When you sign a fixed-rate electricity or natural gas contract, then the retail energy supplier is agreeing to bill you a fixed rate for the term of the contract. In order to do so, most suppliers are pre-purchasing energy in the wholesale market.
But what happens if the market drops in the middle of your contract? Can you get out early without having to pay an early termination fee? Likely not. A blend and extend could be your best and only option to take advantage of falling prices. This article outlines blend and extend energy contracts, how they work, and whether or not they are right for you.
What Is A Blend And Extend?
A blend and extend of a retail energy supply contract is the process by which an energy supplier and energy customer renegotiate a fixed-rate energy contract before the term expires. When energy prices fall, customers that signed a fixed-rate contract at a higher price are stuck paying the fixed rate until the contract expires. In some cases, the retail energy supplier is willing to lower the fixed rate if the customer agrees to add more term length to the contract. Here is an illustration of how a blend and extend of a contract works:
As you can see in the example above, the customer had a fixed price of 8¢ for 24 months beginning in January 2023 and ending in January 2025. In the middle of the contract, energy prices fell and the customer was able to negotiate a blend and extend with their energy supplier.
The blend and extend allowed them to get a new fixed price of 7¢ halfway through their original agreement. However, they were required to extend the term of the new agreement for an additional 12 months. The new, blend and extend contract now expires in January 2026.
Benefits Of A Blend And Extend
There are many benefits of taking advantage of a blended contract with your energy supplier. While committing to a fixed-rate contract is advantageous for budgeting and controlling energy costs, if the energy market drops, you are stuck paying a higher rate. Blending your rate by extending the term of your contract allows you to lower the fixed rate mid-contract without having to pay any early termination fees. This can be a great opportunity to save additional money.
Who Should Take Advantage Of Blending And Extending
Blend and extend contracts are usually only offered to commercial and industrial customers. And sometimes, small commercial customers do not even qualify to blend their fixed-rate energy contracts. Residential customers usually never have this option, although most residential plans do not include cancelation fees. So if prices drop, you can simply cancel and sign up for a new rate.
For larger commercial and industrial users, a blend and extend can be a great option to take advantage of bear markets. While you cannot simply cancel your contract and get a new rate, most suppliers are willing to work with their larger customers to accommodate them. Each blend and extend is a negotiation based on market prices, supplier wholesale costs, and other factors. So, you should always hire an energy broker to negotiate with the energy supplier on your behalf.
Need Help Exploring A Blended Rate Option?
Our team has decades of experience negotiating with energy suppliers to implement blend and extend contracts for our customers. Contact us today to explore your options and see if a blended rate makes sense for you.