Material changes in energy contracts can make your business energy bills go up. This article explains what a material change is. It also tells you what you should do to avoid paying too much for your utility bills. Fixed-rate energy contracts have very detailed terms. Retail energy suppliers buy energy in advance for the customer. They do this to provide the fixed rate. Because of this, their contracts include rules to protect them from losses. A material change clause is one of these rules. This article explains what a material change clause means. It also shows how you can avoid penalties from your retail energy supplier.
What Is a Material Change Contract Provision?
A material change provision lets energy suppliers charge extra costs to the customer if a permanent change happens during the contract. This usually includes any changes to the customer’s facility that change how much energy is used. This clause protects the supplier from extra costs or losses caused by major changes at the customer’s facility.
As a customer, you should understand all material change clauses before you sign a contract. If you plan to make big changes to your facility, like adding new space that will use more energy, you should talk to the supplier first. Do this before you sign the contract.
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Why Are Material Changes Important?
Material changes are important because they can strongly affect a contract or agreement. Here is why knowing about material changes matters:
- Clarity and fairness: Both sides must know about big changes. They must also agree on changes that may affect how the contract works or what each side receives.
- Risk management: Material changes can bring new risks. Each side needs to decide if they still want to continue with the new terms.
- Legal and financial consequences: Big changes may require new approvals, disclosures, or legal checks. If these changes are not handled correctly, the result may be disputes, penalties, or even a canceled agreement.
- Adjusting expectations: When a material change happens, both sides must adjust their plans, timelines, budgets, and goals.
In business agreements, material changes help make sure everyone knows about major adjustments and can protect their interests.
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What Are Some Examples of a Material Change?
A material change is any permanent change to a business or facility that affects how much energy it uses. Here are some examples of material changes:
- A manufacturer adds or removes a second or third work shift.
- A business expands its building or adds more square footage.
- A facility plans to shut down or close for a period of time.
- Equipment is replaced, changed, added, or removed.
All these examples change how much energy is used. The usage may go up or down. Any change in total energy use can cause the supplier to apply the material change clause in the contract.
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Difference Between Material Change & Usage Swing
Material Change
A material change is a big, long-term change that affects how much energy a business uses. An easy example is a facility that adds a third shift. A material change can happen when a Buyer changes operations in a way that affects their Delivery Class. The Delivery Class is the rate the utility gives the Buyer. When a third shift is added, energy use goes up, and the Delivery Class may change. This change affects how the Supplier can bill the Buyer. Billing methods can also affect pricing.
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A material change can also happen when the Buyer’s usage pattern changes. Usage pattern, also called load profile, is the timing and amount of energy use. Pricing is based on this pattern at the time of the contract. When this pattern changes, pricing may change too. A third shift spreads energy use across both on-peak and off-peak hours instead of keeping it mostly on-peak. A material change can also happen when any details on the offer sheet change. The offer sheet lists the account numbers, contract term, product, price, and other details. If an account is added or removed, this may be a material change.
If the Buyer’s usage or usage pattern changes in a big way, the Supplier may try to change the contract price. If both sides cannot agree on a new price, the Supplier may cancel the contract.
Consumption Change
The Buyer must tell the Supplier in writing if something will cause a big change in energy use. This is called a Load Change. Examples include:
- New construction, remodeling, or renovation
- Replacing a facility
- Changing or replacing equipment
- Planned closures
- Applying for new building permits
- New environmental limits
Adverse Material Change
The Buyer must give the Supplier enough notice before any business changes that may cause a significant shift in energy use. This includes adding or removing a facility.
Swing
Swing is about short-term changes in how much energy is used compared to the contracted amount. Swing products help Buyers feel safe about their budget. They work like insurance. They protect Buyers when they need much more or much less energy than expected. When a Buyer adds swing to a contract, they can buy a set amount of energy at a fixed price.
A percentage of variance is allowed, so monthly usage can go up or down without changing the price. Swing is also called bandwidth or tolerance. It is the percentage of energy that can be used above or below the estimated amount while still paying the contracted price. The allowed percentage can be anywhere from 0% to 100%.
- A 0% swing means no variance is allowed.
- A 100% swing means unlimited variance is allowed.
Using Too Much
Without swing, extra usage can be very costly. A harsh winter or a very hot summer may force a Buyer to use more energy. If this extra energy must be bought at market prices higher than the fixed contract price, the bill can be much higher. On a 0% swing contract, using more energy than contracted will increase the bill.
Using Too Little
Using less energy does not always mean saving money. It can also lead to high costs. For example, a Village added a new ballpark. They had a contract expecting 5,000 therms of natural gas. The Village knew this change might affect usage and cause penalties. They chose a Supplier offering a 100% swing product. In the end, they used only 15 therms out of the 5,000 contracted. The 100% swing protected them from penalties.
Understanding Material Change Language in Your Contract
It is always a good idea to speak with an attorney before you sign any legal contract. Material change clauses can be hard to understand, and each energy supplier defines them in a different way. This can make things confusing for many business owners. If you need help understanding your energy contract, you can hire an energy broker. An energy broker can talk with suppliers for you and help you get better terms. In some cases, these clauses can even be removed if the situation is right.
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