Signing a commercial energy contract can feel like learning a new language. Facility managers everywhere face a maze of unfamiliar terms and legal fine print - but understanding a few key definitions can help you avoid surprises and stay in control of your energy costs. Here’s your plain-language guide to the most important contract terms you may see.
Term Length
What it means:
How long are you locked into the contract?
Why it matters:
A longer-term contract can offer stable pricing, and depending on your product, more flexibility if your needs change or energy prices drop. Shorter terms can help you to renegotiate sooner, but may come with higher rates.
Termination Clauses
What it means:
Rules about how and when you can end the contract early, and what it’ll cost you.
Why it matters:
Depending on your supplier, leaving early can often mean paying an early termination fee. Make sure you know the penalty before you sign, especially if your facility might close, relocate, or change size.
Material Adverse Change (MAC)
What it means:
If something big and unexpected happens—like a new law, a natural disaster, or a huge change in energy markets—the supplier can change your contract or even cancel it.
Why it matters:
If a MAC is triggered, your rates could go up or your contract could end. Ask for clear examples of what counts as a “material adverse change.”
Bandwidth or Swing (Volume Tolerance)
What it means:
The “bandwidth” or “swing” is the range of energy you’re allowed to use under the contract, usually expressed as a percentage above or below your estimated usage.
Note: “swing” is often used in Northeast markets like NYISO, while “bandwidth” is more common elsewhere.
Why it matters:
If you use more or less than your allowed range, you may incur additional fees. This is important if your facility’s energy use is unpredictable or seasonal.
Pass-Through Charges
What it means:
To cover things like regulatory fees, grid maintenance, and fuel cost changes.
Why it matters:
These costs aren’t fixed and may change over time, even if your contracted energy rate stays the same. Always ask which charges are locked in and which can vary.
Renewal Terms
What it means:
What happens when your contract ends? Some agreements auto-renew with the same terms, while others require renegotiation or notice to terminate.
Why it matters:
Know what’s automatic and what’s negotiable. Understanding your renewal window can help you lock in better rates or avoid being rolled into a less favorable contract.
Ready to Take Control?
By understanding these key contract terms (and asking questions if anything’s unclear), you’ll be ready to sign with confidence. When in doubt, get a second opinion from an Energy Expert. A quick conversation now can save you a lot of money (and headaches) later.
