There is no single right answer — but there is a wrong one for your business. Here’s how to tell the difference.
Walk into ten conversations with Texas commercial customers about their electricity contracts, and you’ll hear ten different philosophies. Some businesses lock in fixed prices for the longest term they can get. Others ride the index, betting they’ll come out ahead over time. Most are somewhere in between, often without a clear strategic reason for landing where they did.
The truth is that contract structure should be driven by the specific characteristics of your business — your load profile, your tolerance for monthly bill variability, your competitive position, and your view of the market. There is no universally right answer. There is, however, a wrong answer for every specific business, and that’s what most providers don’t tell you.
The Three Main Structures
1. Fixed Price
You agree to a single per-kWh rate for the term of the contract. Your supplier takes on the price risk and bakes their hedging cost into the rate. The advantage is budget certainty. The disadvantage is that you’re paying a premium for that certainty, and if market prices fall during your term, you stay locked in at the higher rate.
Fixed pricing works well for businesses with tight margins where bill variability would be operationally painful, businesses that need to lock in costs to support specific bids or projects, and any business whose leadership simply doesn’t want to think about electricity month to month.
2. Index (Pass-Through)
Your rate floats with the wholesale market — typically the day-ahead or real-time settlement price at your zone — plus a fixed adder for the supplier’s margin and services. The advantage is you capture the actual market price, which over many years tends to average out near or below the fixed-price premium. The disadvantage is that your monthly bill will swing, sometimes dramatically, with weather and grid conditions.
Indexed pricing is best suited for sophisticated buyers with the operational flexibility to shift load away from peak hours, businesses with strong balance sheets that can absorb a high month, and customers who actively monitor the market and may want to lock portions of their load opportunistically.
3. Hybrid / Block-and-Index
You fix a portion of your load — typically a baseload block — and leave the rest to float. This combines the budget certainty of a fixed contract for your predictable consumption with the market participation of an indexed contract for the variable portion. Many large commercial and industrial customers end up here once they understand their load profile in detail.
The Questions That Should Drive Your Decision
- What is your load factor? If your facility runs flat 24/7, you have very different exposure than a business that peaks sharply during business hours and goes nearly idle overnight.
- Can you shift load? If yes, indexed structures reward you. If no, fixed structures protect you.
- How sensitive is your P&L to bill variability? A 30% swing in a monthly bill is a non-event for some businesses and a fire drill for others.
- What’s your view of the next 24–36 months? Forward curves are pricing in tight conditions. If you believe they’ll get tighter, fixed protects you. If you believe new generation will catch up faster than expected, indexed gives you upside.
- What does your existing contract say? Sometimes the best move is staying put through the term and using the runway to plan the next contract more carefully than the last one.
The Mistakes to Avoid
A few patterns that consistently cost Texas businesses money:
- Comparing rate-only without comparing structure. A fixed-rate quote that excludes ancillaries, transmission cost adjustments, or capacity charges is not actually fixed — it just looks that way until the first true-up.
- Letting contracts auto-renew. Almost every auto-renewal happens at materially worse pricing than what’s available in the open market. Calendar your contract end date and start the renewal conversation 90 days out.
- Buying at the wrong time of year. Forward prices for winter and summer delivery are typically higher when those seasons are imminent. Locking in a multi-year deal in the off-season often produces meaningfully better pricing.
- Working with a single provider. A broker who shops multiple suppliers will almost always produce a better number than going direct to one supplier, simply because the suppliers know they’re competing.
The right contract is the one that matches your business — not the one with the lowest sticker price or the longest term. Get those questions answered first, then go to market.
Take the Next Step
Not sure which contract structure fits your facility? Amerigy Energy works through these exact questions with every client and shops your load across multiple suppliers to find the structure and rate that actually match your business. Reach out for a confidential review.