We have a customer whom we shall call Steve to protect his identity (and also because that is his name. Hi, Steve!) Years ago, Steve signed a contract with an electricity provider for a very long term. In fact, his contract will not expire until 2018. Rates are about a penny lower per kWh these days and he wants to know his options.
The building in question consumes about 300,000 kWh/year. This means that with rates so low, he could save $3,000/year by switching to a lower rate with Shop My Power! So now his questions become:
What will it “cost” to get out of my current deal? Or in technical terms: What is the early termination penalty?
What are the other consequences of doing so?
First thing to do is look at the contract language,then find something that says “Early termination” or “cancellation fee.” Here is Steve’s pulled off his contract:
Oh you can’t see it because it is so tiny? Imagine that. Well basically the supplier is saying, “Hey! You told us you wanted us to buy power for you for umpteen years, so we went out and bought it in advance (maybe). Now you want out and that’s cool, but you have to pay me what I am out, here.” Now there is the word “PLUS.” Do you see it? It’s underlined on the bottom line. This sentence says, “Oh, and on top of paying us what we are out, we can charge you whatever the heck else we want to (cough.)”
Well, OK then. At this point, you get on the horn (smile and dial!) and ask your supplier to provide to you in writing exactly what it will cost to get out of your deal and ask them if they are willing to restructure your agreement to better reflect today’s prices. Most often, the answers will be super expensive and no, they will not deal. A little tip though – you will kill more flies with honey here.
Next Question: What are his options with his current supplier?
Enter broker! A broker can usually tell you if the supplier you are stuck with even pursues termination fees. Some suppliers have the language in their contracts but have no internal processes in place to pursue early termination. Sorry, Steve. Your big boy supplier will pursue.
Now we look at options WITH that supplier. If your broker has a supplier contract with your supplier (we do, because we have one with almost every player around these parts) Then we can usually get them to do a “blend and extend.”
Blend and Extend: (V) to add term length to your current deal at today’s lower rate, then take an average of the old rate and the new rate and start saving today with the new averaged rate applied immediately on your next billing cycle in exchange for a longer term.
Only, does Steve really want to lock in until his grand kids have grand kids for a little bit of relief today? I dare say, no. This brings us to Steve’s final inevitable thought on the matter: If I break the contract and run, how much can I save over the term and what will happen to me and my credit?
Let’s tackle the easiest questions first. When it comes to how breaking the contract will affect your credit or financial reputation depends on how big of a business you are. For Steve, he is a medium sized commercial building and probably won’t be talked about in the electricity circles. I have a customer from a couple of years ago who was notorious for contract termination and by the time they got to me, no one was willing to book their deal without a hefty deposit and steep rate. Same thing goes if you break contracts and do not pay the ETF at all. In some states outside of Texas, if you do not pay your supplier fees, you cannot get power from anyone because the utility puts a switch hold on your account. This means for some areas, pay your bill if you want to have light to read your bill.
Let’s do the simple version: Looks like Steve would at least owe the cost of his power through the rest of his contract to his supplier if he terminates. If you do the math, that’s over $9,000.
So if you are in a contract that is very long and you can’t comfortably wiggle out of it, then read this article about why your neighbor’s seemingly lower rate might not be as low as you think. It might make you feel better. Remember, the 0.053 rate he has is still a decent rate he can be happy with. 2018 will be here before we know it, and we will be here waiting for your call in late 2016 or early 2017 to start shopping for your future starting contract.