Texas electricity plan traps that make a cheap rate expensive

Why the advertised rate on the sign-up page isn't your rate

Every Texas electricity plan is required to publish its price at three usage levels on its Electricity Facts Label (EFL) — usually 500, 1,000, and 2,000 kWh per month. Providers pick which of those three numbers to feature in their marketing, and they don't have to pick the one closest to your actual usage. A plan can legally advertise "8.9¢/kWh" featuring its cheapest tier while your real household lands at a usage level, or a billing structure, where the effective price is meaningfully higher. None of this is illegal — it's disclosed on the EFL — but it's easy to miss if you only read the headline number. The rest of this guide walks through the specific structures that create that gap, in plain English.

Bill-credit plans and the "bill cliff"

A bill-credit plan advertises a flat dollar credit — say, $50 off your bill — that only applies once your usage crosses a threshold, commonly 1,000 kWh per month. Below that line, you get no credit at all and pay full price on every kWh. This creates a real "cliff": using slightly less electricity in a given month can leave you with a higher bill, both in total dollars and in effective cents-per-kWh, than if you'd used more. It's the single most common structure behind a Texas electricity plan that looks cheap on paper and isn't in practice. See the worked example and chart below for exactly how the math works.

Minimum-usage fees

A close cousin of the bill-credit cliff, but structured as a penalty instead of a missing reward: some plans charge a flat minimum-usage fee — often $9.99–$25 — if your monthly usage falls below a set threshold, regardless of how little you actually used. This shows up most on plans marketed to larger households, where the provider is betting you won't fall under the line. If you're moving into a smaller space, traveling often, or expect a low-usage month (a mild spring or fall), check the EFL specifically for this fee before assuming a low bill means a cheap bill.

Base charges

A base charge (sometimes called a customer charge) is a flat monthly fee — commonly $4.95 to $28 or more — billed regardless of usage, on top of the per-kWh energy charge. It's not inherently a trap; it's just a fixed cost. But it hits low-usage households (apartments, mild-climate months, energy- efficient homes) disproportionately hard, because it's the same dollar amount whether you used 300 kWh or 1,500 kWh. A plan with a low advertised per-kWh rate and a high base charge can end up costing a light user more than a plan with a slightly higher per-kWh rate and a low or no base charge. Divide the base charge by your expected monthly usage to see how many cents per kWh it's really adding.

Tiered pricing

Some plans charge a different rate depending on how much you use in a month — for example, a lower rate on the first 1,000 kWh and a higher (or lower) rate on everything above it. This is a legitimate pricing structure, not automatically a gimmick, but it means the "average" rate you'll actually pay depends entirely on where your usage lands relative to the tier breakpoints. The three-tier EFL disclosure (500 / 1,000 / 2,000 kWh) exists specifically so you can see how a plan's price moves across usage levels — a flat line across all three is a true flat rate; a big jump between tiers is worth a second look.

Free nights and free weekends

These plans advertise $0/kWh during a specific window — usually nights (9pm–6am) or weekends — funded by a higher rate during the remaining hours. The marketing headline ("Free Nights!") describes the best case, not the average case. Whether this plan actually saves you money depends entirely on what share of your real usage happens inside the free window. A household that's out of the house all day and running AC and appliances mostly in the evening and morning may do well. A household with a work-from- home schedule, daytime HVAC load, or a routine that doesn't shift easily may pay more overall than a flat-rate plan would have cost. See Worked Example 3 below for the same plan producing two very different real bills depending on usage timing.

Time-of-use plans

Time-of-use (TOU) plans are the broader category that free-nights and free-weekends plans belong to — different prices at different times of day, not necessarily "free." The same logic applies: the advertised off-peak rate is only the rate you pay for the electricity you actually use during that specific window. Check the EFL for the exact peak/off-peak hours and rates, and be honest with yourself about whether your household's routine actually matches the discounted window before assuming you'll get the advertised price.

Variable and indexed rates

A variable-rate plan's price per kWh can change month to month at the provider's discretion, with no cap and often no advance notice — sometimes tracking wholesale power costs (an "indexed" rate), sometimes not disclosed at all. There's no early termination fee because there's no fixed-term contract to break, which is the tradeoff: you get to leave anytime, but the provider isn't locked into today's price either. A variable rate that looks attractive in a mild month can move sharply during a Texas summer demand spike. If predictability matters to you, this is the structure to watch most closely.

TDU delivery charges

Every Texas electricity bill includes a delivery charge from your TDU (transmission and distribution utility — the company that physically owns the wires to your house, like Oncor, CenterPoint, AEP Texas, TNMP, or Lubbock Power & Light). You don't choose your TDU — it's fixed by your address — but its charge is baked into every retail provider's advertised price whether you notice it or not. That means the exact same retail plan can be priced differently depending on which TDU territory you live in, because the delivery portion of the bill differs. See our delivery utility pages for the real TDU that serves each area we cover, and how its charges compare to the others.

