A commercial electricity contract sets more than just the rate — it determines how the price can change mid-term, what happens when the contract expires, and what it costs to leave early. The clauses around those three questions are where most businesses get surprised.
Product type (fixed, variable, or index) sets your baseline risk. Term length affects how forward-curve pricing at signing translates into day-one rates. And several specific contract provisions — early termination fees, auto-renewal windows, bandwidth clauses, and pass-through costs — can each swing the total cost of the contract more than the headline rate will.
Commercial electricity contracts fall into three pricing structures. Each behaves differently when the wholesale market moves.
| Product type | How the price behaves | Best for |
|---|---|---|
| Fixed-rate | Supply rate is locked for the full contract term. Does not move with the wholesale market in either direction. | Businesses that need predictable operating costs and cannot absorb price spikes. |
| Variable-rate | Rate floats each billing period, typically pegged to a published index or the utility default service rate. No floor, no ceiling. | Businesses with flexible budgets that want to benefit when markets soften, and can accept exposure when they tighten. |
| Index / market | Priced at a real-time or day-ahead market index — typically LMP — plus a fixed supplier adder. Price can change hour by hour or day by day. | Larger commercial or industrial customers with interval meters and active load management programs. |
Fixed-rate contracts are the most common choice for small and mid-size commercial customers. Variable and index products reward businesses that have the operational flexibility to shift loads away from high-price intervals — without that flexibility, the risk premium rarely pays off.
Commercial supply contracts typically run 12–36 months. Longer terms are not inherently cheaper — the rate a supplier quotes is derived from the forward curve at the moment of quoting, not from a discount for commitment length. A 36-month contract signed today locks in today's forward prices for three years. If the forward curve is elevated at quote time, a 36-month lock costs more in year two and year three than a series of 12-month renewals would — if market prices fall.
Longer terms do provide certainty. Businesses launching capital projects or lease negotiations often value a rate that will not change for 24–36 months, independent of what the market does. The choice is between cost certainty and cost optimization — both are legitimate priorities depending on the business.
One practical rule: quote multiple term lengths at the same time. A supplier can usually show 12-, 24-, and 36-month pricing in a single quote. The spread between those numbers tells you what the market is pricing into the forward curve — and that information is more useful than a commitment made without it.
Most commercial contracts auto-renew unless the customer provides written cancellation notice within a specified window — commonly 30 to 90 days before expiration. Contracts that roll past their end date typically move to month-to-month holdover rates, which are priced well above the locked contract rate and above what a new fixed contract would cost. Businesses that miss the cancellation window can find themselves paying holdover pricing for months before the next contract can take effect. Set a calendar reminder at least 120 days before any contract end date.
Early termination fees compensate the supplier for unwinding the hedges it placed when it locked your rate. ETF structures vary: some contracts charge a flat fee per remaining month; others charge the mark-to-market value of the remaining hedge position, which can be very large if market prices have moved significantly since signing. Before signing any contract, ask for the ETF calculation method in writing — "mark-to-market" ETF language is material and the fee structure should appear in the contract terms, not just the confirmation letter.
Bandwidth clauses (also called swing bands or usage collars) allow the supplier to reprice usage that falls above or below a defined percentage of the forecast volume. A contract with a ±10% bandwidth reprices any consumption outside that band at a different — typically less favorable — rate. Businesses with variable operations or seasonal load profiles should model their usage against the bandwidth before committing. Exceeding the band upward in a hot summer can offset the savings on the base rate.
All-in contracts bundle supply, capacity, transmission, and ancillary service costs into a single per-kWh rate. The supplier absorbs any movements in those components for the contract term. Pass-through contracts charge a fixed supplier adder over actual cost — so capacity and transmission charges flow directly to the customer at whatever they land. Pass-through pricing can be lower when those markets are stable, but capacity auction results and transmission tariff changes can move mid-contract without warning. Know which structure you are agreeing to before comparing quotes from different suppliers — an all-in quote and a pass-through quote are not directly comparable numbers.
Material-change clauses give the supplier the right to reprice or terminate the contract if the customer's load profile changes substantially — for example, if a manufacturing line goes offline and consumption drops, or if a new facility is added and consumption spikes. These clauses protect suppliers from being locked into a losing hedge position, but they can also expose growing businesses to unexpected repricing. Businesses planning expansions, closures, or equipment changes should discuss material-change thresholds with the supplier before signing.
Blend-and-extend is an option suppliers offer when market prices have fallen below the customer's locked rate. The supplier blends the remaining locked volume at the current rate with new forward-curve pricing for an extended term, producing a new blended rate lower than the original. The business gets immediate bill relief; the supplier retains the customer for a longer period.
The mechanism works in the customer's favor when the market has dropped significantly and when the blended rate is genuinely lower than what a new contract would cost. Two things to check before accepting: first, whether the new blended rate is actually competitive against current market quotes — sometimes the blended rate still carries the old rate's premium. Second, whether the extension resets the ETF exposure back to a full-term calculation.
Blend-and-extend is not available in every market or with every supplier. Requesting competing quotes before approaching the current supplier gives you the leverage to evaluate whether the offer is genuine savings or a retention tactic.
A commercial electricity contract is a supply agreement between a business and a competitive electricity supplier. It sets the price (or price mechanism) for the energy portion of the bill, the contract length, and the conditions under which the price can change. The delivery portion — wires, poles, and utility infrastructure — remains regulated by the local utility and is not part of the supplier contract.
A fixed-rate contract locks the supply price for the contract term, typically 12–36 months. The rate does not move with the wholesale market, so your supply cost is predictable regardless of market conditions. A variable-rate contract floats with the market — often benchmarked to a published index or the utility default service rate. Variable rates can fall below the fixed rate when the market softens, but they carry no ceiling if prices spike.
Blend-and-extend is a mid-term renegotiation in which a supplier offers to lower your current locked rate in exchange for extending the contract length. The new rate blends the remaining locked volume at the old price with new forward-curve pricing for the extension period. It benefits the business when markets have dropped since signing, but extending the term also resets early termination exposure — evaluate the new ETF before accepting.
An auto-renewal clause (sometimes called an evergreen or holdover clause) moves a contract to a new term automatically if the business does not provide written notice of cancellation within a specified window — often 30 to 90 days before the expiration date. Holdover rates are typically month-to-month pricing priced well above the fixed-contract rate. Setting a calendar reminder 120 days before contract expiration is the simplest way to avoid rolling into a holdover period.
All-in pricing bundles supply, capacity, transmission, and ancillary charges into a single per-kWh rate. The supplier absorbs cost movements in those components for the contract term. Pass-through pricing (also called index-plus or cost-plus) charges only the supplier's margin at a fixed adder, while capacity, transmission, and ancillary costs flow through to the customer at actual cost. Pass-through contracts carry more mid-contract price risk but can be lower cost when capacity markets are stable.
Send us a recent bill and your contract end date. Our commercial team pulls competing fixed-rate quotes across available suppliers in your territory — free, with no obligation to switch.
Get competing quotesThe four-step process and the contract terms to check before you sign.
How brokers and online marketplaces differ — and who pays them.
Customer charges, riders, and the lines suppliers don’t quote.