Fixed, index, variable, hybrid, and block-and-index plans — when each one fits your load profile.
Choosing a commercial electricity rate structure in Texas is the single biggest decision in any procurement cycle, and most operators get it backwards. They start with the rate — "what's your cheapest fixed?" — and work outward from there. The buyers who consistently land 8 to 15% below market start the other direction: with their load profile, their cash-flow tolerance, and their view on where ERCOT prices are heading over the contract term. The rate structure is an output of those three inputs, not a starting point. Get the structure wrong and even a great rate becomes a bad contract.
There are five real rate structures in the Texas commercial market — fixed, index, variable, hybrid, and block-and-index — plus a handful of marketing names that REPs invent for the same underlying products. This section breaks down what each one actually is, when each one fits, and the contract terms that quietly turn a good structure into a bad one.
A fixed-rate commercial electricity contract locks in a kWh price for the term of the agreement — typically 12, 24, 36, or 48 months. The headline number ("4.9 cents per kWh, 36-month term") is what most operators chase, and on the surface it looks like the simple, defensible choice: same rate every month, no surprises. For roughly 70% of small and mid-size Texas commercial accounts, fixed is the right answer. But "fixed" almost never means what new buyers think it means.
What's actually fixed in a Texas fixed-rate contract is the energy charge — the kWh portion the REP controls. Everything else (TDU delivery, TCRF adjustments, ERCOT fees, gross receipts tax) flows through at whatever the regulator approves, and those pass-throughs change at least twice a year. We have seen "fixed-rate" customers see their all-in cost per kWh move 8 to 12% during a 36-month contract because of TDU rate cases. The energy charge held — the bill didn't.
The other thing buyers miss: most Texas fixed-rate contracts contain a bandwidth clause, sometimes called a swing or material-change provision. It guarantees the fixed rate only if your monthly usage stays within a band — typically ±20% of the historical average the REP used to price the contract. Drop below 80% (a slow season, a partial shutdown, a tenant move-out) and you trigger a "minimum demand" or "underconsumption" charge that can wipe out the rate advantage. Go above 120% (an expansion, a new line, a heat wave) and the excess kWh either gets repriced at the spot market or triggers a contract renegotiation.
Fixed makes sense when three things are true: your usage is stable, you have low tolerance for monthly bill variance, and the ERCOT forward curve for your delivery zone is at or below historical averages. We cover the full mechanics — what's locked, what isn't, when to sign, and the bandwidth math — in the complete guide to fixed-rate commercial electricity in Texas.
An index-rate (sometimes called pass-through, market-rate, or wholesale) contract prices your energy charge as the ERCOT real-time or day-ahead settlement price plus a small adder — typically 0.3 to 0.8 cents per kWh — that covers the REP's services, scheduling, capacity, and ancillary cost components. You are essentially buying electricity at wholesale and paying the REP a wrapper fee.
The math is appealing. ERCOT's average wholesale price has run in the 2.5 to 4.5 cent range over most of the last decade in normal market conditions. Add a 0.5-cent adder and you're at 3.0 to 5.0 cents — meaningfully under most fixed quotes. For high-load-factor customers who can ride out volatility, index has historically outperformed fixed by 12 to 25% over multi-year periods.
The problem is the tail. ERCOT's price cap is currently $5,000 per MWh — that's $5.00 per kWh, roughly 100 times a normal rate. During Winter Storm Uri in February 2021, real-time prices sat at the cap ($9,000/MWh at the time) for nearly four straight days. Index customers without a hedge saw a single week's bill exceed an entire year's typical spend. The Texas legislature has since lowered the cap to $5,000/MWh and added the High System-Wide Offer Cap rules under HB 16, but a 4-day cap event still represents 96 hours × $5.00/kWh worth of exposure. For most operators, that's an unacceptable single-event risk.
Index works for accounts with three characteristics: a strong load factor (60%+), operational flexibility to shift load away from peak hours, and either a balance-sheet ability to absorb a bad month or a paired hedge product. Restaurants, retail, and any operation running peak demand during summer afternoons are usually wrong-shaped for index. Industrial accounts with overnight or shift-distributed load are usually well-shaped for it. The full breakdown — settlement mechanics, post-Uri rules, when index pays off and when it doesn't — is in our index and variable rate guide.
