Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Energy contract termination – why it pays to read the small print

Switching to a new energy supplier at the end of your contract may not be as straight-forward as it sounds.  Many contracts contain fairly lengthy termination clauses, meaning you could be required to inform your supplier of your intention to leave several months before the end of the contract.   

“This is a really important point that many people miss,” advises Mike Jones, MD.  “Most energy suppliers want 3 months’ termination notice.  This means the notice period must begin 3 months in advance of the contract expiration date.  It doesn’t mean that you give 3 months’ notice when that expiration date is reached – by then it’s too late.”

Consequences of late energy contract termination  

If you wait until the expiration date to inform the supplier you’re going to leave, the consequences can be quite severe. Your current supplier is likely to be able to automatically tie you in to another longer-term contract – usually 12 months – with energy priced at a much higher fixed rate than you’re used to.  Not only does this mean there’s a strong chance that you’ll have to pay more for your energy, it also means it’s increasingly difficult to accurately predict your energy consumption costs.

When companies are faced with this so-called ‘contract rollover’ situation, it can force a knee-jerk response to energy management.

Instead of considering energy consumption and cost on an on-going basis, this sort of problem takes up an inordinate amount of management time and focus which could be better spent elsewhere.

Avoiding contract termination pitfalls

Managing your energy contract may sound simple enough, but when looked at in context of all the other priorities that management teams face, it’s not surprising that clauses are forgotten about or misunderstood.  The problem is less profligate among large businesses who probably have facilities management teams with energy as part of their remit, but more so among small and medium-sized firms where the finance director is often left accountable.

To negate energy contract issues in your business, we always advise:

  • Read your contract – don’t just glance over it – and consider the implications of the clauses.  Even if it all looks fairly standard contract, make sure it works around the unique needs of your business from the outset.
  • Most contracts contain termination clauses.  Make a note in your schedule to ensure you begin considering your energy supply well in advance of the termination period.  
  • Better still, make energy management a regular feature on the agenda of your management meetings.  Not only does this help manage energy costs on an on-going basis, it also means you’re less likely to miss important dates like your termination or renewal date.

Here at IEC we manage energy contracts on behalf of a large number of clients, such as KK Fine Foods and Richard Burbidge.  This frees up their management time and ensures their energy supply contracts are administered effectively.  Contract terminations and/or renewals are a key feature of our energy management service.

For further information on any aspect of energy management for your business, please contact us today on 01244 571830.

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