Our electricity provider has been pestering us for a couple of months, trying to get us to sign a 3-year contract for the supply of energy exclusively from them.
As a sweetner, they offer a 4% discount on their normal supply charges.
Now, I’ve already refused once without even considering the offer because I simply do not sign contracts for periods of longer than 12 months on a matter of principal (about the only exception there would be loan contracts, but even then I don’t sign fixed rate contracts for the same reason – flexibility).
I had a much closer look at the contract offer this time, and discovered that the whole thing is completely biased towards the contract provider (Energy Australia) – although I don’t imagine that’s terribly surprising to people.
The catch is that if you terminate the contract before then end of the term, you will pay an early termination fee of $125. They will waive the fee if you reconnect within a couple of weeks (eg. if moving house), but if you move interstate, particularly somewhere that Energy Australia doesn’t supply electricity (ie. anywhere outside of NSW, Vic, SA, ACT), then you won’t have a choice but to pay the early termination fee.
Let’s do the sums.
For the benefit from the 4% disount to be worth more than the penalty, you must spend at least $125 / 0.04 = $3125 before you cancel the contract. Over three years, that’s an average spend of $260 per quarter … but of course if you leave before the end of that period, you would have to spend a lot more than that to get the benefits.
Of course, many people will not move house over the next 3 years, or if they do, it will only be across town, and they can re-connect without the penalty … so for most people it won’t be that big of a deal.
But still, let’s look at the pros and cons of the whole thing:
- 4% discount on your electricity
- 3 year contract
- prices not guaranteed – they will still go up and you’re still locked in
- no chance to change provider if rates increase beyond what is reasonable
- $125 penalty for breaking contract before the end of the 3 years
- Energy Australia recently increased prices by around 9% in one hit … a 4% discount isn’t going to make all that much difference, especially considering the other restrictions in the contract
- you must give them at least 28 days notice of your intention to terminate the contract early, and they will continue to hold you liable for all the costs until the service is disconnected
… and that’s from just a quick read through the contract conditions … I’m sure I can find more if I search hard enough.
So, unless you know you won’t be moving over the next 3 years, and you are willing to risk price increases without avenue for recourse, then go for it. Personally, I won’t be signing !
I do find it interesting (and quite annoying) how much they have been pestering us about this stuff – they seem to be very keen to lock us into contracts – makes you wonder if there is something else on the horizon that they are scared of !