Energy Contract Length Can Influence Rates | Contract Terms and Conditions

Published: April 10, 2018

Switching from the utility to a third party supplier for the supply portion of your energy bill provides more rate options as well as terms of the agreement. Giving you more control over an energy agreement.

Many factors can influence rates, but the utility, season, and term length are the most important. For example, if a business signs a 12-month term for electricity which ends in March, rates are likely to be more favorable versus an 18-month term ending in the summer because electricity rates often increase in the summer months (June through August). If the same customer signs an 18-month natural gas contract starting in November thus ending in the spring, they miss the high gas rate winter season.

The spring and summer months are what’s known as the “shoulder season” due to mild temperatures. Contracts ending during the shoulder season may also decrease the renewal rate. Why does the shoulder season lower rates? Mild temperature lowers the market, allowing suppliers to hedge the electricity or natural gas purchase while the market is down.

Working with an energy advisor ensures an energy expert is looking at your account, watching the market, and finding the best time to sign a new contract. Some suppliers will only provide standard terms – 12, 18, 24, and 36 months. Diversegy is also able to identify the sweet spots – terms where the price drops below the standard months, resulting in additional savings for the customer.

There are many things to review in an energy contract as no two suppliers have the same language. A customer should be aware of their contract expiration date (link to contract expiration), “auto-renewal” language, and material change language. On a fixed price contract, also be aware of any pass-through components including those related to regulatory increases that may be imposed on the supply portion of a bill. This will occur if a utility apples for an increase in these charges with the FERC.

Curious about other items to look out for in the terms and conditions section of your energy contract? Click the “Free Analysis” button.

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