Guide to Early Termination Fees and Options

Electricity supply agreements are crucial for managing electricity bills for businesses and organizations. These contracts often span several years and come with complex terms and conditions. However, sometimes, businesses may need to terminate their electricity contract before the end date. In such cases, understanding the different termination options is essential.

There are a few options if the business needs to terminate the agreement early:

  1. Assignment: Assignment involves transferring the agreement to a new party. The new party agrees to take over the current contract, including the terms and conditions. The current provider must agree to take on the new business and will likely require a credit check. Once the assignment is complete, the original party is relieved of any obligations under the contract, and the new party assumes all responsibilities and monthly bills with its new provider. This option is suitable for businesses that want to sell their operations or move to a different location.
  2. Site Substitution: Site substitution involves replacing one site with another under the same energy contract. This option allows businesses to move their operations to a new location without terminating the contract. However, the new site must meet the same requirements as the original site under the contract terms. For example, if the contract specifies a particular energy demand, the new site must meet that requirement. Also, the new site must be within the same utility.
  3. If selling or going out of business, there are some electricity service suppliers, like Engie and APG&E, who will allow the defaulting party out of the agreement provided the business gives the correct notice and proof of sale.

About Early Termination Fees

There are some cases where the above options will not make sense to a business owner. In those events, the defaulting party is subject to an early termination fee (ETF).

Most electric suppliers calculate the cancellation fee as a function of time left on the contract’s billing cycle and the energy market price.

For example, the energy supplier will determine the market electricity rate and take the delta of that and the contracted rate. That difference, multiplied by the months remaining before the contract expiration date (as agreed upon in the agreement term), will be the fee assessed by the energy provider.

Another early termination fee option may be that the supplier charges a flat rate, no matter how many months or days are left in the contract. Regardless, each retail electricity provider defines cost components differently.

Various items are factored into the equation, such as fixed-rate, variable-rate, and contract length. It is the contracting party’s responsibility to read and understand the terms, conditions, and fine print before entering into an agreement. You can check the ETF of any energy plan by reading through the Electricity Facts Label (EFL).

The good news is that if you have a Texas electricity contract, the Public Utility Commission of Texas (PUCT) has rules to prevent excessive fees. Let us know if you have any questions about this!

5 Digital Energy is here to help Texans and businesses nationwide make the best energy company decisions. Contact us if you have further questions about the end of your contract and options for early termination.

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