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Early termination fees (ETFs): What they are and how they work

By Tiffany Reynolds

You may encounter different service contracts when choosing an electricity provider. A key feature to consider in an energy service subscription is the timeframe of service contract.

The contract can be for an extended period of time for both prepaid or postpaid electricity plans. The ideal length of the contract may depend on where you live and how long you intend to live there.

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Evolving energy demands in Texas may compel you to switch from one provider to another even before your initial energy contract expires. Although some energy subscriptions can be reasonably simple to cancel, fixed-term contracts are not as straightforward. To finalize the switch, you may be obligated to pay a cancellation fee or an early termination fee (ETF).

Power Wizard offers insight into how ETFs work and how to avoid making termination payments to empower energy consumers.

What is an early termination fee in regard to Texas electricity?

An early termination fee, or early cancellation fee is a penalty a retail electricity provider (REP) can charge you. They do this when your switch to another provider before your contract ends. The fee ensures the provider can still earn a profit even if you decide you do not need their services anymore.

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How do these extra charges work?

There are three main types of ETFs:

  1. For contracts with flat termination fees, you pay a fixed amount of money regardless of when you terminate the contract.
  2. For prorated termination fees, the fine you pay decreases with the increasing time you spend in the contract.
  3. For liquidated damages termination fees, the provider estimates and charges the profit the contract earns on completion of its length.

Some contracts may charge more than one type of fee. You will have to check through the fine print to identify the proper clause stating the kind of cancellation fee you may end up paying.

Residential consumers often have a lower early termination fee than commercial companies. Power Wizard can determine and track your electricity plan to help you avoid incurring unexpected cancellation charges.

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How to avoid a termination charge

Early termination fees are entirely avoidable. Here are a few key steps you can take to avoid paying early termination charges to Texas electricity companies.

Pay attention to your contract terms

Before agreeing to any legal agreement with an electricity provider, you should pay close attention to the contract cancellation terms. The stipulated terms are a critical factor to consider before canceling your contract, as they can result in a costly backlash that solely rests on you.

You cannot rely on your electricity provider to highlight the terms of your cancellation fees, as it is often in the fine print.

Businesses going through a closure can have their provider’s liquidated damages valued at zero. Depending on your contract, you may not pay your energy provider a cancellation fee. If you live in Texas, use an energy empowerment company like Power Wizard to review your contract before signing to get the perfect deal.

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Avoid terminating your contract prior to expiration

The key word in “early termination fee” is early. This word indicates that you will only get charged for canceling your electricity plan before it expires. The Public Utility Commission of Texas does allow you to cancel your contract up to 14 days before the contract end date without incurring an early termination fee. Conversely, you can avoid making a cancellation payment by terminating your contract after it naturally expires and before renewing the contract.

Utilize third-party services to switch plans for you

Different energy providers offer varying discounts, pricing tiers, and charges that may or may not apply every month, depending on your power use. When electricity contract terms are unfavorable, you can switch to another retail electricity provider. You can avoid much of the hassle of changing plans by utilizing third-party services like Power Wizard.

To determine if you should make the switch before or after your current contract expires, Power Wizard will help you with a few basic rate comparisons. First, understand your current energy cost at an average rate per kilowatt-hour (kWh) by dividing the total amount due by the amount of power you consume. You can then use Power Wizard’s DIY shopping tool to find a better rate for the same amount of power use.

Comparing your current power cost to what you could be paying with a different provider will help you determine your savings per month. Afterward, you can calculate the payback period on the early cancellation fees by dividing the penalty by your monthly energy savings. The resulting figure is the months of savings it will take to recover the money you spend on paying the ETF.

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Be aware of your billing cycle and review your bill

According to the Public Utility Commission of Texas, you can avoid paying an early termination fee by switching within 14 days of your contract expiration. You may sometimes get confused about the exact date your contract expires and miss the cancellation window. Depending on your contract, the start date can be the day you sign the agreement, the day the electricity provider signs, or any other day specified on your application form.

Once you know the start date, you can use it as a point of reference to accurately calculate the end date. Although retail electricity providers are required by Texas law to alert you at least 30 days before your contract expires, you may miss this notification. You can sign up for Power Wizard’s Enroll Me service, which can help you track your billing cycle. Regular electricity plan expiration reminders reduce your chances of missing out on the contract termination window.

ETFs are supposed to be canceled if you move to another address

You may be wondering what happens to your long-term contract with your energy provider when moving to another address. If you are relocating to an address within your provider’s service area, you can transfer your existing contract to your new home.

If you are moving and wish to terminate your contract, Texas law protects you from having to pay the early termination fee. You may have to provide evidence you are moving by giving a forwarding address and other evidence that you have relocated such as a lease or closing documents.

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Why do ETFs matter when choosing a plan?

There are common — and sometimes rare or unforeseen — life changes that may compel you to consider the early cancellation of your energy contract. While electricity providers allow you to break an agreement, paying a high early termination fee can be costly.

You can flexibly switch between energy providers by opting for cheap energy plans with little to no exit fees. Power Wizard’s DIY shopping tool provides a one-stop shopping experience for anyone looking for accommodating energy retailers in Texas.

How Power Wizard can help you with your electricity needs

If you are dissatisfied with your current electricity plan and wish to avoid future mistakes on new service contracts, Power Wizard is the ideal power negotiator. You can sit back and let our experts do everything for you.

Power Wizard strives to ensure a seamless energy switch — from reading the fine print to finding rates that meet your demand — with minimal extra costs in legal or early termination fees. Try the Power Wizard Calculator to get started saving today.

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