Energy Contracts: Everything You Need to Know in 2024

Living in an area with deregulated electricity gives you the freedom to choose your electricity plan. So whether you intend to power your home with green energy or just looking for the most affordable electricity rate, you can select the provider and electricity plan that works best for you. 

However, with great power comes…confusion. Navigating through all those different plans and providers can be downright bewildering. That’s why it’s crucial to understand what an electricity contract is about so you don’t sign anything you’ll regret.  

So, whether you’re a savvy energy shopper or just someone who wants to avoid any unnecessary billing drama, take some time to understand this vital document. Don’t worry, we’re here to help. We’ll explain everything you need to know before closing the deal with your electricity provider. 

What is an Electricity Contract?

If you live in Texas, you can choose electricity providers. The good news is that several companies are vying to supply service to your home or business, and they offer different plans and rates designed to attract customers. That means competitive rates and services.

Now, when you sign an electricity contract, you enter into an agreement with a specific provider. This contract lays out all the essential details, such as the duration of the agreement, the pricing structure, and any additional fees or charges. It’s important to read the details carefully to know exactly what you’re getting into. 

Let’s find out what electricity contracts include to help you understand the terms

Electricity Facts Label (EFL)

The Electricity Facts Label, or EFL for short, provides important information about the electricity plan you’re considering or using. It’s like the “nutrition label” for electricity, giving you a breakdown of what you’re getting into.  

Here’s what you can expect to find on an EFL:
 

• Plan details: The EFL will list the name and description of the electricity plan. It might indicate whether it’s a variable or fixed-rate electricity plan, a short or long-term contract, and other unique features of the specific energy contract. 
• Price: It will show you the price per kilowatt-hour (kWh) you’ll pay, including the cost breakdown from the retail electric provider (REP) and transmission and distribution utility (TDU). It also lists any base charges, energy charges, and additional fees.  
• Renewable energy: If you’re into environmentally friendly options, you can determine the percentage of renewable energy in the plan through the EFL. This lets you know if your electricity comes from sustainable sources like wind, solar, or hydropower. 

Terms of Service (TOS)

The terms of service of electricity contracts present the rules and regulations that govern your relationship with your electricity provider. It’s like a roadmap that tells you what you can expect and what you’re responsible for. This includes how the service is provided, the contract length, and other important terms and conditions.  

The TOS section explains what happens when the electricity contract expires. It typically outlines the options available to you when your contract ends. One possibility is that your contract may automatically renew for another term. But sometimes, the TOS might state that your long-term electricity contract will transition to a shorter contract length (think month to month) once the initial term expires.  

Your Rights as a Consumer (YRAC)

This section is about ensuring you know your rights and what you’re entitled to as an electricity consumer. A large portion deals with what the electricity provider can and cannot do. These include the following. 

• The REP can’t discriminate or refuse service based on race, religion, or gender. 
• The electricity company can’t switch you to another REP without your consent nor charge you for services you didn’t sign up for. 
• The electricity provider should keep your personal information safe. They shouldn’t go around sharing it with anyone without your permission. 

Contract Expiration

The contract expiration refers to the date when your current electricity plan comes to an end. This information is vital as it allows you to plan ahead and make decisions about your electricity service.  

Moreover, letting the contract expire can be an expensive proposition because you’re typically put on a holdover energy rate once the agreement with your current provider expires. Holdover rates are pegged on market prices, which fluctuate constantly. As such, they can lead to higher electricity bills.  

Keep in mind that some electricity contracts may impose an early termination fee if you decide to end the agreement before the expiration date, so it’s always a good idea to check the terms and conditions. 

Contract Renewal Cycle

A long-term electricity contract offers price stability, leading to a predictable monthly bill. As such, it’s often the preferred choice among power consumers. However, a short-term electricity contract has some advantages, too, such as the flexibility to shift quickly to another provider or energy plan.  

Whatever the contract length, the renewal is stated in the EFL. If you have a short-term agreement, make sure the contract ends when electricity demand is low, such as during the spring or fall. Peak demand usually occurs when the weather is too hot or too cold, so check the contract renewal cycle section for the necessary information. 

Factors to Consider in an Electricity Contract

Making a smart choice when it comes to your electricity contract can save money and ensure you have a smooth and hassle-free experience. But let’s face it, with so many options, it can be a bit overwhelming. Don’t worry, though, because we’re here to help break it down for you.  

When considering an electricity contract or plan, keeping a few factors in mind can increase your chance of getting the best deal. Let’s explore some of the most important things to consider. 

Energy Consumption

Understanding your energy consumption helps you make an informed decision about which electricity contract or plan fits you best. For example, a long-term electricity contract could make financial sense if you have a consistent usage level, particularly if you lock in affordable rates. 

Energy Rates

The energy rates determine how much money you spend each month on the luxury of powering your gadgets and appliances. It’s like the price tag on the electricity you consume. Lower rates mean more pocket-friendly bills, leaving you with extra cash to spend on other essentials.

