What should you do if you are in a contract and electric rates go down? What if you find another electricity plan from another provider that’s better? What if you are moving? The answers depend on your specific situation. Each electric supplier has a unique policy for early termination fees and each state has their own rules about what your supplier can charge in different situations.
Customers generally love electricity deregulation because it gives them the power to choose their energy provider and the price they pay for electricity. With this freedom of energy choice comes many decisions. One of those decisions is whether or not to enter into a long-term contract with a provider. Retail electricity providers offer customers contract choices that can range from month-to-month (no obligation) to five years (a seriously long-term obligation) and everything in between. Signing a contract with an electricity provider means that you have certain obligations but what are they?
The bottom line is that you can still shop for electricity rates and plans even if you are in a long-term contract. However, if you switch before the end of the initial term of your contract you will likely have to pay an early termination fee. Depending on your situation and your contract, that may be a decision worth crunching the numbers over.
Scenario #1: “I Found a Better Electricity Rate But I’m in a Contract”
Electricity rates fluctuate regularly. In most of the U.S., electric rates are highest in the summer and lowest in late winter/early spring. Because summer is a popular time to move, people often find themselves shopping for electricity during the time of year when rates are the highest. When it comes time to renew their contract, they are stuck in a cycle of renewing when rates are the highest. It’s no surprise that these customers are frustrated when they notice lower rates available during other times of the year.
If you find yourself in this situation, take a look at your contract or call your provider. Providers are required to disclose the early termination fee which can range from $0 – $275 or more. Some providers will waive the fee if you simply call them directly. Other providers may only charge a fee per month remaining in the contract. Know what the termination fee is for your contract and then you’ll be able to make an economic decision.
If you happen to live in Connecticut, the Public Utilities Regulatory Authority caps your early termination fee at $50.
How to decide if it’s a good idea to pay an early termination fee and get out of your contract
To figure this out, you’ll need to spend a few minutes doing some basic rate comparisons.
First, grab your most recent electric bill. Take the total amount due and divide by the amount of energy you used (kWh) during this billing cycle to calculate your average rate per kWh. Below is an example of a Texas utility bill and for this example you would make the following calculation for average rate per kWh:
$137.08 + $102.33 = $239.41/2727 kWh = 8.78 cents per kWh
Second, use ElectricityPlans.com to easily find a better rate for the same energy usage. You can calculate within a few pennies what your new electric bill would be by using the pricing details section included in each electricity plan on the shopping page.
If the total savings that you would realize after taking into consideration any early termination fees is significant enough to you, then it is a good economic decision for you to switch plans. Other than the early termination fee, there is no other penalty for breaking the contract with your current provider.
Another consideration is average billing. If you signed up for average billing with your provider, you will be required to settle up any deferred balance on your contract if your terminate it. To learn more about average billing, check out How Does Average Billing Work?
You may determine that it’s worth paying the early termination fee to get out of a high-priced contract with your current provider. However if you don’t want to change providers, you can always call them and see if they will re-negotiate your contract at a better rate. Providers don’t like to lose customers and they may be willing to work with you and offer a better rate if you extend the length of your contract with them. It’s worth asking.
Scenario #2: “I’m Moving But I’m in a Contract”
You’re moving and you’re in a long-term contract with your electricity provider. Fortunately, you are protected. Every state has provisions that prevent electricity suppliers from charging you an early termination fee if you move during the term of your contract. Your provider may require proof of your change of address in order to waive the cancellation fee. If you are moving within the provider’s service area, you may be able to transfer your existing contract to your new address but you are not required to.
Scenario #3: “I Just Signed a Contract with a New Electricity Provider but Found a Better Rate the Next Day”
Most deregulated states give you two or three business days to cancel your contract without penalty. For example, in Texas you have three business days to change your mind after you sign up with a provider. If you find a better rate a day or two later, it’s not a problem. The number of days that you have to change your mind is outlined in the terms of service included with your new electricity contract.
Should I Stay Or Should I Go?
It’s not a good feeling to be stuck in an unfavorable contract with your electricity provider. Know that you have options and you don’t have to wait until the end of your contract term to make a change. After evaluating your specific contract, you may come to the conclusion that paying an early termination fee makes good economic sense because it saves you money in the long run. ElectricityPlans.com helps you compare electricity rates and find the best plan for you.