Graham Griffin
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Electricity contracts: Know the facts before you sign
If you’re shopping for an electricity plan in Texas, it’s essential to know how to read an electricity contract.
When choosing the right energy plan for your household, you can consider various options, including long-term, short-term, fixed-rate, and variable-rate contracts.
You are entering into a legal agreement. A contract is a legal agreement between you and your energy retailer.
Before you sign an electricity contract, look over the terms of service, electricity facts label, and customer rights page to ensure you are informed of all the details.
Understanding what is in your electricity contract can help you choose the best energy plan and help you avoid surprises on your electricity bill.
Reading an electricity contract
When shopping for electricity, you need to pay attention to three documents. Details matter, and nowhere is this more evident than electricity in Texas. Be sure to carefully read each document before you sign your contract.
The Electricity Facts Label
The first document you need to understand in your contract is the Electricity Facts Label (EFL), which is one of the most vital parts of your contract.
Following complaints that it was challenging to compare electricity contracts, the Public Utilities Commission of Texas mandated that all retail electric service providers provide standardized information about their contracts via the Electricity Facts Label.
In the EFL, you will find information on the charges for your electricity, including the cost per kilowatt-hour (kWh) and any extra fees associated with the production and distribution of electricity.
Learn how to read your Electricity Facts Label.
Terms of Service
Next, you must read and understand the Terms of Service (TOS).
This is the legally binding part of your contract, and you must understand it before signing.
It is similar to the terms and conditions you agree to when using other products and will give you information about the obligations both parties must fulfill.
You’ll be notified a month before your contract expires, and you can cancel or negotiate new terms any time within two weeks of your contract’s end date.
Your Rights as Consumer
Finally, you must know about “Your Rights as a Consumer” (YRAC).
This document will detail the federal protections in place, like the supplier’s responsibility to not discriminate based on gender, race, and religion, as well as other rights you have.
This can include your right to privacy or the company’s obligation to notify you of certain changes and seek your consent when necessary.
Contract expiration
Make sure your contract does not expire. Not doing anything is by far the most expensive option.
You’re automatically put on a holdover rate when your contract expires, which fluctuates based on market conditions, resulting in unexpectedly high electricity bills.
You might overpay for electricity if you let your contract expire without action.
Set a reminder here, and we will notify you when it’s time to switch.
If you have an expired contract, it’s time to act. Comparing energy plans in Texas based on your usage history is the best way to save money.
Contract renewal cycle
Generally, you want to avoid contracts with short or odd-numbered terms, such as three or nine months, as these will expire when electricity demand is at its peak and prices are high, for example, right before or in the middle of summer in Texas.
These short-term plans may appear to be a good deal, but their purpose is to delay the end of your contract to a period that is less advantageous to you and more favorable to the electric provider long term.
Learn how electricity contract renewals work in Texas.
Shopping considerations
Consider these additional factors when shopping for a new energy plan.
Contract length
The majority of electricity contracts last 6-24 months.
If you are renting, the term of your electricity contract does not need to coincide with the term of your lease.
You can cancel an energy contract in Texas if you move out, so you can select any term length that offers you the best price.
A long-term contract is the best option if you stay in the same place for a while and don’t want to change providers frequently.
Most Texas consumers find that 12-month plans offer the right balance between affordable rates and the hassle of switching providers often.
Short-term contracts
Short-term energy contracts last less than a year. Most providers offer six-month contracts, but a few offer three-month plans.
Short-term contracts offer more flexibility if you don’t find shopping and switching providers burdensome.
You will have the opportunity to switch more frequently with a short-term energy plan, which can be an advantage if you often like to shop the market for lower rates.
It might be a risky game, however. Plan prices in Texas tend to fluctuate with demand throughout the year.
If you sign up for a short-term plan, you may find yourself renewing in a month that would be less ideal, such as in the middle of a hot Texas summer when prices are at their highest.
Unless you enjoy monitoring electricity rates often and understand how to shop, we recommend going with a 12-month length plan.
A whole year between shopping tends to be a good balance between shopping for a new plan and minimizing the burden of having to shop for a new energy plan often.
