What Happens When Your Commercial Electricity Contract Expires

Your commercial electricity contract has an end date. If you do not sign a new contract before that date, your power does not get shut off — but what does happen can cost your business thousands of dollars per month. In the Texas deregulated market, an expired contract means you are automatically moved to a month-to-month holdover rate that is almost always dramatically more expensive than any contracted rate you could get.

This guide explains exactly what happens when your commercial electricity contract expires, how much it can cost you, and how to make sure it never happens to your business.

The Holdover Rate: What It Is and Why It Exists

When your electricity contract reaches its end date and you have not signed a new agreement, your REP does not disconnect your service. Instead, they move you to what is commonly called a holdover rate, month-to-month rate, or default variable rate. Different REPs use different terminology, but the result is the same: you continue receiving electricity, but at a significantly higher price.

Holdover rates exist because the REP is now supplying your electricity without the certainty of a long-term contract. They are buying power on the wholesale market to serve you but have no commitment from you on volume or duration. That uncertainty carries a risk premium — and the REP passes that risk premium directly to you in the form of a higher rate.

How much higher? Holdover rates are typically 50% to 200% above what you would pay on a negotiated contract. For a business consuming 50,000 kWh per month, the difference between a contracted rate of $0.07/kWh and a holdover rate of $0.14/kWh is $3,500 per month — $42,000 per year in unnecessary cost.

Why So Many Businesses End Up on Holdover Rates

Despite the massive cost difference, a surprising number of Texas businesses are on holdover rates right now without realizing it. The most common reasons:

• The contract expired and nobody noticed. For many businesses, the electricity contract was signed two or three years ago by someone who may no longer be with the company. The end date came and went, and no one in the organization tracked it.
• The renewal notice was missed or ignored. Most REPs send a renewal notice 30-60 days before contract expiration. These notices often look like routine correspondence and get lost in a pile of mail or buried in an inbox. By the time someone notices, the contract has already expired.
• The business assumed auto-renewal at the same rate. Some business owners assume their contract will automatically renew at the same terms. In reality, most commercial contracts either expire to a holdover rate or auto-renew at a new (often higher) rate that the REP has selected — not the rate you originally negotiated.
• Procrastination. Shopping for a new electricity contract is not exciting work. It gets pushed to next week, next month — and suddenly you are three months past expiration, paying holdover rates the entire time.

What Auto-Renewal Actually Means

Some commercial electricity contracts include an auto-renewal clause. This sounds convenient, but it is not always in your favor. Auto-renewal does not mean your current rate continues. It typically means one of two things:

• Renewal at a new rate set by the REP. The REP selects a rate for your renewal term, which may be higher or lower than your original rate depending on current market conditions. You are locked into this new rate for the renewal period (often 12 months) unless you opted out before the renewal window closed.
• Renewal at a variable or month-to-month rate. Some auto-renewal clauses simply move you to a variable rate rather than a fixed term. This is essentially the same as a holdover rate.

The key problem with auto-renewal is that it removes your leverage. In a competitive market where you have the power to shop 100+ REPs, auto-renewal lets one REP set your rate without competitive pressure. You lose the primary benefit of deregulation.

The Real Cost: A Concrete Example

Consider a mid-size Texas business — a restaurant group with three locations, each consuming around 40,000 kWh per month (120,000 kWh total). Their contracted rate was $0.068/kWh for energy supply. When the contract expired unnoticed, they were moved to a holdover rate of $0.139/kWh.

That is over $100,000 per year in avoidable cost — just for the energy supply portion, not including demand charges and TDU delivery fees. And this scenario is not unusual. We see businesses overpaying by similar amounts every month because their contract expired without their knowledge.

How to Prevent This

The solution is straightforward. It requires a small amount of organization but can save your business tens of thousands of dollars:

1. Know Your Contract End Date

Find your current electricity contract and identify the end date. If you cannot find the contract, call your REP and ask. They are required to tell you. Put this date in your calendar with reminders at 4 months, 3 months, and 2 months before expiration.

2. Start Shopping 3-4 Months Early

Three to four months before your contract ends is the ideal time to start getting quotes. This gives you enough time to compare options, negotiate terms, and sign a new contract without rushing — and without any gap between your current contract and the new one. Our guide on when to renew your contract covers timing strategy in detail.

3. Compare Multiple Suppliers

Do not just call your current REP and ask for a renewal rate. In a competitive market, the best rate comes from competition. Get quotes from multiple REPs — or work with a broker who can get quotes from 25+ suppliers simultaneously.

4. Read the Auto-Renewal Clause

Before you sign any new contract, understand the auto-renewal terms. Specifically:

• Does the contract auto-renew? At what rate?
• What is the opt-out window? (How far in advance must you notify the REP that you do not want to auto-renew?)
• Is there an early termination fee if you switch before the contract ends?

Already on a Holdover Rate? Here Is What to Do

If you suspect you are currently on a holdover rate — or if your bill has increased significantly without explanation — here is the action plan:

• Check your bill immediately. Look for language like "month-to-month," "holdover," "variable default," or "out of contract" on your statement. Compare your current per-kWh energy rate to what you were paying six months ago. Our guide on reading your bill can help.
• Get quotes today. Holdover rates have no lock-in period — you can sign a new contract and switch immediately. There is no penalty for leaving a holdover rate because there is no contract to break.
• Expect a 2-4 week transition. Once you sign a new contract (with your current REP or a new one), the switch typically takes one billing cycle to process. You will pay the holdover rate for that transition period, which is why acting quickly matters.

The Bottom Line

An expired electricity contract is one of the most expensive mistakes a Texas business can make — and one of the easiest to prevent. Understanding fixed vs. variable rate structures helps you choose the right replacement contract. For more cost reduction strategies, see our guide to lowering commercial electricity bills. The entire problem is solved by knowing your contract end date and starting the renewal process 3-4 months early.

If you are unsure of your contract status, check today. The cost of being on a holdover rate for even a single month can exceed what most businesses spend on marketing for an entire quarter.