Just reviewed a supplier contract in the MLGW territory that has early termination fees reaching $250,000 for a 2MW industrial account. The supplier is claiming this reflects their "market exposure" and hedging costs, but the calculation methodology is completely opaque. They're using some proprietary formula based on forward curve differences that can't be independently verified. I've seen ETFs getting more aggressive over the past few years, but this seems excessive even by current standards. What's the highest ETF you've encountered recently, and how do you challenge the calculation methodology?
Supplier contract termination fees - getting ridiculous
Randy, I've seen similar issues in the NYSEG and RG&E territories here in New York. The highest ETF I've encountered was $320,000 for a 3MW hospital account that wanted to terminate 18 months early. The key is demanding transparency in the calculation. Most suppliers use mark-to-market methodologies that should be based on publicly available forward prices, not proprietary models. I've had success challenging ETFs by hiring an independent energy consultant to validate the hedging cost calculations. Often you'll find they're inflating the risk premium or using outdated forward curves.
In Michigan with DTE territory, I've seen ETFs as high as $400,000 for large industrial accounts. The problem is that many of these fees aren't properly disclosed during the sales process. Customers think they're signing a simple electricity supply contract, but they're actually entering into complex financial derivatives. Tom's approach with independent validation is smart. I'd also recommend negotiating ETF caps upfront - many suppliers will agree to limit termination fees to 12-24 months of estimated profit if pressed during contract negotiations.