Commercial Electricity Contract Terms, Explained Before You Sign

In a labeled example, say a Houston warehouse runs 42,000 kWh a month and signs a 24-month fixed contract at a supply rate of 7.2 cents per kWh, for an estimated bill near $3,024 a month. Example numbers to show the math, not a live quote. Six months later, say the operation adds a second shift and usage rises to 58,000 kWh, a 38% swing above the contract's estimated volume. If that contract's bandwidth tolerance is only 10%, the supplier has the right to reprice everything above that band at the current market rate, not the locked-in 7.2 cents. That one clause, buried on page four of a contract many owners skim past, can meaningfully increase a single month's bill. Texas commercial electricity averages 8.66 cents per kWh all-in against a 14.19-cent national average (EIA, 06/2026); that figure is all-in, covering supply and delivery, while a supplier's contract quote covers supply only, so the two aren't directly comparable. Even so, that headline comparison means little if a swing clause, a holdover rate, or an early termination fee is quietly rewriting your math.

Every fixed-rate commercial contract is built around an estimated annual volume, not a blank check. The bandwidth clause, sometimes called a swing clause, sets how far your actual usage can move above or below that estimate before the supplier can reprice, add a fee, or in some contracts cancel the deal. Say your contract sets a bandwidth tolerance between 10% and 25%; some contracts, especially for large industrial accounts, set tighter bands. If your business runs steady month to month, this clause rarely matters. If you're a restaurant adding patio seating, a retailer staffing up for a holiday season, or a warehouse bringing on a second shift, it matters a lot. The fix isn't avoiding bandwidth clauses, every commercial contract has one. The fix is negotiating a wider band before you sign if you know growth or seasonal swings are coming, and asking your supplier exactly what rate applies to usage outside that band.

A material change clause lets the supplier revisit pricing if something fundamental about your account changes: you add a location, swap in equipment that changes your load profile, your TDU tariff changes, or your usage pattern shifts enough to change your load factor. It's a legitimate protection for the supplier, but vague language here is where businesses lose control, because "material" is rarely defined with a hard number. Ask for a specific threshold in writing before you sign anything. Holdover is a different problem. If your contract ends and you haven't signed a renewal or switched suppliers, most contracts don't just stop, they roll you onto a holdover rate that can run well above your expired contract, billed month to month until you take action. In a labeled example, say a Dallas commercial account runs 38,000 kWh a month. At an 8-cent supply rate, that's roughly $3,040 in energy charges. Example numbers to show the math, not a live quote. If that account then slides into a holdover rate priced 3 cents higher for two billing cycles before anyone catches it, that's an extra $2,280 gone for doing nothing but missing a renewal window.

Early termination fees (ETFs) are structured as a remaining-term liability: the supplier multiplies the months left on your contract by your average monthly usage by a penalty rate per kWh. In a labeled example, a Houston restaurant using 30,000 kWh a month with 12 months left on its contract, facing an ETF of 1.5 cents per kWh, would owe roughly $5,400 to exit early. Example numbers to show the math, not a live quote. That figure moves a lot depending on the exact fee structure written into your contract, which is exactly why the ETF formula should be confirmed in writing before signing, not after you need to use it. Pass-through charges are a separate issue entirely. These are costs the supplier doesn't control and simply passes on: TDU delivery charges, PUCT-related assessments, and for larger interval-metered (IDR) accounts, transmission cost allocation tied to ERCOT's summer 4CP events, the four coincident peaks measured June through September that set your share of transmission costs for the following year. A "fixed-rate" contract fixes the energy charge. It does not fix these line items. Ask your supplier point blank which parts of your bill are locked and which parts move with ERCOT and your TDU.

• Add/Move/Delete (AMD): the process for adding a new location, moving service, or dropping an ESI ID mid-contract. Some suppliers charge a fee or require the new load to match your existing bandwidth; others make it painless. Multi-location businesses should negotiate AMD terms before signing, not after opening store number three.
• Auto-renewal notice window: the number of days before your contract ends that you must notify the supplier in writing if you don't want to renew. Miss it, and you're often locked into another full term at whatever rate the supplier sets, or dumped into holdover.
• Credit and deposit language: suppliers can require a security deposit or letter of credit based on your business's credit profile, and can re-underwrite you mid-contract if your payment history changes. Ask what triggers a deposit demand and how it's calculated.
• Bandwidth/swing tolerance: how far actual usage can move from the estimated volume before repricing kicks in.
• Material change clause: the specific events that let the supplier revisit your price, and whether there's a cap on how much it can move.
• Holdover rate: what you pay per kWh if you miss your renewal window.
• Early termination fee formula: exactly how the penalty is calculated if you need to exit early.
• Pass-through charges: which line items, like TDU delivery, transmission costs, and PUCT fees, move regardless of your locked energy rate.

• What's my exact bandwidth tolerance, and what rate applies if I go outside it?
• What specific events trigger the material change clause, and is there a cap on how much my price can move?
• What's my holdover rate if I miss the renewal notice window, and how many days' notice do I actually need to give?
• How is my early termination fee calculated, in writing, not verbally?
• Which charges on my bill are truly fixed, and which are pass-through costs tied to ERCOT or my TDU?
• If I open, move, or close a location during this contract, what happens to my rate and my other ESI IDs?