Updated: Oct 5, 2020
When it comes to electricity and natural gas suppliers, the last thing you want to deal with is unexpected Early Termination Fees (ETFSs) or Early Termination Penalties (ETPs) on your contracts. Especially after negotiating energy contracts with third-party suppliers to save money and reduce operating expenses.
Over the years, we have noticed that—although our clients have the best intentions—some are unaware of changes that cause energy suppliers to charge early termination penalties. Our team put together this article to help you be proactive and avoid unnecessary fees.
Here are three main reasons we find our clients facing an ETFS or ETPS:
New tenant takes over their utility account. Why this causes early termination fees: BGE assigns account numbers to all electricity and gas accounts. When your energy consultant procures and negotiates a commodity contract with an energy supplier, your BGE account numbers are given to the energy supplier. In this example, let’s say you have a new tenant move into your office building. The new tenant agrees to pay for their electricity costs and, therefore, they start their own account with BGE. The new account generates a new account number and, in turn, triggers an account drop for the energy supplier. The energy supplier will immediately receive notification that the account number has dropped and will charge you an early termination fee. Even if the new tenant intends to keep the same electricity supplier, any changes in the name of the account will cause the account to drop. In a lot of cases, a tenant may not even realize that opening a new BGE account will drop the landlord’s account. How to avoid this problem: Before negotiating contracts for your utility accounts, take into consideration which accounts you have control over versus ones that may have varying owners over time. This should also be considered at the negotiation table with the tenant and their lease. In the example above, the owner can include the electricity fees in the tenants’ leases and keep the utility accounts in the owner’s name. Also, the tenant can simply agree to assume the existing energy contract through a Change of Ownership (COO) process.
Changing owners / the name of the legal entity. Why this causes early termination fees: When a buyer purchases a building, they decide what, if any, contracts they would like to keep. Whether or not they choose to keep the contract, simply the changing in the name of the legal entity will cause the account number to be dropped. When the account number is dropped, the energy supplier will charge early termination fees. How to avoid this problem: Before selling a building, consider the early termination fees you will incur. Early termination fees differ depending on the energy supplier, the amount of time left on your current contract, and how large the account(s) are. These fees can often be avoided by having the new owner assume the existing energy contract. Also, many suppliers can offer clauses in energy contracts that allow for building owners to break their contracts early without penalty in the event of a sale. Consider negotiating for exit language when structuring your next energy contract.
Changing energy suppliers unexpectedly because more than one person was negotiating electricity contracts. Why this causes early termination fees: If two people in the same company are working with separate energy consultants and each consultant negotiates a separate energy contract, whoever negotiated the most recent contract will ultimately be selecting the supplier of record. The previous energy supplier will immediately receive notice that the account has dropped and will charge an early termination fee. In cases with large office or apartment buildings, this fee can be enormous. How to avoid this problem: Internally delegate one person to be in charge of all energy contracts to avoid overlap and unexpected changes in suppliers. Before negotiating any energy contracts, make sure you know exactly who is in charge of doing so and clearly communicate this with your team.
Bonus Tip: Be aware of energy consultants with bad intentions. Unethical energy consultants will try to offer you discounts and rewards for breaching your energy contract and switching to a new supplier, without informing you of the early termination fees you will incur from your current energy supplier.
At MD Energy Advisors, we help you negotiate the best energy contracts. Our goal is to advise you so you never run into these issues in the first place. And if you run into any of the issues above, we work with you to help find the best solutions. If you need help with your energy management, please contact us at 410-779-9644.
MD Energy Advisors demystifies energy through education, and can help commercial real estate clients increase asset value by anticipating and solving their energy problems. Learn more at www.mdenergyadvisors.com or call us at 410.779.9644.