Out-of-contract and deemed business energy rates explained

Out-of-contract and deemed rates are the default charges applied when a business consumes electricity or gas without an active, agreed contract in place. They are consistently the most expensive way to buy business energy, often significantly higher than any negotiated fixed or flexible contract available in the market.

A business typically ends up on a deemed rate in one of two ways: moving into new premises and starting to use energy before agreeing a contract with a supplier, or allowing an existing fixed contract to lapse without a replacement agreed in time, usually because the termination notice window was missed.

These rates are priced with no negotiation and reflect the higher risk and administrative cost, from the supplier's perspective, of supplying a business with no fixed-term commitment. There is also no guarantee of price stability, since a supplier can adjust deemed rates with relatively short notice, unlike a fixed contract.

Worked example: a business paying a fixed rate of 26p per kWh that lapses onto a deemed rate of 42p per kWh on 20,000 kWh annual consumption would see its commodity cost rise from £5,200 to £8,400, an increase of £3,200 a year, purely as a result of the contract lapsing rather than any change in actual energy use.

There is no minimum term on a deemed rate, and in principle a business can move to a proper negotiated contract as soon as one is agreed, which is why the priority on discovering you are on a deemed rate should be to act immediately rather than waiting for a more convenient moment.

To move off a deemed rate, gather your consumption data as you would for any contract renewal, request quotes from multiple suppliers or via a comparison service, and select a new contract as quickly as possible, since every additional month on a deemed rate adds avoidable cost.

Businesses moving into new premises should start the process of arranging a contract before moving in, or as close to moving-in day as possible, rather than waiting until an ordinary bill arrives, since deemed rates apply automatically from the point consumption begins.

To avoid ending up on a deemed rate at renewal, calendar your contract end date and termination notice window as soon as a new contract is signed, and begin the renewal process three to six months ahead of the end date, well clear of the notice deadline.

Some suppliers offer a short-term or out-of-contract-specific tariff that is less punitive than a full deemed rate while a new contract is finalised, so it is worth asking directly if you know a gap is coming, for example due to a slow-moving switch process, rather than allowing a full default to occur.

The clearest lesson from deemed and out-of-contract rates is that the cost of inaction in business energy is real and immediate. A missed notice window or a delayed house move decision can cost thousands of pounds a year with no corresponding benefit, which makes proactive contract management one of the highest-value habits a business owner can build.

Suppliers are required to publish their deemed and out-of-contract rates, and while these are technically available to check, they are rarely presented anywhere near as prominently as fixed contract tariffs, which means most businesses only discover the rate they are actually being charged once an unexpectedly high bill arrives, by which point the extra cost has often already been incurred for several months.

A change of tenancy is one of the most common, and most avoidable, triggers for a deemed rate, since a business moving into premises previously occupied by another company inherits the meter and, if no new contract is agreed promptly, defaults straight onto the outgoing supplier's deemed terms from day one of occupation, regardless of whether the new occupier was even aware a decision needed to be made.

If you suspect you might already be on a deemed rate, the fastest way to confirm it is to check your most recent bill against your original contract paperwork, since a deemed or out-of-contract rate is usually flagged explicitly on the invoice, and the unit rate shown will typically be noticeably higher than the figure in your last signed agreement.

Deemed rates are set by each individual supplier rather than by the network operator or a regulator, so the size of the mark-up over a competitive market rate can differ substantially from one supplier to the next, which is one more reason a business stuck on a deemed rate should compare across the whole market rather than accept a rushed offer from the incumbent.

Businesses on estimated, non half-hourly billing are at particular risk of a deemed rate going unnoticed for months, since a bill built on an estimated read can look broadly similar in shape to a normal invoice even once the much higher deemed unit rate has kicked in, whereas half-hourly metered sites tend to flag the change far more quickly through more detailed monthly reporting.