Electricity is something almost all of us use on a daily basis, but when was the last time you thought about it? One thing that reminds us how crucial it is for everyday life is our power bill. Whether you like what you see or not, knowing your options for managing electricity costs over time is important.
Understanding short-term vs. long-term electricity contracts is a great way to get started. With some time and consideration, you can choose the electricity contract that fits your needs.
Key Takeaways
- Short-term electricity contracts are better for flexibility and lower long-term commitments, but they’re more volatile and make it difficult to budget your energy costs.
- Long-term electricity contracts usually come with fixed rates that make it simple to manage your energy bills, but they may also lock you into costs that don’t hold up over time.
- The best decision ultimately depends on your preferences, budget, and household demands. Long-term plans are more popular, but short-term plans still work for some people.
Short-Term Electricity Contracts
Electricity plans that offer more flexibility, shorter plan periods, and reduced long-term commitments are usually called short-term contracts. They usually last a year or less, with monthly, three-month, and six-month terms being the most common.
Their rates depend on the type of plan you have. Variable-rate plans, for instance, have prices that change each month. But fixed-rate plans will lock you into an established monthly cost you pay throughout the contract.
Benefits
Flexibility is the biggest perk of short-term contracts, especially if you choose a month-to-month plan. Some people prefer the freedom to adjust their electricity plans regularly.
- Shorter Terms: Low-commitment contracts mean more opportunities to shop around for lower rates if you’re not satisfied with what you currently pay. Taking advantage of market trends that save you time and money is also possible.
- (Potentially) Lower Prices: More control over when payments end helps you strike while the iron’s hot and enter a new contract when electricity rates are lowest. During springtime’s mild weather and low energy demands, for instance, you can likely get a better price for a new electricity contract than you would during the peak of summer.
Drawbacks
While short-term options certainly come with their benefits, they’re not for everyone.
- Price Instability: Potential price volatility makes it difficult to create a budget for your energy use. Plus, many factors affect electricity rates, so your predictions about future costs may only sometimes come to fruition. Those great deals you’re banking on might not be available when you need them to, either.
- Frequent Renewals: Not only might you face higher rates when renewing your contract, but you also might be charged fees as you switch providers. There’s also no guarantee you’ll keep your low rates for long. It’s also easy to forget your renewal date with so many changes to consider.
- Dependency on Electricity Market: Short-term plans can leave you more susceptible to temporary market changes based on supply and demand. If energy suddenly becomes scarce, you might be roped into sky-high energy prices you simply can’t manage.
Long-Term Electricity Contracts
As the name likely implies, long-term contracts are, well, long — longer than short-term options in most cases. Many long-term electricity contracts last at least a year, with some extending as long as five years. Most plans are either 12-month, 24-month, or 36-month contracts. Since long-term plans cover extended periods, they usually come with fixed-rate prices.
Benefits
If you’re after stability, a longer-term contract may be for you.
- Predictability: There’s no need to worry about renewing your electricity contract during high-rate periods or market price spikes. Being able to reliably plan your finances also helps keep utility costs down.
- Savings: It’s not hard to save a lot of money with long-term plans. A fixed price model keeps your rates low even when prices soar. You might also get better deals for committing to a longer contract length.
- Save Time: Say goodbye to hours spent shopping around for the best prices and filling out paperwork to renew your contract. With a long-term contract, you’ll only need to consider your energy needs every once in a while.
Drawbacks
Long-term energy contracts may be more popular than short-term options but don’t forget to consider these potential downsides so you can make an informed decision.
- Less Flexibility: If you don’t love your provider or contract rates, you might be out of luck. It’s possible to get roped into a higher rate and miss out on changes that could benefit you. For instance, if you bought into a contract when natural gas prices were high, you might have gotten stuck at rates that seem egregious now that prices are on the decline.
- Potential Costs & Headaches: Once you sign a contract, you might get hit with early termination fees or other unplanned expenses if you try to change plans or switch energy providers.
- Stagnation: When you’re locked into a long-term agreement, you can miss out on new technologies or marketing offerings that could help you save money.
Which Contract Is Better for You?
So, between short- and long-term electricity contracts, which is best? It all depends on your needs.
| Short-Term Electricity Contracts | Long-Term Electricity Contracts | ||
| PROS | CONS | PROS | CONS |
| •Flexible •Potentially lower prices •Ability to hop on market trends | •Volatile •Hard to budget •Time spent shopping around •More renewals | •Stable prices •Save time •Likely to save money over time | •Inflexibility •Less control over costs •Stagnant energy solutions |
You’ll need to consider your budget, future energy market predictions, and the level of risk you’re comfortable with to make the best choice. Some questions to ask yourself include:
- What is my current electric bill and energy plan like? What do I like about the service I receive? What don’t I like?
- What do I know about market conditions or future electricity prices in my area? Am I concerned about spikes or drops in prices?
- Is it more important to know what I’ll pay or have more control over what I pay?
Good news: the deregulation of the energy market in Texas means that you can shop around for the right electricity provider based on your needs and preferences. Take the time you need to consider both types of contracts, and never hesitate to ask questions before you sign on to anything. We wish you the best of luck finding the energy rates that make sense for your home!