Electricity supply agreements are a crucial component of managing energy costs for businesses and organizations. These contracts often span several years and come with complex terms and conditions. But sometimes, businesses may need to terminate their electricity contract before it’s over. In such cases, understanding the different termination options is essential.
There are a few options if the business needs to terminate the agreement early:
- Assignment: Assignment involves transferring the agreement to a new party. The new party agrees to take over the contract, including the terms and conditions. The supplier must agree to taking 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. This option is suitable for businesses that want to sell their operations or move to a different location.
- Site Substitution: Site substitution involves replacing one site with another under the same 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.
- If selling or going out of business, there are some 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.
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. Most suppliers calculate the early termination fee as a function of time left on the contract and market price of electricity. The supplier will determine the market rate of electricity and take the delta of that and the contracted rate. That difference multiplied by the months remaining in the agreement term will be the fee assessed by the supplier. Each supplier defines these cost components differently, and it is the contracting party’s responsibility to read and understand the terms and conditions before entering into the agreement.
As always, 5 Digital Energy is here to help you make the best energy decisions for your business. Contact us if you have further questions about options for your early termination.