What Are Early Termination Fees?
Early termination fees are charges applied by retail energy suppliers when a customer ends a contract before its agreed-upon end date. These fees exist because, when a supplier enters into a fixed-rate agreement with a customer, they often purchase—or commit to buying—the required energy upfront based on that agreement.
By doing this, the supplier locks in the energy price for the duration of the contract. However, if the customer breaks the contract early, the supplier may be forced to sell the pre-purchased energy back into the market, possibly at a loss, especially if market prices have changed.
In their contracts, energy suppliers typically include early termination penalties to protect themselves from potential losses. These fees are designed to help recover costs and manage risks related to changes in energy prices.
How Much Is An Early Termination Fee?
If you end your payment service contract early, you might have to pay a fee. This fee depends on the rules in your contract. Some providers charge a flat fee, which means you pay the same amount, no matter how much time is left in your contract. This can be around $250 to $500. Other providers use a prorated fee, which means the amount you pay depends on how many months or years are left in your contract. The less time left, the lower the fee.
There’s also something called a liquidation termination fee. This is an exceptional amount that you and the provider agreed on. It depends on your business size and how much money you process. Always read your contract carefully — including the fine print — so you know what to expect if you decide to cancel early.
Can You End Your Energy Contract Without Paying a Fee?
It depends on your contract. Some energy contracts for homes and small businesses don’t charge a fee if you end them early. If you have this kind of contract, you can leave it without paying extra. But most business contracts—especially for large Businesses—have early termination fees. These fees can be expensive. Want to know how these fees are calculated?
Read more below.
How Are Early Termination Penalties Calculated?
Early termination penalties are fees you may pay if you cancel your energy supply contract before it ends. These fees are usually written in the contract under a “liquidated damages clause.” This clause allows the energy supplier to charge you for the remaining energy you would have used if you had stayed with the contract.
The penalty is calculated using a formula that looks like this:
(Contract price per kWh) – (Current market price per kWh) x (How much energy is left on your contract)
If you cancel early, you may have to pay a large fee based on how much energy you were supposed to use and the difference between the contract and current market prices. These penalties can be high, so it’s often not worth breaking the contract early.
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The Variables of Early Termination Fees
Early Termination Fees (ETFs) are charges you may have to pay if you cancel your contract before the agreed period ends. These fees can vary based on several factors:
Fixed-Rate vs. Variable-Rate Plans:
- Fixed-Rate Plans: These plans lock in your electricity rate for a set time, usually leading to higher ETFs.
- Variable-Rate Plans: With these plans, your rate changes with market prices, and they tend to have lower or no ETFs.
- Contract Length: Longer contracts might have higher ETFs because the provider has committed to securing rates for you over a more extended period.
- Fee Structure: ETFs can charge a flat fee (a set amount) or a declining balance (where the fee decreases as you approach the end of your contract).
- Regulations: Some regions have laws limiting the amount or time ETFs can be charged, offering consumer protections.
- Waivers: Providers may waive ETFs in certain situations, like if you move out of the service area or face financial hardship.
Understanding these factors can help you decide more about your contract and whether an ETF might apply.
Fixed Early Termination Fee (ETF)
A Fixed Early Termination Fee (ETF) is a penalty that some energy suppliers charge if you cancel your contract before it ends. The fee is often a set amount for smaller businesses and homes instead of being based on how much time is left on the contract. This fee can range from $10 per month for the remaining months to a flat fee of $500, or something in between. Many Energy Suppliers choose not to charge an ETF for residential contracts.
How Are Early Termination Fees Billed?
Early Termination Fees (ETFs) are charges customers may face if they cancel a contract with a supplier before it ends. In most states, the supplier sends a separate bill for this fee, even if the customer’s regular utility bill is combined with the supplier’s charges. However, some states, like Delaware, allow the supplier to add the fee directly to the utility bill. Customers are often surprised when they see a high bill with an ETF included. No matter how the fee is billed, customers must pay it if they break the fixed-rate contract with the supplier. ETFs are used to make sure customers stick to their agreements.
What To Do When You Receive An ETF
If you receive an early termination penalty (ETF) from your energy supplier, don’t worry! First, check if you accidentally broke your fixed-rate contract. Maybe your energy broker didn’t tell you about an account change, or another supplier tricked you into switching (this is called “slamming” and it’s an energy scam). It’s important to find out why you were charged the penalty.
After that, contact your supplier and try to work out a solution. If you have a retail energy broker, they can help you fix the issue. A good broker will know how to handle these penalties and help you return to your old contract without extra cost. However, if you cancel the contract early on, you’ll probably need to pay the supplier a penalty. Here are some tips when you receive an ETF from your energy provider:
Need Help Navigating an ETF?
1.Get An Explanation
If you received a notice about your energy contract, contact your supplier or energy broker as soon as possible to understand why. If you didn’t mean to cancel your contract, there might be a short time to re-enroll and avoid cancellation fees. A good energy broker can help catch up when an account is dropped and might be able to re-enroll you without incurring any extra fees. You should get a notification from your broker if your account is dropped so that you can take action and re-enroll.
2. Ask for a Detailed Calculation of the Early Termination Fee
If you want to end your energy contract early, your supplier might charge you a fee. Ask them to give you a detailed breakdown of how they calculated that fee. Look at your contract to see how the cost should be figured out. For example, if the contract says they can charge you the difference between your rate and the current market price for energy, ask them to show you that information. Make sure the numbers they give match what the contract says.
3. Talk to Your Energy Supplier About the Fee
If you end your energy contract early, you might have to pay an early termination fee (ETF). But sometimes, energy suppliers are open to talking about this fee. Many people just stop paying, and their accounts are sent to collections. That’s not a good idea. If you ended your contract by mistake and can’t get it back, try talking to your energy supplier. They might be willing to lower the fee or make a payment plan with you.
How to Avoid Energy Contract Early Termination Fees
Nobody likes paying extra, especially early termination fees (ETFs) on energy contracts. The best way to avoid them? Don’t break the rules of your contract. But there are also a few other smart tips to help you stay fee-free:
Keep Your Info Private
Your electric or gas company might put your account info (like your name and address) on a public list called an Eligible Customer List (ECL). Licensed energy companies can see this list. But sometimes, bad companies use it to sign you up for contracts without your permission—this is called “slamming.”
To avoid this, ask your utility company to remove your information from that list. It will help protect your account.
Try a "Blend and Extend" Deal
Let’s say you signed a contract when prices were high. Now, prices are lower, and you want to cancel—but that could mean paying an ETF. A “blend and extend” deal might help.
Here’s how it works:
- You have 18 months left on your contract at 10.5 cents per kWh.
- Now prices are 8 cents per kWh.
- Your energy company offers a new contract at 9 cents per kWh if you agree to extend your current contract for 12 more months.
This way, you get a better rate without canceling the contract and avoid paying the early termination fee.
Take Control of Your Energy Choices for a Brighter Future
Take control of your energy future by understanding your current electricity plan. Compare it with other options to see if there are better deals available. Know early fees for ending your contract, so you’re not surprised. Knowing your options will help you make smart choices about your energy use. When you make informed decisions, you can create a brighter, better future for yourself.