Short-term or Long-term Electricity Contracts: Which is Better?
After finding a plan that meets your needs and before committing to that plan, you notice that there are multiple contract lengths available and that each shows different rates.
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 are planning 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 in length.
These contracts will range from 12 to 36 months, and you’ll get a great balance of low rates and stable pricing.
You’re 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.
In Texas, prices have trended up over the last several years and are predicted to do the same in the future.
A long-term contract can lock in the rates you see today for long-term savings.
If prices drop in the future, a short-term contract lets you take advantage of low prices and maximize your savings.
Regardless of your situation, ComparePower has short-term and long-term contracts to get your home or apartment powered on today.
Short-term electricity contracts
Short-term contracts are less than a year in length. The most common length of time you’ll see offered by retail electric providers (REPs) is six months, although REPs will offer a three-month contract occasionally.
Plans with a short-term contract can be a great deal depending on the time of the year, but you can get stuck with a high rate if you start during times of 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 at a time, 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 good rate.
You get the most opportunity to shop for electricity throughout the year without worrying about any 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 run a higher risk of falling into a monthly variable rate after your contract that can easily be double to triple what you had previously been paying.
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.
Long-term electricity contracts
A long-term contract can last anywhere from one to five years, and the most common lengths you’ll see 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 with 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 period of 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 think 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 also 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 take a 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.
If you are looking to maximize your savings, a long-term contract will prevent you from switching to a cheaper plan.
Most long-term contracts will have an early termination fee that can make breaking your contract costly.
If you decide to get out of a long-term contract, make sure you 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 on 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 a great option for someone who has a long history of electricity usage and 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 is someone moving into an apartment for the first time. If this is you, you probably don’t have any electricity usage history to shop with.
Finding a perfect plan for your apartment can be difficult without any 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 that doesn’t have any 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 the best rate for you.
Texas law protects all movers from early termination fees, so you can sign up for that cheap 12-month contract without worrying about moving.
If you don’t want to commit to an electricity contract, you can look at pre-paid and month-to-month options.
These plans let you avoid signing a contract, but you’ll likely be looking at higher rates or some form of 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.