A Decade in the Data: Which Electricity Plan Structure Actually Came Out Ahead
Photo: Wikideas1, CC0, via Wikimedia Commons
Every shopper in a deregulated electricity market faces the same fork in the road. A fixed-rate plan locks in a price per kilowatt-hour for the contract term. A variable plan floats with the supplier's monthly whim, formally tied to wholesale conditions. An indexed plan passes wholesale prices through directly, plus a margin. Retailers market the first for security, the second for flexibility, and the third for sophistication. Our backtest of roughly ten years of retail rate data in Texas, Ohio, and Pennsylvania suggests the marketing tells only half the story.
Methodology, Briefly
We compiled representative residential offers in each state, annualized them, and compared total spend for a household consuming roughly 1,200 kWh per month — a typical US residential profile. We then modeled three customer types: a stable homeowner with a five-year horizon, a renter moving every 12 to 18 months, and a small business with load concentrated in business hours. The exercise has limits — individual offers vary, promotional rates complicate averages — but the pattern that emerges is consistent enough to be useful.
The Fixed-Rate Decade
Over the full period, fixed-rate plans won more often than they lost, but the margin depended entirely on timing. Customers who locked in during the low-price troughs of 2016 through 2020 enjoyed years of substantial savings as wholesale markets firmed. Those who locked at the 2021–2022 peak — in the aftermath of Winter Storm Uri and the natural gas price spike — paid well above floating rates for the first year or two of their terms.
The lesson is not that fixed rates are superior, but that fixed rates convert timing risk into certainty. For the homeowner archetype, that trade was usually worth making. Budget stability has value beyond the arithmetic, and the penalty for a badly timed lock, while real, averaged out modestly across the decade.
Where Variable Plans Burned Their Customers
Variable-rate plans are supposed to track wholesale prices. In practice, they often track them with a lag — and sometimes with an opportunistic markup. The starkest evidence comes from Texas in February 2021, when variable rates briefly reflected scarcity pricing that pushed some customers' effective costs to extraordinary levels. More commonly, the damage was slower: variable plans that crept upward month after month during 2022, only to be repriced downward reluctantly when wholesale costs fell.
Across the decade, the average variable-rate customer paid more than the average fixed-rate customer in all three states studied. The structure's genuine advantage — no early termination fee — mattered mainly to one group.
The Renter's Paradox and the Business Case
For renters, the calculus inverts. Termination fees on a 24-month fixed plan can easily exceed $150, and a lease that ends in ten months makes that fee a coin flip. Short-term fixed contracts of six to twelve months, or fee-free variable plans during stable price periods, performed better for this cohort than any long lock.
Small businesses present a different picture entirely. Commercial indexed products, with demand charges and time-of-use exposure, rewarded customers who could shift consumption away from peak hours. A shop running most of its load in the evening or overnight frequently beat both fixed and variable alternatives. For a standard nine-to-five office, indexed products mostly added volatility without offsetting benefit.
The Practical Synthesis
Ten years of data don't produce a single winner, but they do produce a decision framework. If your usage is stable and your horizon is long, fix your rate — and pay attention to where the market sits in its cycle before you do. If mobility is likely, keep your optionality and accept some price risk. And if you can control when you use electricity, indexed pricing turns your flexibility into savings rather than exposure.
The market's three pricing structures are not competing products so much as three answers to one question: how much uncertainty can you afford to carry? The data's verdict is that most consumers overpay for certainty they don't need — or carry risk they never chose to accept. Choosing deliberately, rather than by default, is where the real savings live.
