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Variable Rate vs. Indexed Plans

Variable Rate vs. Indexed Plans

Variable Rate Plans vs. Indexed Rate Plans

Lately, there's been a lot of confusion in the marketplace over different types of electricity plans. Some companies say variable rate electricity plans are a bad choice and that indexed rate electricity plans are better. At First Choice Power, we think indexed rate electricity plans are so risky that we don't even include them in our list of residential plans. So what's the real story? Here's our take on it.

Variable rate electricity plans and index rate electricity plans have one thing in common: you can expect your rate to fluctuate. But indexed prices fluctuate for different reasons. With a variable rate electricity plan, your electric company has the ultimate control over the rate you pay each month. If you're with a good electric company, this is actually a good thing, because your company can protect you from big increases in the price of natural gas that make the price of electricity increase. With an indexed rate plan, your rate changes are driven by forces outside of your electric company's control. Confused yet? Let's start with the basics of these two electricity plans:

The Flexible Option: Variable Rate Electricity Plans

If you don't like the sound of long-term contracts or cancellation fees, a plan that lets you keep your options open may be the best fit for you. With variable plans, the rate you pay for electricity can fluctuate from one month to the next. The rate can stay the same for months at a time, but it can go up or down depending on how much it costs to generate and deliver electricity. Because most Texas electricity is generated from natural gas, changes in natural gas prices can change the prices on variable rate plans.

With a variable rate electricity plan, your electric company can manage and moderate their rates to navigate through times of large changes in wholesale market costs. So unlike indexed rate electricity plans that can change dramatically with changes to the index, changes in variable rate electricity plans can be less volatile.

Variable rate plans have no monthly contracts or cancellation fees, but their rates are sometimes higher than you'll find with fixed rate plans. Get more details about our variable rate electricity plans.

The Option We Don't Recommend: Indexed Rate Electricity Plans

Index plans are based on a publicly available index. That means the price you pay for electricity each month is tied to the price of something else – usually natural gas. When you sign up for an indexed rate electricity plan, both you and your electric provider are agreeing to a specific, often complex mathematical formula that will be used to set your rates each month.

It all sounds good – until a change in the index increases your rate. And increases it some more. On an indexed rate electricity plan, if you're not constantly monitoring the index and calculating how it will impact your rate, you could be stuck paying a high bill. Indexed rate plan rates may seem temptingly low at first, but who wants to open up their bill a few months later and discover they're paying way more than they expected? At First Choice Power, we think they're just too risky for residential customers.

Instead, we offer great fixed and variable rate electricity plans – in both green and regular flavors. Explore our Plans.

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