When a business is in the process of moving to new premises and has started using gas and electricity without contacting a supplier, they will be placed on a deemed rate tariff. Energy suppliers may also place a business on a deemed rate tariff if an old contract expires or is terminated and the business continues to use energy. Read on to find out more about deemed rate tariffs and out-of-contract rates.
What is a deemed rate business energy tariff?
A deemed rate tariff is set when you use energy without negotiating an energy deal with the supplier. Most commonly, this happens when a business moves into new premises, as no active contract will exist between the new business and the energy supplier. The business will therefore be charged a deemed rate by the property’s existing gas and/or electricity supplier. The deemed rate will last until a new contract is put in place, until your business leaves the premises, or until you switch supplier.
Deemed rates are higher than negotiated, contract rates as the supplier controls how much you pay. They will be unique to the situation and will not be a set, default rate.
Deemed rates tariffs are rolling contracts lasting for 28 days, meaning that the price could increase after 28 days. You can cancel and switch to an agreed deal in just 28 days. It is important to be pro-active when it comes to energy bills – work out what contract your business is on and find out if you need to switch off a deemed rate contract.
How are deemed rates set?
When you use energy without negotiating a contract with a supplier a deemed tariff is set, but how do they set the price?
The energy supplier will choose the deemed rate, but price caps are in place thanks to regulation from Ofgem so that people do not get charged unfair prices. However, energy companies will often charge higher rates.
Out-of-contract rates for businesses
Deemed rate tariffs are different to out-of-contract rates. An out-of-contract rate is a rate you have to pay when you’re not signed up to a contracted deal with your energy supplier. This is most likely to happen if you terminate your energy contract, but don’t have a new deal in place when the contract ends. It can also happen when you are switching suppliers if the existing contract ends before you move to your new supplier.
Out-of-contract rates are extremely expensive as there is no limit to what suppliers can charge. This is because you have made an active decision to not have a contract. Make sure you pay close attention to when your contract ends so that you do not end up with an out-of-contract rate. Good organisation could save your business a lot of money on energy bills!
Alternatives to deemed tariffs
Many businesses around the UK stay on deemed tariffs without realising. If you want to switch off a deemed rate then you have a few options. Use our comparison service to get quotes for business energy deals if you think you’re overpaying. Here are the options you’ll have:
- Fixed rate tariff – this is the most suitable contract for budgeting within your business. You will know exactly how much you pay for each kWh of energy you use, so if you know your average monthly energy usage then you will be able to budget accordingly.
- Variable rate tariff – the price you pay per kWh you use will depend upon the current energy market. If market prices are cheap then your bill will be cheaper, but if prices increase then so will your energy bill.
- Rollover contract – similar to a deemed tariff, but rather than 28 days a rollover contract lasts for a whole year. This means you can end up paying for a lot more energy than you actually use so it’s probably best to stick to fixed or variable rate tariffs.