Variable rates are technically a third structure but operationally they're a trap for most commercial buyers. The REP reserves the right to change the energy charge each billing cycle with as little as 30 days' notice, often with no cap. New customers get teaser rates for the first 1 to 3 months, then the rate floats up to whatever the REP decides — usually 30 to 60% above the original quote. The variable structure exists mostly as a legal landing zone for customers whose contracts have expired (the "holdover rate"), not as a product anyone should knowingly sign onto.
If a REP is pitching variable as your starting structure, it's almost always because fixed quotes came in higher than the customer expected and someone is trying to win the deal on the headline number. We cover holdover variable rates and what happens when contracts expire onto them in what happens when your commercial electricity contract expires. The short answer: a holdover variable rate can run 18 to 25 cents per kWh — roughly triple a fair fixed-rate quote.
Once an account crosses about 1,000 MWh per year of usage (roughly a $80,000 to $120,000 annual electric spend in most Texas markets), the conversation shifts away from pure fixed or pure index and toward hybrid structures. The two most common are blended hybrid and block-and-index.
A blended hybrid is exactly what it sounds like: a defined percentage of your usage (say 70%) is priced fixed, and the remainder (30%) is priced at the ERCOT index plus an adder. The fixed portion gives you budget certainty for the bulk of the load, and the index portion lets you participate in market downside if prices fall. The split is set when you sign the contract and is generally fixed for the term, though some REPs allow one or two re-balances during a multi-year deal.
Block-and-index is more sophisticated and is the structure most procurement leads at industrial accounts default to. Instead of pricing a percentage of expected usage, you buy specific MW-hour blocks at fixed prices for specific delivery periods — say, 1.5 MW continuous on-peak for July and August at a locked price — and let everything else settle at the ERCOT index. You're essentially using forward contracts to hedge the predictable, high-cost portion of your load while leaving the variable portion exposed to market. The result, when it's structured well, is a lower blended cost than either pure fixed or pure index would deliver, with most of the risk hedged.
Block-and-index requires three things most small accounts don't have: enough load to justify the structuring complexity (typically 1+ MW peak demand), accurate hourly load forecasts (you can't block-hedge what you can't predict), and a REP or broker capable of pricing forward blocks rather than just retail tariffs. We get into the mechanics of layered procurement and forward block pricing in our hedging guide.
When buyers ask "fixed or variable," what they usually mean is "fixed or something cheaper." That's a reasonable instinct, but it leads to the wrong question. The real comparison is between a fixed price and an expected index price plus a measure of acceptable volatility. If the ERCOT forward curve for your zone is at 3.5 cents and a REP is quoting you fixed at 5.2 cents, the REP is asking you to pay a 1.7-cent premium for budget certainty. Whether that premium is fair depends on your tolerance for monthly variance, your hedging alternatives, and whether the forward curve is actually a reasonable forecast of what real-time settlement will average.
The honest answer for most Texas commercial accounts under 500 MWh/year is fixed. Not because it's the cheapest expected outcome — historically index has been — but because the pain of a tail event (Uri, an August heat wave, an unexpected generator outage) is much greater than the savings of a normal year. We compare the two structures with real Texas market data, including the load-factor breakpoints where each structure starts winning, in fixed vs variable rate electricity.
The decision tree we use with clients runs in this order. First, what's your load factor? Under 35%, index almost never wins net of the demand component, and you should be in fixed or hybrid. Over 60%, index becomes mathematically attractive, and pure fixed is leaving money on the table over a multi-year horizon. Second, what's your cash-flow variance tolerance? If a 3x bill in a single month would cause a covenant breach or a real operational problem, you cannot be in pure index regardless of load factor. Third, where is the ERCOT forward curve for your delivery zone, and how does it compare to the last three years of realized prices? If forwards are above three-year trailing averages, fixed is overpriced. If forwards are below, fixed is cheap.
Run those three filters and most accounts land in the same bucket they should have started in. Start with the four articles below — they cover each structure in depth, with real Texas market numbers — and you'll be able to walk into any procurement conversation and tell within five minutes whether the rep across the table is quoting you something that fits.
Expert guide to fixed rate commercial electricity in Texas — how pricing works, what's actually locked in, when to sign, contract traps to avoid, and whether fixed is right for your business.
Deep dive into index and variable rate commercial electricity in Texas — how ERCOT pricing flows through, post-Uri rules, block-and-index structures, and when wholesale exposure pays off.
Compare fixed, variable, and hybrid electricity rates for Texas businesses. Learn which rate structure fits your budget, risk tolerance, and usage patterns.