But don’t just settle for the lowest rates without doing your homework. Sometimes, a ridiculously low energy rate comes with hidden fees or conditions that can sting you in the long run. Carefully read the fine print of the contract so you don’t get blindsided by unexpected charges or find yourself stuck in a plan that doesn’t suit your needs. 

Type of Energy Plan

The type of electricity plan you choose can have various implications on your electricity usage, billing structure, and environmental footprint. For example, a fixed-rate electricity plan has a different pricing structure than a variable-rate plan.  

Moreover, the type of electricity plan affects the energy sources used to generate your power. Some energy plans rely on traditional fossil fuels like coal or natural gas, while others prioritize renewable energy sources like solar or wind power.  

Energy Provider

Get to know your provider, particularly if you’re signing up for a long-term contract. Do some digging into their reputation and check out what customers say about their service. Check out the company vis-a-vis other providers to avoid working with a company that falls short of your expectations. 

Another reason the electric provider matters is their commitment to renewable energy. Some providers have made significant strides in this area, investing in renewable energy projects and reducing their carbon footprint. By getting a new energy plan from one of these providers, you can contribute to a greener future and do your part to combat climate change. 

Energy Plan History

By looking at how electricity pricing has evolved over time, you can get a sense of the trends and patterns. This knowledge can be incredibly valuable when predicting future changes in electricity rates and planning your budget accordingly. 

Furthermore, understanding the history of electricity contracts allows you to assess the reliability and stability of different providers. Some providers may have a track record of offering consistent rates and reliable service, while others may have a history of price fluctuations or customer complaints.  

Physical Location

The electricity market varies from place to place, and different providers offer different plans based on where you live. Peak and off-peak demands for electricity also differ from state to state.  

Another reason location matters is that it influences the energy sources available to you. Different regions have diverse energy mixes. For example, some areas rely heavily on renewable energy sources like wind or solar power, while others may have a higher proportion of fossil fuel-based energy. 

Contract Length

When deciding on an electricity plan, you’ll usually have options for different contract lengths. Should you opt for a long-term electricity contract or would a short one be a better choice? Each option has its pros and cons, so it’s essential to consider your specific needs and preferences. 

For example, a short-term electricity contract offers a lot of flexibility. However, short-term contracts often come with variable rates that can fluctuate from month to month. Meanwhile, long-term contracts protect you from sudden price increases because they lock in a fixed price for the duration of the agreement. The problem occurs when you must switch providers for whatever reason, as you’ll usually have to pay early termination fees.  

Terms & Conditions

The terms and conditions outline the rights and responsibilities of the consumer (that’s you) and the power company. By familiarizing yourself with these terms, you can clearly understand what you can expect from the provider and what is expected of you. This helps establish a transparent relationship and ensures that both parties are on the same page. 

The terms and conditions also cover essential details like customer support, dispute resolution processes, and the provider’s obligations regarding service reliability and quality. These aspects can significantly impact your overall experience as a consumer.  

Fees & Additional Costs

Electricity contracts, whether long-term or short-term, may come with fees and additional costs. These can vary from plan to plan and provider to provider. The fees can take different forms, such as monthly fees, connection fees, or early termination charges.  

Meanwhile, additional costs can include transmission and distribution charges, taxes, renewable energy surcharges, or any other add-ons specific to the plan. It’s important to carefully review these costs to understand what you’ll be paying. 

Features

Think of it this way, selecting the right electricity plan is like choosing shoes. You wouldn’t just pick any random pair, right? You’d consider the features like size, style, comfort, and durability before making your decision. Well, the same principle applies to electricity plans, except the stakes are much higher. 

Look for features like fixed or variable rates, time-of-use pricing, and any additional fees or charges. By understanding the pricing structure, you can estimate how much you’ll pay each month. 

Another vital feature to consider is renewable energy options. With the growing environmental concern, many people are keen on choosing electricity plans that rely on renewable sources like solar or wind power. By opting for a plan that includes renewable energy, you can actively contribute to reducing carbon emissions and promoting a greener future.  

Deposit

A deposit is a way for the power company to ensure you’ll fulfill your end of the bargain and pay your bills on time. By putting down a deposit, you show the provider you’re serious about your commitment to being a responsible customer. 

Moreover, paying a deposit can help you establish a positive credit history with the electricity provider. This can come in handy down the line, especially if you ever want to negotiate better rates or switch to a different plan. 

Of course, it’s essential to consider the deposit amount and how it fits into your budget. Make sure it’s something you’re comfortable paying upfront. Also, check if the deposit is refundable or if it will be applied toward your future bills.  

Short-Term Electricity Contracts

As the name implies, short-term contracts last for a brief or limited period. Short-term electricity plans often come in 6-month, 3-month, and month-to-month contract lengths. Depending on what type of plan you choose, your per kWh rate may vary or remain the same for the duration of the agreement. 

For example, if you opt for a fixed-rate plan with a 3-month contract length, your rates will stay the same no matter the price of electricity in the market. On the other hand, month-to-month energy plans are also called variable-rate plans because the rates you pay vary each month. The amount depends on price fluctuations in the energy market.  

