Out of contract and deemed energy rates

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James Longley

Managing Director

min read

What does ‘out of contract’ mean?

Did you know that you could end up paying more for your business energy if you allow your contract to expire? These rates are known as ‘out of contract’ or ‘deemed’ energy rates and could result in significantly higher energy bills, which may be a waste of money for your business. On this page, we reveal the price of ‘out of contract rates’ compared to in-contract rates, as well as how many businesses across the UK could be paying more than they should.

Out of Contract rates

As you’ll be aware, when you sign up to a contract for a certain amount of time, it may be difficult to terminate the contract or alter the price before the contract renews.

During the contracted time, particularly when it comes to paying for electricity and gas, you’ll be charged a set fee that doesn’t change. However, when you’re out of contract, the rates are no longer fixed and could change every day. In fact, Ofgem revealed that these rates could be on average 80 per cent higher than in a negotiated contract.

Businesses could accidentally end up paying these rates if:

the current contract has expired and hasn’t been renewed
they’re switching from one energy supplier to another, and their contract ends before the new one starts
they’ve moved to a new premises.

a business owner working out their energy bills with out of contract rates added

Why would a business be placed on out of contract rates?

A business will be put on out of contract rates if you do not secure a new contract before your renewal or if your current contract expires. This may be the case if you have ignored communication from your current supplier, maybe the switch wasn’t processed, or the contract was terminated with no further action.

How much are out of contract rates?

Unfortunately, there is no price cap on how expensive these rates can be but we strongly recommend securing a fixed term contract as these rates can be double or quadruple the average market rate.

The energy consumption of an average business is 40,000kWh of electrical per year and if these rates are applicable, this will cost the business thousands

Why are out of contract rates so expensive?

There are multiple reasons why out of contract rates are so much more costly than normal tariff rates. It may not be clear to your current supplier how long to want to use energy from them which is one reason why these tariffs can be more expensive.

Firstly, energy suppliers buy their supply from wholesalers ahead and use the terms of customers contracts to draw up how much they’ll need to buy. If suppliers see that half of their customers are on these rates, they will be unsure on how much they need to buy in advance. This is one of the main reasons these rates are more expensive.

Secondly, out of contract rates are usually placed upon customers that may be in debt with their supplier or do not have a direct debit which can cost the supplier a lot of money.

Lastly, out of contract rates will also be increased by suppliers because you could switch to a new supplier at any time.

How to avoid out of contract rates?

It is important to remember to keep an eye on all the communications you receive from your suppliers especially your renewal dates.

When looking at your energy bill, the two main points your need to be aware of are the expiry date and your renewal period. If you keep track of both, you should avoid the costly out of contract rates.

The best time to secure a contracted deal is within your renewal period. Within this period, you are free to either secure a better deal with your supplier or compare prices within the energy market and switch supplier.

In conclusion, the best way to avoid these rates is to manage your renewal dates.

If your business is moving into new premises, try and arrange your energy contract before you move in, or if this isn’t possible, ensure this is sorted as soon as possible.

Get in touch to secure your contract with us today.

Do all contracts have out of contract rates?

Within the above, we have been referring to out of contract rates within the energy sector, but we are aware that they are also used within other sectors. If a customer’s agreement expires within the telecoms or card processing sectors, they will also be placed on more expensive rates.

Deemed rates

What are deemed rates?

Similarly, to out of contract rates, a business is placed on a deemed contract when they are out of their contract if they move premises. These types of rates are usually placed upon customers that never had a contract with their supplier initially. Deemed contracts are considerably more expensive than contracted rates which will be much lower. These higher rates are affective until a new agreement has been agreed but they are much higher than originally negotiated.

Deemed contracts are usually placed upon a business when they move premises as when you move you may not have an active agreement for that premises. This means you’re “deemed” to have your supply from the previous tenant’s suppliers. As a result of being supplied, but not having an agreement, the supplier needs to bill you for the energy you consume and that is where these rates are applicable.

With these rates it is not your fault that you are no longer within an agreement whereas with out of contract rates, the customer has made the decision to not sign a new contract. It is important to note that you will be liable for these rates if your supplier tries to contact you and you refuse their offer. We understand that this topic can be confusing but that is where Utility Bidder are here to help. Contact us to secure your contract and manage your renewal period to ensure you avoid unnecessary expenses.

Is a deemed rate the same as a variable tariff?

Deemed rates are automatically applied when a business’s agreement not renewed.

If customers can afford the higher unit rate, variable tariffs are better suited. It is completely up to the business, whether they want to be placed on a variable tariff, but it is important to consider the state of the energy market at the time.

Although, variable rates are known to be more expensive they do have their benefits. Find out more information on variable tariffs.

What happens if you dont pay deemed rates?

If you do not pay your contract when under a deemed contract, this is the same as not paying any other outstanding balances you owe. This will cause you to become in debt with your supplier and should be addressed urgently.

If you’re hugely behind with their energy payment, the energy supplier can completely cut off your supply. This will only happen in extreme cases, and you will receive notice before this happens.

Secure your new energy contract with us today to find out more and let us help your business save on unnecessary costs.

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