Commercial Early Termination Fees Work Differently (and Cost More) Than You Think
Commercial electricity early termination fees are not flat like residential ETFs. Most Texas commercial contracts use liquidated damages: a per-kWh rate multiplied by remaining contract months and average monthly usage, or the supplier's actual cost to resell your energy at a loss. Run the payback math before assuming a cheaper rate elsewhere is worth breaking your contract.
Say a Grand Prairie warehouse operator signed a 36-month commercial contract two years ago at 7.5 cents per kWh, and a competing supplier is now quoting 6.1 cents. The account runs 40,000 kWh a month, so switching would save roughly $560 a month in energy charges. There are 14 months left on the current contract, and the liquidated damages clause reads $0.025 per kWh times remaining months times average monthly usage. Run that formula and the exit fee comes to $14,000. At $560 a month in savings, it would take over two years to earn back what the fee costs. Example numbers to show the math, not a live quote. That's the math worth running before assuming a lower rate elsewhere is worth breaking a contract.
Residential ETFs Are Flat. Commercial Contracts Use a Formula.
Residential electricity contracts in Texas disclose a flat early termination fee right on the Electricity Facts Label, say $150 to $200, our own estimate for illustration, not a published statistic, the same number whether you cancel in month 2 or month 11. Commercial contracts almost never work that way. Once an account crosses into commercial rate classes, whether it's a restaurant on CenterPoint's grid in Houston or a distribution center on Oncor's grid in Fort Worth, the supplier stops guessing at a flat number and writes a liquidated damages clause into the contract instead. That clause exists to make the supplier whole for the energy they already bought on the wholesale market to cover your account for the rest of the term. The bigger your usage and the more time left on the contract, the bigger the number gets.
The Liquidated Damages Math, Worked Through
Most Texas commercial liquidated damages clauses use some version of this formula: remaining contract months multiplied by average monthly usage multiplied by a per-kWh damages rate stated in the contract. For the examples below, we use $0.025 per kWh, our own estimate for illustration, not a published statistic; your contract's actual rate will differ. Some suppliers instead calculate the actual difference between your contract price and the current wholesale or index price at the moment you leave, multiplied by your remaining forecasted usage. Either way, the fee scales with your consumption. Take a Katy retail account running 8,000 kWh a month, as an example, with the same 14 months remaining and the same $0.025/kWh rate: that account owes $0.025 x 14 x 8,000, or $2,800. Example numbers to show the math, not a live quote. The Grand Prairie warehouse at 40,000 kWh a month owes $14,000 for breaking the exact same length of contract in the earlier example. Same formula, five times the usage, five times the fee. That's the part flat-fee residential thinking gets wrong when it's applied to a commercial account.
Based on a hypothetical 40,000 kWh/month account and a $0.025/kWh liquidated damages rate. This is an illustrative calculation, not an actual supplier quote.
When Paying the ETF Beats Waiting It Out
Run the payback math before you sign anything to break a contract early. Take the monthly savings from the new rate, divide it into the exit fee, and see how many months it takes to break even. If that payback period is shorter than the time you have left on your current contract, paying the fee is the right move. In the Grand Prairie warehouse example above, $14,000 divided by $560 a month in savings is a 25-month payback on a contract that only had 14 months left. That business should sit tight and let the contract expire. Flip the numbers, though, and the math changes fast. A business relocating permanently, shutting down, or getting acquired doesn't have a future bill to offset against, so the ETF becomes a one-time cost of doing business rather than an investment with a payback period. In most cases, if you're staying in the same location and the new rate's savings don't clear the fee before your current term would have ended anyway, don't pay it. Let the clock run out and shop the account properly at renewal.
- Liquidated damages formula: get the exact per-kWh rate and calculation method in writing, not a vague 'reasonable damages' clause.
- Evergreen or auto-renewal language: know the notice window required to avoid auto-renewal, or the account rolls onto an expensive month-to-month variable rate.
- Assignment or transfer clause: whether a new tenant or buyer at your location can take over the contract instead of you paying the ETF.
- Relocation or moving-locations carve-out: whether moving your business to a new address inside the same TDU territory lets you transfer the contract instead of terminating it.
- Closure language: what happens to the ETF if the business permanently closes, is sold, or the lease ends early.
Watch for contracts that define liquidated damages as the supplier's 'reasonably estimated damages' without naming a per-kWh rate or formula. That language lets the supplier calculate the fee however they want after you've already asked to leave. Get the number in writing before you sign, not after you're trying to get out.
Ask specifically for a moving-locations carve-out before you sign a multi-year commercial contract. Ask for language letting you transfer the remaining contract to a new business address inside the same TDU territory, Oncor to Oncor, CenterPoint to CenterPoint, without triggering the early termination fee, if you request it during negotiation. This clause is easy to miss in standard paperwork, and once you've already signed, suppliers have less incentive to add it. A restaurant group expanding from one Dallas location to a second one in Fort Worth wants this clause in writing before opening day, not after.
Before you assume you're stuck in a bad contract, or before you sign a new one without checking the exit terms, get a broker to review it. Voltcheckr compares real Texas commercial contracts and flags liquidated damages language before it costs you.
Get My QuoteFrequently asked questions
No. Residential ETFs in Texas are a flat fee disclosed on the Electricity Facts Label, the same amount no matter when you cancel. Commercial ETFs are almost always liquidated damages: a formula based on your remaining contract months, your average usage, and a per-kWh rate, so the fee scales with the size of your account.
Check your contract for the liquidated damages clause. Most use remaining months times average monthly usage times a stated per-kWh rate specific to your contract. Multiply those three numbers together for a rough estimate, then compare that to the monthly savings a new rate would actually give you.
Only if the payback period is shorter than your remaining contract term. Divide the exit fee by your projected monthly savings on the new rate. If that number of months is less than what's left on your current contract, paying the fee makes sense. If not, wait out the contract and shop it properly at renewal.
It's a clause that lets you transfer your remaining contract term to a new business address in the same TDU territory instead of paying an early termination fee when you relocate. Ask for it in writing before you sign, since it can be harder to add once the contract is already signed.
In most cases you still owe the liquidated damages fee unless your contract has an assignment or closure clause that says otherwise. Check for language allowing a new tenant or buyer at the location to take over the contract, which can avoid the fee entirely.