Electric power station

What Is a Prepaid Electricity Plan and How Does It Differ From a Traditional Contract Plan?

Are you debating whether or not to switch to a prepaid electricity plan? If so, you’re not alone. In recent years, more and more electricity consumers have been making the switch to prepaid plans. 

But what are the benefits of doing so? And are there any drawbacks that you should be aware of? 

Let’s take a closer look.

Key Takeaways

  • There are two types of electricity plans—prepaid and contract (sometimes called postpaid) . For some consumers, a prepaid electricity plan offers the best prices and flexibility for their needs.
  • A prepaid plan allows you to pay for your electricity usage upfront to avoid surprises.
  • Prepaid electricity plans allow consumers to avoid paying large upfront deposits.
  • The biggest downside of a prepaid plan is that you will be purchasing your  electricity before you actually use it. 

What Is a Prepaid Electricity Plan and How Does It Differ From a Contract?

In the Texas electricity market  there are two main types of electricity plans that consumers can choose from: prepaid and traditional contract plans. 

So, what’s the difference? A contract plan entails an agreement between the customer and the electric company that lasts for a set period of time—usually between one and three years.

A prepaid plan, on the other hand, allows customers to pay for their electricity in advance. There is no set period of time, and customers can terminate their service at any time.

There are several reasons why you might choose to switch to a prepaid electricity plan. Perhaps the most obvious benefit is that it can help you save money on your monthly electricity bill. 

With a prepaid plan, you pay for your electricity upfront and then use that credit to pay for your electricity usage. This system encourages conservation because it means that you’re only using as much electricity as you’ve already paid for. 

Another advantage of prepaid electricity plans is that they can help you avoid surprises. Many traditional electricity plans come with usage minimums or tiered pricing structures that can result in much higher rates if you go over your allotment. With a prepaid plan, however, you’ll never be charged more than what you’ve already paid for. 

Finally, prepaid electricity plans allow you to avoid paying a deposit to get your electricity service turned on.  Traditional electricity plans often require customers to put up large deposits to protect the electric company from non-payment.  It’s true that prepaid plans require you to put up money upfront to get your power turned on.  However, this money goes to pay for your electricity immediately.  Electric company deposits, on the other hand, are not returned to you until the end of your contract.

Of course, there are also some potential drawbacks to consider before making the switch to a prepaid electricity plan. First of all, if you don’t use all of the electricity that you’ve paid for upfront, you might not  be able to get a refund for the leftover credit if you switch to a different provider. 

Prepaid Plan Traditional Contract Plan
Pros Cons Pros Cons
Easier Budgeting for a Fixed Income Higher Rates Potential for a Lower Rate  Could be required to pay a large deposit
Advantage of Variable Rates and Added Flexibility  Must Have Access to Phone or Computer to Keep on Top of Usage Only Pay for Electricity After You’ve Used It  Less flexible 
No Deposits, Credit Checks, and Commitments   Could Be Cut Off When prepaid funds are used up Ideal for Those Who Aren’t Tech Savvy  Often require credit check and a long-term commitment 

Things to Consider Before Purchasing a Prepaid Plan 

A lot of people are making the switch to prepaid electricity plans because there are so many benefits that come along with it. For example, you don’t have to worry about deposits, credit checks, or surprise bills. However, there are a few things you should keep in mind before making the switch. 

Are You Okay With Only Having an Allotted Amount of Power—and Having to Purchase More If You Run Out?

This is probably the most important thing to consider before making the switch to a prepaid electricity plan. With a traditional plan, you’re billed for the amount of power you use each month

However, with a prepaid plan, you’re allotted a certain amount of power upfront. Once you use all of that power, you’ll need to purchase more. So, if you’re someone who likes to have a lot of power at their disposal, a prepaid plan might not be right for you. 

The Potential for Service to Be Cut Off

Another thing to keep in mind is that your service could be cut off if you don’t keep up with your payments. With a traditional plan, your service will be disconnected if you don’t pay your bill on time. 

However, with a prepaid plan, your service could be disconnected if you don’t have enough money in your account to cover your usage. 

To avoid this, it is important to monitor your electricity usage and make sure that you have enough money in your account to cover your projected usage. You can typically find this information on your electricity provider’s website or app. If you see that you are close to running out of electricity, you can take steps to reduce your usage or add funds to your account. 

Needing to Stay Up to Date With Refilling Your Plan Online

One important factor is whether or not you have easy access to refill your plan online. If you do not have reliable internet access or if you are not comfortable using a computer, you may want to choose a different type of plan. Another important factor to consider is the rate at which your electricity provider charges for refills. Some providers charge a flat rate, while others charge a per-kilowatt-hour fee. 