Early termination fees

Most fixed-rate plans carry an early termination fee (ETF) if you cancel before the contract term ends — commonly structured as a flat dollar amount or as a per-month-remaining charge (for example, $20 for every month left on the contract). A 24-month contract cancelled in month 2 under a per-month-remaining fee could mean paying for 22 months you're not using. Some providers waive the ETF if you're moving and can show proof — check the EFL's exact termination-fee language, not just whether a fee exists, since the exceptions matter as much as the number.

Short contracts that expire during unfavorable periods

Texas electricity demand — and wholesale pricing — swings hard by season, with June through August running roughly 50% above the annual average due to air-conditioning load, and shoulder months like April, October, and November running well below it. A short contract (1, 3, or 6 months) that happens to expire in May or June can leave you shopping for a new plan right as the market gets more expensive, with less leverage and less time to compare carefully. This isn't a hidden fee, but it's a structural timing risk worth thinking through before choosing a short term purely because the headline rate looks good today.

Automatic month-to-month renewal

When a fixed-term contract ends without the customer choosing a new plan, most providers don't cut off service — they roll the account onto a month-to-month "default" or "holdover" rate, which is frequently higher than the original contracted rate and higher than that provider's current new- customer offers. This is disclosed in the contract terms, but it's easy to miss the renewal date entirely. Mark your contract's end date somewhere you'll actually see it, and plan to shop again a few weeks before it arrives rather than after the rate has already changed.

Bundled versus pass-through delivery charges

Some providers show the TDU delivery charge as a separate line item on your bill ("pass-through"); others fold it into a single advertised energy rate ("bundled"). Neither approach is inherently better, but it changes what the "price per kWh" you see actually includes. When comparing two plans' advertised rates side by side, confirm both are quoting the same thing — an apples-to-apples comparison only works if delivery charges are handled the same way in both numbers, which is exactly why we normalize every plan to a full projected bill instead of comparing headline rates directly.

Why provider reputation alone doesn't tell you if a specific plan is good

A well-known, reputable provider can still offer a specific plan with a bill-credit cliff, a high base charge, or a short contract expiring in July. Brand recognition describes the company; it doesn't describe the plan structure you'd actually be signing up for, and a single provider typically sells dozens of different plans side by side — some straightforward, some not. That's the reasoning behind how our own tool works: we evaluate the specific plan's real structure against your real usage, rather than leaning on provider reputation as a substitute. You can see exactly which factors we use and how they're weighted on our How We Rank Plans page.

Three worked examples

Each example below is illustrative — built to demonstrate a specific pricing mechanism clearly, using round numbers and a plan name we made up for the purpose. These are not current offers from any real provider; they exist to show the arithmetic, not to advertise anything. For simplicity, each example assumes a flat $39/month TDU delivery charge — real delivery charges typically combine a fixed monthly amount with a small per-kWh component and vary by utility, so treat that figure as a reasonable placeholder, not a quote.

Side-by-side comparison table

These are the same three illustrative examples above, laid out the way we'd recommend comparing any real plan on your own.

Seeing the cliff

Here's the bill-credit example from above, shown across a range of usage levels straddling the 1,000 kWh threshold. Every bar to the left of the line is missing the credit; every bar at or past it has the credit applied.

Where to check this on a real plan

Every real plan's Electricity Facts Label discloses the exact numbers behind all of the structures above — the energy charge at each usage tier, any base charge, any bill credit and its threshold, and the exact early termination fee language. Every plan we show links directly to its official EFL, and for 80 of the 138 unique provider/plan combinations in our dataset, we've already read that EFL and surface the parts that matter directly in our results instead of leaving you to decode a PDF. For the rest, the link to the authoritative EFL is still there so you can check it yourself before enrolling — see our Data Sources page for the exact breakdown and how current it is. For the broader mechanics of shopping for a plan, our Shop Smart guide and Texas Relocation Checklist cover the rest of what a new resident needs. Once you know what to look for, the fastest way to check a specific address is to run it through our plan comparison tool or browse the full provider directory.

Sources: Public Utility Commission of Texas, Electricity Facts Label requirements (puc.texas.gov/industry/electric/plans); Public Utility Commission of Texas, Ways to Save — Shop for Electric Plans; our own dataset of 1,809 real Texas electricity plan offers, described in full on our Data Sources page. The three worked examples above use invented plan names and round numbers to illustrate real pricing mechanisms — they are not offers from any actual provider. This guide is for general informational purposes and isn't a substitute for reading the actual Electricity Facts Label of any plan you're considering.