When you signed your commercial electricity contract, it included a list of meters and service addresses covered by the contract. It also included benchmark usage information (typically your historical usage) and clauses about penalties for material changes in usage.
All that comes into play when things change. Whether it’s an additional location, moving to a new location, adding new equipment or selling your business, material changes can have an impact on your electricity contract. This article will help you understand what to look for.
Electricity Contract Move-Out/Transfer of Service
You’re moving to a new location. Everything is packed up and ready to go. But what about your lights?
Your contract may be transferable to your new location, especially if the square footage, operations and utility are the same.
Before you execute the contract transfer be sure to look at your termination clause in your agreement. If electricity rates have dropped, you could be better off terminating your current agreement and entering a new contract at your new location.
You will also want to check if an building inspection may be required in your new location. Depending on your city, a move-in, i.e. putting the electricity in your business name at a new location, could trigger an inspection and permitting requirement.
Addition or Deletion of Facilities
If your company is adding a new location or removing a current location, review your contract looking for clauses regarding add/delete and material change.
Your agreement is based on the Retail Electricity Provider’s benchmark of your monthly usage, typically calculated based on your historical usage. There will be a bandwidth section of your agreement, noting the percentage below or above this benchmark you are allowed to go, before triggering a rate adjustment.
As long as the addition or deletion of facilities does not bring you outside your bandwidth agreement, this is usually simple paperwork with your REP to add or delete a location.
If you are adding a location, remember to check the current electricity pricing. As long as you don’t mind managing multiple contracts, you may be able to get better pricing by entering a separate agreement for the new location.
Electricity Contract When Buying or Selling a Business
Buying or selling a business? Check the section of the contract related to assignability.
If the contract is transferrable to the new party, the first decision is whether the buyer wants to assume the agreement. They should check current electricity rates first. If the contract rate is lower than current offerings, it makes sense for them to assume the contract.
If the contract rate is higher than current electricity prices and the buyer doesn’t want to assume the contract, you’ll need to determine the early termination fee for your contract. Make sure you include this cost when figuring out the asking price for your business and calculating net proceeds.
Contact your Retail Electricity Provider to discuss the sale of your business. They will advise you on both the assignability and any possible liquidated damages if the contract isn’t transferrable.
And if the contract is assignable, the buyer may need to submit to a credit check of their business.
Whatever you decide about transferring utilities to the new business owner, make sure it’s in writing as part of the business purchase agreement.
Adding Operational Capabilities to your Business
If electricity is a big part of your operations, such as with a machine shop or other manufacturing, upgrading your equipment could trigger changes to your electricity usage and your contract.
Do a quick calculation of how much electricity your new equipment will use, based on the wattage and hours you will use it. (You can view sample kWh usage calculations to see how to calculate this.)
Then call your retailer! Major changes to your operation could trigger bandwidth violations. Suppliers regularly review your usage to confirm it’s within contract guidelines. Anything that’s consistently outside your bandwidth could trigger a contract review.
Communication is Key to Managing Change
Communicating with your electricity provider is the most important part of managing changes to your agreement.
Don’t assume “everything will be fine” or “they won’t notice the extra usage.” Work with your account representative to fully understand your contract and what provisions may be triggered by new locations, operational changes or the sale of your agreement.
Working with an energy broker can help alleviate some of these issues. A broker can fully explain your contract terms, and can guide you in managing your contract.