Financial and Energy Needs

The last thing you should consider before making the switch is what your financial and energy needs are. With a traditional electricity plan, you usually have to pay a deposit upfront. However, with a prepaid electricity plan, there’s no deposit required.  There also may be a minimum amount required to fund your account with.

So if you’re someone who doesn’t have a lot of money saved up, a prepaid electricity plan might be a good option for you. 

Additionally, most people who switch to a prepaid electricity plan see a decrease in their energy usage because they’re more mindful of how much power they’re using. So if you’re someone who’s looking to save money on your energy bill, a prepaid electricity plan might be right for you. 

Knowing How Much to Buy

The best way to calculate your needs is to add up your prior electricity bills and divide by the number of bills. This will give you an average kWh usage that you can use to estimate your needs. Keep in mind that your usage may vary month to month, so it’s important to check your bill regularly and adjust your plan accordingly.  Most prepaid electricity companies will make this easy by providing alerts via text or email when your balance is running low.

What Can I Expect to Pay for a Prepaid Plan?

The price you’ll pay for a prepaid electricity plan depends on your provider, but here are some examples:

Provider Prepaid rate 
Pogo Energy15.40 cents/kWh
Payless Power16.81 cents/kWh
Acacia Energy24.32 cents/kWh

How Do Prepaid Rates Compare to Contracts?

Under a contracted electric plan, you agree to pay a certain amount per kWh for the electricity you use each month. Depending on the contract this can be a fixed amount per kWh or a variable amount depending on your level of electricity usage.  You will agree to a fixed length of time such as 12 months.  You can not switch to a new electricity provider before that contract term ends without paying an early termination fee.  

With a prepaid electric plan, you purchase electricity in advance. You can either buy a set amount of electricity (say, $50 worth) or you can choose to keep your account refilled automatically each month. The great thing about prepaid plans is that there are no monthly bills—you only pay for the electricity that you use. 

On average, Texans who have a contract with an energy provider pay about $110 per month for electricity. This rate can vary depending on the specific provider, the time of year, and the amount of energy used.  Customers who use prepaid electricity plans typically manage their electricity usage better and can reduce their overall electricity costs.

Additionally, most energy providers require customers to put down a deposit when they sign up for a contract—typically around $200. In contrast, there is usually no deposit required for a prepaid plan. As a result, prepaid plans can be more accessible for those with limited financial resources.

Overall, prepaid plans offer a number of advantages over traditional contracted plans. They can help you save money on your monthly electricity bill, and they don’t require a deposit. However, it’s important to keep in mind that rates can vary depending on the specific provider and the time of year. As a result, it’s always important to compare rates before selecting an energy plan.

Remember to Ask Questions 

If you’re trying to decide whether an electricity prepaid plan is right for you, it’s important to do your research and ask plenty of questions. 

You can start by reaching out to different providers and asking about their plans and rates. It can also be helpful to compare different providers and plans to see which one is the best fit for your needs. Keep in mind that prepaid plans typically have higher rates than contracted plans, but they may also offer more flexible payment options. 

Ultimately, the best way to find out if a prepaid plan is right for you is to talk to a provider and ask plenty of questions.


There’s no one-size-fits-all answer when it comes to deciding whether or not to switch to a prepaid electricity plan. Ultimately, it’s a personal decision that depends on your unique circumstances and needs. 

However, we hope that this overview has given you some food for thought and helped you better understand both the benefits and drawbacks of this type of electricity service.

Questions Others Are Asking 

What is the free nights and weekends energy feature?

Some electricity plans have a free nights and weekends energy feature that gives customers a break on their energy usage during certain times. For example, some plans offer free energy usage from 9 PM to 6 AM on weekdays and all day on weekends. This can be a great way to save money on your energy bill, but it’s important to understand how this feature works before signing up for a plan. Most Free Nights plans charge significantly more for electricity during the non-free periods than you will find through traditional plans.  This means that if you use too much electricity at the wrong times you can actually find yourself with a higher electricity bill with a Free Nights plan. 

Are variable rates risky? 

The problem with variable rates is that they can be very unpredictable. If rates happen to spike due to market conditions such as grid emergencies , then people will end up paying more than they would with a fixed rate. Additionally, the electric company may change the rates without any notice, leaving people in the dark about how much they will need to pay. 

How long do energy contracts last in Texas? 

Energy contracts in Texas typically run for a period of 12 months.  But they can be anywhere from 3 months to five years. At the end of the term  customers may have the option to renew their contract for an additional term. The length of the renewal term will depend on the specific terms of the contract. For example, some contracts may allow for a one-year renewal, while others may allow for a two- or three-year renewal. 

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