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Is a short-term or long-term contract the better option? Which will save you more money?
It depends. There are no one-size-fits-all contracts that will work for everyone.
If you plan on staying in your current home or apartment for the foreseeable future, we recommend that you pick a long-term contract of at least a year.
These contracts will range from 12 to 36 months, and you’ll get a great balance of low rates and stable pricing.
Not sure how long you plan to be in your current space?
The right contract length for you is a little bit more complicated. Short-term contracts could be a good option if you only need temporary power.
You’ll keep the flexibility to switch things up every couple of months, but there’s no guarantee that prices will be lower or even the same when renewing your contract.
Short-term electricity contracts
Short-term contracts are less than a year in length. The most common time offered by retail electric providers (REPs) is six months, although REPs occasionally offer a three-month contract.
Depending on the time of the year, plans with a short-term contract can be great, but you can get stuck with a high rate if you start during peak energy demand.
What are the advantages of short-term electricity contracts?
The best part about short-term contracts is that they maximize your flexibility. You’ll never find yourself stuck in a contract for more than a few months, so if electricity rates change, you can switch things up for a better contract.
If you can time your contract start and end dates correctly, you can enter a short-term contract when demand is low and get a reasonable rate.
You get the most opportunity to shop for electricity throughout the year without worrying about early termination fees.
What are the risks of short-term electricity contracts?
While short-term contracts offer excellent opportunities to find cheap electricity, you can quickly find yourself in hot water if you forget to shop at the end of your contract term.
Since you have to shop more frequently, you risk falling into a monthly variable rate after your contract that can easily double or triple what you previously paid.
At the same time, there is no guarantee that electricity rates will be cheaper or even the same price when you have to sign up for a new contract.
Electricity rates can change for various reasons, and a freak storm, like winter storm Uri in February of 2021, can send rates through the roof.
You could quickly find yourself stuck signing an electricity contract at a more expensive rate that you’ll be stuck paying for the next few months.
And if you are living on a fixed income or a strict budget, short-term contracts make it much harder to plan for future months. You never know what electricity rates will look like, so you can’t depend on your electricity bill to stay the same.
Compare energy plans and rates in Texas.
Compare energy plans and rates in Texas.
Long-term electricity contracts
A long-term contract can last anywhere from one to five years; the most common lengths are 12, 24, and 36-month contracts.
With a long-term contract, you lock in your electricity rate without worrying about future changes, but you also make a bigger commitment than a short-term contract.
What are the advantages of long-term electricity contracts?
With a long-term contract, you get to lock in that great rate you found over a longer time. This gives you a relatively stable electricity bill throughout your contract, depending on your usage.
You won’t have to worry about rates changing or even thinking about shopping for another plan until at least 11 months in the future.
And if you find a great rate, you get to lock in those savings for an extended time.
Long-term contracts also make it easier to budget for electricity throughout the year since your rate won’t change. If you want to take it a step further, some REPs offer average billing that can help smooth out your electricity bills.
While electricity shopping isn’t particularly hard or time-consuming, a long-term contract lets you relax throughout the year without shopping around. You don’t have to compare prices each month and worry about any price hikes in the future.
What are the downsides to long-term electricity contracts?
While locking in a great rate for electricity throughout the year can save you tons of money, you could find that rates dive if demand isn’t up to providers’ expectations.
You might be missing out on some savings during these times because you are locked into your contract.
A long-term contract will prevent you from switching to a cheaper plan if you want to maximize your savings.
Most long-term contracts will have an early termination fee, making breaking your contract costly.
If you decide to get out of a long-term contract, do a cost analysis and factor in the early termination fee.
You might be able to save enough money by switching plans to justify the cost of a few hundred dollars upfront.
Is a short or long-term contract better for you?
The short answer is that it depends. Unfortunately, there is no straightforward answer to tell you which will work best for you.
You’ll want to take a good hard look at what you want from your electricity plan before deciding what type of contract you want to sign.
Most energy consumers in Texas and on ComparePower choose 12-month fixed-rate electricity plans.
Choose a long-term rate and lock in your contract for the foreseeable future. This is an excellent option for someone with a long electricity usage history and who plans to stay in their home.
If you are on the other side of the coin and don’t mind shopping frequently, a short-term contract could be a good play for you.
You’ll be able to shop for electricity every couple of months and can maximize your savings by finding the cheapest rates when you shop.
Just remember that electricity prices usually go up, so there is no guarantee that you’ll be able to find a cheaper rate in the future.
Another common situation we hear about is someone moving into an apartment for the first time. You probably don’t have any electricity usage history if this is you.
Finding a perfect plan for your apartment can be difficult without historical usage. A short-term contract could be a good option until you establish some usage history.
If you ask us, your best bet is to pick a 12-month contract with no bill or usage credits. This type of contract will give you the best balance between a great electricity rate and the stability of a long-term contract.
You’ll get a good idea of your usage throughout the year and can pick a plan with a longer contract in the future that fits your unique usage profile.
Not sure how long you’ll be in your home or apartment? Don’t worry about signing a long-term contract if it is your best rate.
Texas law protects all movers from early termination fees, so you can sign up for that cheap 12-month contract without worrying about moving.
These plans let you avoid signing a contract, but you’ll likely be looking at higher rates or some upfront deposit.
Ready to do your part for the environment? Many providers have plans that range from 6% to 100% renewable energy to help offset your carbon footprint.
Contract length FAQs
What time of year is electricity the cheapest?
Electricity prices in Texas fluctuate throughout the year, depending on demand. Summer and winter see the highest electricity demand as people heat and cool their homes. Conversely, spring and fall are usually when electricity rates are the lowest.
How long are energy contracts?
Energy contracts range in length from three months up to 36 months. The most common term lengths are 6, 12, 24, and 36 months.
Do I need to match my contract length to my lease?
There is no need to match your contract length to your lease. Instead, we recommend picking the contract length that gives you the best rate for your unique electricity usage.