Advantages

A short-term plan offers some benefits that make it a better deal. Here are a few reasons why they can be an intelligent choice.
 

• Lets you take advantage of market trends: A short-term plan, such as a month-to-month one, gives you more flexibility to sign up for a new contract when the per kWh rates are lowest. Tracking the price fluctuations can help you secure a new electricity plan when power demand is at a minimum, and rates are down. 
• Easier to switch to another plan or provider: Unlike a long-term contract, a short-term electricity plan won’t tie you down for months on end to a plan or company. So if you’re not satisfied with your current plan, you won’t have to wait long to transfer to a new one. 
• Ability to adapt to changing needs: Life is full of surprises, and your electricity needs can change suddenly. Short-term contracts allow you to adjust your electricity usage and consumption patterns without feeling restricted. For example, if you’re planning to move soon or expecting changes in your household, a short-term plan gives you the flexibility to adapt accordingly. 

Disadvantages

While short-term contracts might seem appealing at first glance, they come with a few drawbacks worth considering. 
 

• Vulnerable to price fluctuations: Energy prices often fluctuate due to several factors. That means you won’t know if the per kWh rates you pay will dip or surge from one month to the next. If you renew a contract and power prices suddenly skyrocket, you’ll have to bear the brunt of those increased costs.  
• Potentially higher prices when renewing: You may get lower rates at the start of your contract, but if the rates suddenly go up, you’ll pay higher prices on your next bill. 
• More hassle: Renewing your short-term electricity contract every few months can be time-consuming. You also face the risk of forgetting to renew, which could lead to higher costs. 

Long Term Electricity Contracts

In contrast with short-term plans that often last less than a year, long-term electricity contracts have longer durations, sometimes even up to 5 years. The more common lengths are 12, 24, and 36 months.  

Also known as fixed-rate plans, the rate for these contracts typically remains the same for the duration of the agreement regardless of energy prices in the market.  

Advantages

Long-term electricity contracts require a lengthier commitment. In exchange, you get to enjoy the following advantages. 

• Stability: With a long-term electricity contract, you lock in a set price for the duration of your agreement with the power company. This shields you from sudden price hikes in the energy market. 
• Budgeting made easier: A long-term fixed-rate contract gives you the benefit of predictable monthly expenses. Since your rate remains fixed, you can easily budget your finances and plan your expenses accordingly.  
• Potential cost savings: In some cases, long contract lengths can lead to cost savings compared to shorter-term or variable-rate plans. Providers may offer incentives, discounts, or lower rates for committing to a more extended contract. 
• Convenience: Having a long-term electricity plan means you won’t have to spend time shopping around for better deals or switching providers frequently. You can simply set it and forget it, knowing you have a reliable plan in place for an extended period. 

Disadvantages

Now, let’s talk about the drawbacks of long-term electricity plans. 

• Stuck in a Commitment: With a long contract length, you’re essentially committing to the same plan for an extended period. Life is unpredictable, and your needs might change over time. So, if you find a better plan or want to switch providers, you might be stuck until the contract expires.  
• Can’t take advantage of lower power prices: If you have a fixed-rate plan, you pay the same rate throughout your agreement. So if power prices dip, that won’t translate into savings on your energy expenses. 
• Penalty for early termination: With long-term electricity plans, you’ll often have to pay an early termination fee if you want to switch away before the contract’s end.  

Short Term vs Long Term Contracts

So which is better, short-term plans or long-term contracts? Well, it really depends on your specific needs and circumstances, as each option has benefits and drawbacks.  

Those who value flexibility or are unsure about their long-term energy needs might find short-term contracts more beneficial. Meanwhile, long-term contracts could be the wise choice for power consumers who want stability and protection from price fluctuations. 

As such, the best option ultimately depends on your circumstances

How to Cancel an Electricity Contract?

Canceling an electricity contract is usually a pretty straightforward process. Just follow these steps: 

1. Review your contract. Depending on the agreement’s terms and conditions, you might have to pay a penalty for early termination. 
2. Contact your electricity company to find the best way to cancel the plan. 
3. Provide the necessary information. This typically includes your account number, full name, and address. They may also ask you for the reason behind the cancellation. 

4. Check for any outstanding payments.  If you have any unpaid bills, settle them to avoid complications or delays in the cancellation process. 
5. Confirm the cancellation. After you’ve initiated the cancellation process, ask for confirmation from your provider. Get it in writing, if possible, or keep a record of the cancellation request and any reference numbers they provide. 

FAQs

Conclusion

An electricity contract is not something to take lightly. It’s a commitment that can significantly impact your monthly expenses and overall satisfaction. So, do your homework, compare different plans, and consider factors like pricing, contract terms, and renewable energy options. This way, you’ll be armed with the knowledge to make an informed decision and find the contract that suits your needs like a glove. 

Also, keep an eye on the expiration date of your contract. Don’t let it slip your mind and roll over into an unending cycle. Take charge of your energy destiny by renegotiating or exploring other options. After all, change can be refreshing, just like flipping on a new light switch. 

Updated on 06-12-23