What you Need to Know and Why they are relevant to your business…

When you move into a new site, you may notice that you have an energy supply hooked up and ready to go – despite not having purchased an energy contract. 

This is because the previous occupant’s energy supplier didn’t disconnect the supply. They left it connected and ready to use by you on ‘deemed rates’.

But what is deemed rates? Are they a scam? Should you be wary? Essentially, it depends on the current market volatility for gas and electricity and the wholesale prices offered by suppliers. 

Utility SwopShop top tip: 

It may be beneficial to sit on a deemed rate until the volatility has passed!

What are deemed rates?

Deemed rates are charged by a utility company when there is no contract between them and the customer.

• For example, a business owner moves into a property and there is already a gas and electricity supply. The customer is charged the deemed rate by the utility company up until the customer purchases an energy contract.

The reason deemed rates exist is because of the nature of energy supply – it’s inefficient to disconnect a property when one occupant leaves and to reconnect it when another arrives so the utility company leaves it connected.

How are deemed rates set? 

A deemed rate contract is put in place when you use energy without negotiating a deal with your supplier. So, who sets the price? The utility company sets the price; however, regulations have been put in place by Ofgem to cap the price and make sure people are not unfairly charged. These regulations are SLC 28(2) and SLC 28(3).

• Because there is no contract in place, utility companies charge whatever they ‘deem’ acceptable. This will lead to you paying more for your business energy than you would on a contract. As such, it will be worthwhile looking into energy plans as soon as you take occupancy of the new property.

Why are deemed rates more expensive? 

Deemed rates are higher than contracted rates, but why is this?

The reason deemed rates are more expensive than contract rates is that no negotiation has taken place for the supply of energy. Without a contract in place, the supplier moves the customer onto their deemed rate.

• Deemed rates are not the same as default rates unless the utility company specifies the rate as being the same. Deemed rates are unique to the customer’s situation, being without a contract through no fault of their own.

If you want to save on your business energy bills, you should negotiate a contract with a utility company and move away from deemed rates ASAP.

Are deemed rates the same as out-of-contract rates? 

No!

With out-of-contract rates, the customer has made an active decision not to take out a contract. With deemed rates, not having a contract is not the fault of the customer (they are usually just moving into new premises).

The two terms are not interchangeable, so please do not get them mixed up, even if technically deemed rates are for people out-of-contract. Think of them as without ever having a contract instead. It is a state of temporary pricing until a contract is purchased. Because of this, deemed rates are lower in price than out-of-contract rates.