Long-term contracts
Long-term electricity contracts allow you to lock in an electricity rate for an extended period. They usually last anywhere from 12–36 months.
In a market where prices fluctuate, you can set your budget and avoid guessing what your bill might be each month.
In addition, companies usually charge less the longer you commit.
There will typically be a fee for canceling the contract, but if you move within the plan’s timeframe, protections may waive the early termination fee.
The drawback of a fixed-rate contract is that it keeps you locked in even when prices drop.
Rate type
Most Texas consumers prefer a fixed-rate electricity plan over a variable-rate plan as they lead to more predictable power bills.
Which is better: Fixed-rate or Variable-rate Electricity?
Fixed rates
A fixed-rate plan keeps the same electricity rate throughout your contract period. This is a more traditional option and what many of our readers choose.
Note that a fixed-rate energy plan does not mean your electric bill will always remain the same. You still pay for each kilowatt-hour you use each month, which can change throughout the year.
The total amount of energy you use, the energy rate, and any additional utility charges will determine your monthly bill.
Variable rates
On the other hand, a variable-rate plan will let you pay the market price for electricity.
When rates drop, you see the savings. When rates go up, you pay the price.
If you are in a position where you can control your usage daily, this is a good option.
You can use more electricity when prices are low and reduce usage during peak demand.
The decision is yours, and you’re looking to find the best rates, regardless of the type of plan.
The best electricity plan or rate is often determined by the price per kWh and your home’s kWh usage.
Learn how to switch energy providers in Texas.
Features
Some plans include features like 100% Green, Free Nights & Weekends, or a free Nest Thermostat.
Deposits
Depending on your credit score and utility payment history, a deposit may be required.
A deposit might not be required from some ComparePower providers, so you can sign up for service immediately.
You may not have to pay a deposit if other providers do not require one. A single order gives you an overview of deposit requirements across providers.
ComparePower can help you find a no-deposit plan quicker and more efficiently.
Go prepaid and avoid deposits and credit checks altogether.
Learn how to get no-deposit lights in Texas.
Canceling an electricity contract
Cancellations are possible anytime, but there may be an early termination fee if you switch providers before your term is due. Be sure to read your contract and understand the cancellation rules.
Moving out is the only way to terminate an electricity contract without paying an early termination fee.
This scenario occurs when couples divorce, family members enter the military, or roommates move out.
With two or more people living in the same house, you can cancel your electricity contract and have someone else transfer it in their name to another electricity provider.
Then, another household member can place a move-in order through ComparePower for the same address with a new provider.
Make sure that you select “move-in” at checkout.
Call your electric provider and ask them to cancel your service by a specific date because you are moving out. You can avoid service interruptions by doing this, and the bill will be removed from your name.
Depending on your provider, they may require proof, such as a forwarding address for your last bill, but you are not required to provide it.
A new provider will service your home, and the electricity billing will no longer be in your name but in the name of the other household member.
This is not intended as a way to avoid paying your bills. Paying your electric bill on time will allow you to enjoy low rates without upfront deposits and remain in good standing with the electric company.
Changing providers without paying your bill can hurt your credit and ultimately result in a higher rate or an upfront deposit.
Electricity contract FAQs
Will I lose power if my electricity contract expires?
No, you will not lose power if your electricity contract expires. Your current provider will continue to provide power to you, but at a high rate, called a holdover rate.
Do not let your contract lapse. Inaction is costly and can lead to unpredictable electric bills. Shop with your home’s historical usage on ComparePower and find the right plan for your home in 10 minutes. Enroll online, confident you got a great rate.
Can I cancel an electricity contract?
In Texas, when switching providers, you can cancel an electricity contract without penalty within three days by contacting the provider directly by phone.
Cancellations are possible at any time, but switching providers before the end of your contract may result in an early termination fee. In Texas, you have 14 days before the end of your contract to switch providers without penalty. Be sure to read your contract and understand the cancellation terms.
An electricity contract can also be canceled by moving out of your residence and entirely ceasing service under your name. You can easily cancel your electricity service when you move out by calling your electricity provider. Early termination fees do not apply when moving out.
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