What Happens When Your Commercial Electricity Contract Expires in Texas

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 the price you pay changes, and on a large account the difference adds up quickly. In the Texas deregulated market, letting a contract lapse moves you onto a month-to-month arrangement priced to cover the supplier's risk rather than to win your business.

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 depends on the supplier, the product, and when the contract lapsed — there is no published standard and no fixed multiple, and any specific number you see quoted online is somebody's anecdote rather than a rule. What is structural is the direction: a month-to-month arrangement carries a risk premium a term contract does not, so the holdover price is set to protect the supplier rather than to compete for your business. On a large account, a few months of it is a meaningful sum, and the only reliable way to know your own exposure is to compare the supply rate on your current bill against what the market is quoting for your load today.

What Texas Rules Require Before Your Contract Ends

Texas does not leave expiration entirely to the contract. PUCT §25.475 sets notice and default-product rules — but they reach residential and small commercial customers, and that second term is narrower than most business owners assume.

PUCT §25.471(11) defines a small commercial customer as "a non-residential customer that has a peak demand of less than 50 kilowatts during any 12-month period, unless the customer's load is part of an aggregation program whose peak demand is in excess of 50 kilowatts during the same 12-month period." Above that line — or aggregated above it — the protections below are not what governs your account. Your contract is.

For accounts that do qualify:

• Three notices, not one. Under §25.475(e)(1)(A), a REP must provide at least three written notices of the expiration date, delivered during the last third of the contract term and spread as evenly through it as practicable. For contracts of twelve months or longer, the first may arrive up to three months before the end date.
• A floor on the final notice. At least 30 days before expiration for contracts longer than four months, at least 15 days for four months or fewer, and — under §25.475(e)(1)(A)(iii) — at least 14 days for a small commercial customer.
• Where the notice goes. §25.475(e)(1)(B) requires notices by mail to the billing address on file, unless you have opted to receive communications electronically. A stale billing address after a staff change is one of the most common reasons a business genuinely never sees them.
• A fee-free default. §25.475(e)(2)(A): if the customer takes no action, the REP must serve them on "a default renewal product that is a month-to-month product that the customer may cancel at any time without a fee." That price may vary between billing cycles — fee-free is not the same as inexpensive, but it does mean nothing traps you there.
• Disclosed in advance. The contract must state the terms of the default renewal product you will be enrolled in if you do not choose another.
• No indexed products. §25.475 prohibits a REP, aggregator, or broker from offering an indexed product to a residential or small commercial customer on or after February 1, 2022, and a wholesale indexed product on or after September 1, 2021.

The Remedy Most Businesses Never Claim

Under §25.475(e)(1)(C), if the REP did not provide the required expiration notice and the customer did not select another retail electric product before the term ended, the REP "must continue serving the customer under the terms of the fixed rate contract until the REP provides notice in accordance with applicable requirements... or until the customer selects another retail electric product."

In other words, on a qualifying account a missed notice is not your problem — it is the supplier's obligation to keep honoring your old contract price until they fix it. If you have rolled onto an expensive month-to-month rate and nobody at your business can produce the notices, whether proper notice was given is a question worth asking. Keep the notices when they arrive; they are the evidence.

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 notices were missed or ignored. On qualifying accounts the rules require three of them across the last third of the term, mailed to the billing address on file. They look like routine correspondence, they go to whoever is named on the account, and on a business that has changed hands, changed offices, or changed staff, they frequently reach nobody who knows what they are.
• 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 the whole point is that suppliers have to compete for your account, auto-renewal lets one supplier set your price without that pressure. You lose the primary benefit of deregulation. Note that the fee-free month-to-month default described above applies where a qualifying account simply expires — a contract that auto-renews into a new fixed term is a different mechanism, and it can carry a termination fee.

How to Size Your Own Exposure

Rather than trusting a generic multiple, do the arithmetic on your own account — it takes a bill and two minutes.

• Find the supply portion of your bill, not the total. Separate the competitive supply charges from the regulated delivery charges your TDU sets; our guide to reading a Texas commercial electricity bill shows where the line falls, and Texas TDU delivery charges covers what lives on the other side.
• Divide supply charges by kWh to get your current effective supply rate.
• Compare it against what the market quotes for your load today. That is the only comparison that means anything, because pricing turns on your usage, your load shape, your location, and the day you sign.
• Multiply the gap by your annual kWh. That number, not a rule of thumb, is what the lapse is costing you.

The result scales with consumption, which is why it hurts largest at exactly the businesses least likely to notice a single month's bill: multi-location operators, industrial facilities, and property portfolios where no single site's bill looks alarming on its own. Note also that delivery charges and demand charges are unaffected either way — no supplier discounts them, so the exposure lives entirely in the supply half of the bill.

How to Prevent This

The solution is straightforward, and it is organizational rather than clever:

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. A month-to-month holdover arrangement has no lock-in — on a qualifying account the rules require it to be cancellable at any time without a fee, and even where the rules do not apply there is usually no term left to break. Check your own terms, then move.
• Ask whether you received the required notices. On a qualifying small commercial account, §25.475(e)(1)(C) says a REP that failed to notify you must keep serving you on your old fixed-rate terms until it does. Worth establishing before you accept the holdover price as a fact.
• Allow time for the switch to process. PUCT rules contemplate that establishing service with another REP may take up to seven business days, and the change generally takes effect on a billing cycle. You pay the holdover price in the meantime, which is why acting quickly matters.

If you are still inside the term rather than past it, leaving early is a separate calculation with its own rules — the exit formula in your contract decides it, and there are six common structures. How to switch commercial electricity providers in Texas covers the mid-contract version of this decision.

If You Manage More Than One Account

Everything above describes one contract. Multi-site operators have a harder version of the same problem: end dates that were never meant to line up, meters nobody has inventoried, and — as noted — a small-commercial threshold that aggregation itself can push accounts across. The specifics differ by property type, so these go deeper than this page can:

• Apartment and multifamily portfolios — the multifamily electricity renewal checklist covers the meter inventory, signing authority across ownership entities, and a 90-day runbook. If you are not yet sure which meters are even yours to renew, start with apartment common-area electricity or the master-metered apartment guide.
• Warehouses and distribution facilities — a lapsed contract compounds with demand exposure; see warehouse demand charges and interval data.
• Single accounts, timed well — when to renew a commercial electricity contract covers the timing strategy for one meter.

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 — and if you have already lapsed, check whether the notices you were owed ever arrived before you accept the price you are now paying.