A plant manager in East Texas called last October with three quotes on his desk and one question: which one is cheapest? Two were fixed, one was a heat-rate pass-through, and the spread between the low fixed number and the indexed illustration was wide enough that the indexed product looked like free money. It wasn’t. The indexed quote showed a formula, and the formula left him holding congestion, losses, unaccounted-for energy, and ancillary-service cost. The fixed quotes handed those to the supplier and charged him for the privilege in a way the cents-per-kWh number didn’t itemize.
That’s the whole subject. Contract structure moves risk between the buyer and the supplier. It does not delete risk from the transaction.
What each structure actually does
The PUCT’s disclosure rule for residential and small commercial service, 16 TAC §25.475, defines the product categories with more precision than the sales language around them. A fixed-rate product must run at least three months and must hold the same price, including recurring and ancillary-service charges, for every billing period — subject only to specified actual changes such as TDSP charges, ERCOT and Texas Reliability Entity administrative fees, and qualifying legal or regulatory charges outside the REP’s control. An indexed product varies by a disclosed, predefined formula tied to publicly available indices or information. A wholesale indexed product passes through ERCOT real-time settlement point prices directly.
Large C&I contracts aren’t governed by §25.475 the way a small commercial account is. But the rule is still the cleanest available statement of what the three words are supposed to mean, and a negotiated contract that uses them loosely is a contract with a dispute buried in it.
Here is the mechanism, stated plainly. A fixed price is a transfer of commodity price movement to the supplier for the term. The supplier prices that transfer — it has to hedge, post collateral, and hold credit capital against your shape. You are not paying spot. You are paying spot plus somebody else’s risk premium, and that premium is real work being done on your behalf.
An index or pass-through product leaves the named components with you. ERCOT’s real-time market produces locational marginal prices at each electrical bus normally every five minutes, and ERCOT produces settlement point prices for resource nodes, hubs, and load zones from those LMPs every fifteen minutes. If your contract settles against a hub, you own basis between that hub and your load zone. If it settles against your load zone, you own the zonal outcome. Neither is “wholesale cost” in the sense the phrase gets used in sales meetings, because your invoice still carries losses, unaccounted-for energy, ancillary services, credit terms, and the supplier’s fee.
A blend — block-and-index, laddered fixed tranches, blend-and-extend — splits the exposure. It only works if the nominated block volume, the settlement point, the treatment of residual load above and below the block, and the imbalance terms are written down without ambiguity. A blend with vague residual-load language is not a blend. It is an index contract with a comfortable-sounding name.
The evidence a buyer should be looking at
There is no sourced Texas study that establishes a universally superior month, forward-buy window, or term length for commercial procurement once you control for load shape, credit, basis, congestion, delivery tariffs, and risk tolerance. Anyone who tells you October is the month is selling a feeling. ERCOT publishes historical day-ahead and real-time settlement point prices, which lets you observe volatility and basis that actually occurred. It does not turn that history into a forecast.
What the record does show is that wholesale conditions move for reasons a retail contract can’t control. The Independent Market Monitor’s 2025 State of the Market Report, delivered to the PUCT in May 2026, put the ERCOT all-in cost of electricity at $38/MWh in 2025, up from $34/MWh, and attributed the increase to higher energy costs associated with a 61% rise in the average daily natural gas index price. The same report gave an ERCOT average energy price excluding adders of $36.94/MWh for 2025 and a West zone average of $41.59/MWh, attributing the West differential to Permian import constraints and Panhandle export constraints. Potomac Economics is the PUCT-retained independent market monitor, not the Commission; its figures are monitor analysis, not an order.
Read that West number again. A $4.65/MWh average zonal spread is exactly the kind of thing an index buyer absorbs and a fixed buyer doesn’t. It is also exactly the kind of thing a fixed buyer pays a premium to avoid, whether or not it materializes in the term.
Two more facts belong in the structure conversation. ERCOT implemented Real-Time Co-optimization Plus Batteries on December 5, 2025, which co-optimizes energy and ancillary services in real time. The 2025 IMM report states that the former Operating Reserve Demand Curve was discontinued in December 2025 with RTC. If a supplier’s index illustration or risk memo still describes a standalone ORDC adder, the document is describing a market that no longer runs that way, and you should ask when the pricing model was last updated.
What to do with this before you sign
Pull the contract apart component by component and write down who holds each one:
Energy. Fixed for the term, or formula-driven? If formula, name the index, the settlement point, the lag, the publication source, and what happens if the index stops publishing.
Congestion and losses. In the price, or passed through? Congestion in ERCOT is a locational signal produced by security-constrained economic dispatch, not a discretionary supplier charge, but it is still a number somebody pays.
Unaccounted-for energy. ERCOT calculates UFE each settlement interval as total generation supplied less total system load plus losses, then allocates it to loads. Your contract either absorbs that or passes it to you.
