style with one monthly price for generation, and time-of-use plans that charge less for off-peak hours (PAPowerSwitch). Read the plan's disclosure carefully, because a plan can be labeled "fixed" while still including monthly fees or usage-based credits that change your effective price.

Fixed vs variable: side-by-side comparison

Feature	Fixed-rate plan	Variable-rate plan
Supply price per kWh	Set for the contract term (with limited exceptions by state)	Can change, often monthly
Contract length	Commonly several months to multiple years	Often month to month (required for residential variable plans in Texas)
Early termination fee	Common; check the disclosure	Less common on month-to-month plans; still check
Budget predictability	Higher	Lower
Exposure to price spikes	Low during the term	Higher
Best for	Households that value steady bills	Short-term needs, or shoppers who monitor rates closely

What happens when a fixed-rate contract ends

This is where many households lose money. The end of a fixed term is not the end of service; you are moved to whatever your contract says happens next.

• Texas: Your retail electric provider must send a contract expiration notice at least 14 days, and no more than 45 days, before the contract ends. If you do nothing, you are served on a default month-to-month renewal product that "may be cancelled at any time with no fee" (PUCT Rule 25.475). The PUCT also says you can switch without an early termination charge if the switch is no earlier than 14 days before the expiration date in the notice (PUCT FAQ).
• Pennsylvania: Early cancellation fees do not apply in the last 30 days of your contract, and you will receive renewal notices you should respond to (PAPowerSwitch FAQ).
• New York: The ESCO Consumers Bill of Rights says you are entitled to notice from the ESCO no less than thirty days before the contract renewal date (NY DPS).
• Ohio: The Ohio Consumers' Counsel warns about "evergreen" contracts that renew automatically, sometimes at much higher prices (OCC).

Put your contract end date in your calendar the day you sign. When the renewal notice arrives, compare it with current offers before the deadline.

Only the supply part of your bill changes

Whether you choose fixed or variable, your local utility keeps delivering electricity to your meter and charges for that delivery, according to the U.S. Energy Information Administration. Your plan choice affects the supply (generation) line on your bill, not the delivery charges. That means a lower supply price may shave only part of your total bill. To see how a different per-kWh price changes your total, try our electric bill calculator with your own usage. For context, the average US home used 1,152 kWh and paid $209 in August 2026.

Is a fixed or variable plan cheaper?

Neither type is automatically cheaper. It depends on the price you lock in, market conditions over the term, and fees. One data point worth knowing: an EIA analysis published in 2019 found that residential customers had generally paid more per kilowatt-hour through competitive suppliers than through their utilities, while commercial and industrial customers had often paid less (EIA). That does not mean every offer costs more, but it is a good reason to compare every offer against your utility's default supply price before switching.

How to choose: a 7-step checklist

1. Find your usage. Look at 12 months of kWh on past bills, or estimate it with our kWh calculator.
2. Find your benchmark. Locate your utility's default supply price (in Ohio and Pennsylvania this is called the "Price to Compare" and appears on your bill).
3. Use the official state comparison site. Each choice state has one; see our guide to deregulated electricity states.
4. Read the disclosure, not the ad. Check the price per kWh, monthly fees, contract length, early termination fee and what happens at renewal.
5. For fixed plans: confirm what charges can still change during the term.
6. For variable plans: ask how the price is set, how much notice you get, and for price history if your state requires it.
7. Set a reminder for 45 days before your contract ends so you can shop again.

Red flags to watch for

• A low introductory price with no stated price after the first months.
• Pressure to sign at the door or over the phone without written terms.
• A "fixed" plan whose disclosure lists charges that can vary.
• Requests for your utility account number before you have decided to switch.

Next steps

Check what you pay now on our electricity rates by state page, then plug any offer into the electric bill calculator to see what it would mean for your monthly bill before you commit.