Ancillary services. After RTC+B, ancillary service prices clear inside the real-time optimization. A pass-through contract that names ancillary services without naming the products or the allocation method is incomplete.
Delivery. TDSP charges are regulated and territory-specific. The PUCT’s September 1, 2026 tariff summary shows illustrative residential delivery bills at 1,000 kWh of $61.07 for AEP Central, $59.93 for AEP North, $69.03 for CenterPoint, $64.36 for Oncor, and $81.87 for TNMP. Those are residential figures, not your commercial class, but they make the point: delivery is not a supplier markup and it is not comparable across territories.
4CP and demand. If you are on an IDR class, the transmission demand component is tariff-specific. Oncor’s September 2026 secondary greater-than-10-kW IDR class showed $6.050798 per 4CP kW; CenterPoint’s secondary greater-than-10-kVA IDR class showed $6.177655 per 4CP kVA. Those cannot be moved to another class, another utility, or a future tariff period.
Change in law, credit, collateral, swing and deviation, early termination, renewal mechanics, and broker compensation. Each is a line where risk sits.
Then answer the only question that matters: if the market moves against the structure you picked, by how much, and can the organization absorb it without a conversation with the board? A hospital system with a fixed operating budget and a manufacturer with a commodity-linked output do not have the same answer, and neither one is wrong.
The strongest objection
The best argument against all of this comes from sophisticated buyers, and it goes like this: a supplier’s risk premium is a real cost, we have a treasury function, we can read a forward curve, and we can manage index exposure better and cheaper than a retailer can manage it for us. Why pay somebody to hold a risk we’re capable of holding?
That argument is often correct, and it deserves a straight answer rather than a rebuttal. If a buyer has interval data, a governance process that can approve a position, a balance sheet that can absorb a bad quarter, and people who will actually watch settlement, self-managed index exposure can be the cheaper long-run structure. The 2025 IMM report noted that price spikes occurred 40% less often in 2025 than in 2024 and identified the evening ramp as 30% of spikes — that is the monitor’s analytical judgment rather than a controlled causal estimate, but it describes a market where an attentive index buyer had room to operate.
The honest limits are three. First, capability has to be demonstrated, not assumed; a treasury team that has never modeled a load-weighted settlement outcome is not yet the team in that argument. Second, the credit and collateral terms on a pass-through product can consume the premium you saved, and those terms are negotiable but not free. Third, the decision has to survive a bad year politically as well as financially. Plenty of organizations can afford an index loss and still cannot survive explaining one.
So the recommendation is not “fixed is safer” or “index is smarter.” It is that the structure should match the risk the organization can carry through a full term without changing its mind in month seven — because a mid-term panic exit is the most expensive outcome available in this market, and it is the one nobody quotes.
Amerigy Energy is a registered electricity broker in Lufkin, PUCT registration #BR190721. We don’t sell electricity and we can’t take title to it. What we do is read the contract with you before you sign it.
References
1. Public Utility Commission of Texas, 16 TAC §25.475, General Retail Electric Provider Requirements and Information Disclosures to Residential and Small Commercial Customers, effective January 6, 2022. https://ftp.puc.texas.gov/public/puct-info/agency/rulesnlaws/subrules/electric/25.475/25.475.pdf
2. Potomac Economics, Ltd., 2025 State of the Market Report for the ERCOT Electricity Markets, Independent Market Monitor for ERCOT, May 2026. https://www.potomaceconomics.com/wp-content/uploads/2026/06/2025-State-of-the-Market-Report-for-ERCOT.pdf
3. Electric Reliability Council of Texas, ERCOT Goes Live with Real-Time Co-optimization Plus Batteries (RTC+B), December 5, 2025. https://www.ercot.com/news/release/12052025-ercot-goes-live
4. Electric Reliability Council of Texas, Market Prices, accessed September 12, 2026. https://www.ercot.com/mktinfo/prices
5. Electric Reliability Council of Texas, UFE Analysis Reports, accessed September 12, 2026. https://www.ercot.com/mktinfo/data_agg/ufe
6. Public Utility Commission of Texas, Transmission and Distribution Utility Rates, as of September 1, 2026. https://www.puc.texas.gov/industry/electric/rates/tdr/Default.aspx
7. Oncor Electric Delivery Company LLC, PUCT Monthly Report, as of September 1, 2026. https://ftp.puc.texas.gov/public/puct-info/industry/electric/rates/tdr/tdu/Oncor_Rate_Report.pdf
8. CenterPoint Energy Houston Electric, LLC, CenterPoint Energy Houston Electric Rates Report, September 1, 2026. https://ftp.puc.texas.gov/public/puct-info/industry/electric/rates/tdr/tdu/CenterPoint_Rate_Report.pdf
9. Texas Legislature, S.B. No. 1497, Enrolled Version, May 21, 2019. https://capitol.texas.gov/tlodocs/86R/billtext/html/SB01497F.HTM