Business Energy Glossary
What are deemed rates?
Deemed rates are the default electricity or gas tariff that a supplier applies to a meter when no formal contract is in place. They are set unilaterally by the supplier, typically 50 to 80 per cent higher than a negotiated contract, and remain in force until a new contract is signed.
Deemed rates can land on any out-of-contract supply, whether that’s business electricity, business gas, or another business energy arrangement that’s lapsed past its end date.
Deemed rates exist because, in UK law, consuming electricity or gas through a meter creates an implied contract under the Electricity Act 1989 and the Gas Act 1986. There is no signed agreement, but there is a legal one in effect. The deemed rate is what that implied contract is priced at.
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When deemed rates apply
A deemed contract applies automatically whenever electricity or gas is being consumed at a meter point without a written contract in place between the customer and the supplier. The supplier is not required to give notice, obtain a signature, or offer alternative terms before billing begins under deemed rates.
Five specific triggers cause a deemed contract to start:
| Trigger | What has happened at the meter |
|---|---|
| Change of tenancy | A new occupant has taken over the premises and not yet signed a supply contract. |
| Contract end without renewal | The previous fixed-term agreement has reached its end date and no replacement contract has been signed. |
| Supplier of Last Resort transfer | The customer’s previous supplier has failed and Ofgem has appointed a new licensed supplier to take over the meter. |
| New connection without contract | A new meter has been energised before the customer has signed a supply contract. |
| Change of legal entity | The business has changed limited company, restructured, or entered administration, breaking the link to the previous contract. |
The legal basis
The deemed contract concept is a creation of statute. Two pieces of primary UK legislation create the rule and define how it operates.
Electricity Act 1989, Schedule 6
Schedule 6 of the Electricity Act 1989 provides that where a person takes a supply of electricity from a licensed supplier otherwise than in pursuance of a contract, that person is deemed to have contracted with the supplier for the supply. The terms of the deemed contract are those the supplier has published as its deemed terms, available to the customer on request.
Gas Act 1986, Schedule 2B
Schedule 2B of the Gas Act 1986 contains the same deeming provision. A customer who takes gas from a licensed supplier without a contract in place is deemed to have entered into one on the supplier’s published deemed terms.
Supply licence obligations
Each supplier’s deemed terms must comply with their Ofgem supply licence. Standard Licence Condition 7A places the operational obligations: the supplier must publish the deemed terms, make them available on request, allow termination on a maximum of 30 days’ notice, and not impose termination fees on a deemed contract.
Why deemed rates cost more
The pricing premium on a deemed contract reflects three commercial risks the supplier carries that do not exist on a negotiated agreement.
- No commitment. A deemed customer can end the arrangement on 30 days’ notice without penalty. The supplier cannot hedge the supply against a fixed contract term and must price for short, uncertain duration.
- No payment history. Many deemed customers are recent move-ins or take-overs. The supplier has no record of payment reliability and prices for higher credit risk.
- Higher administrative cost. Deemed customers tend to query bills more, switch faster, and require manual intervention. The cost-to-serve is materially higher per kWh.
The combined effect against negotiated and out-of-contract rates is illustrated below.
| Rate type | Typical electricity unit rate | Typical daily standing charge |
|---|---|---|
| Negotiated fixed contract | 22 to 30 p/kWh | 30p to £1.50 |
| Out-of-contract | 32 to 42 p/kWh | £1 to £3 |
| Deemed | 35 to 50 p/kWh | £1.50 to £4 |
The deemed contract structure is also less protective than a fixed contract. There is no fixed term, no cap on rate changes during the period a customer remains on deemed, and no statutory requirement for advance notification of rate changes. The certainty that comes with a normal contract is absent by design.
How a deemed rate is set
Each supplier sets its own deemed rates within the boundaries of its supply licence. The rate is not negotiated and is not customer-specific. It is a published tariff applied uniformly to all customers in the relevant deemed category.
What goes into a deemed rate
A deemed rate is built from the same components as any commercial tariff: wholesale energy cost, network charges (DUoS and TNUoS for electricity, transportation for gas), environmental and social levies (CCL, Renewables Obligation, Capacity Market), supplier operating margin, and a risk premium. The risk premium is the element that makes the deemed rate higher than the equivalent on a negotiated contract.
How the rate varies within a single supplier
A single supplier’s deemed schedule contains multiple deemed rates that vary by:
- Meter type: half-hourly versus non-half-hourly for electricity; daily metered versus non-daily metered for gas.
- Region: by Distribution Network Operator area for electricity, by Local Distribution Zone for gas.
- Consumption band: based on the annual quantity (AQ) for gas or the profile class and load characteristics for electricity.
A small non-half-hourly site in the North East may face very different deemed rates from a half-hourly site in central London under the same supplier.
How often deemed rates change
Most suppliers review their deemed schedule quarterly. Wholesale market movements, network charge changes, and regulatory updates feed through with each review. There is no obligation to notify individual customers of changes in advance; updated rates are reflected on the customer’s next bill.
Deemed vs out-of-contract vs rollover
These three terms are often used interchangeably. They describe distinct contractual situations.
- Deemed applies when no contract has ever existed at the meter point with that supplier. Triggered by a change of tenancy, Supplier of Last Resort transfer, or a new connection without contract.
- Out-of-contract (OOC) applies when a previously held fixed-term contract has expired without renewal. The customer relationship continues, the contractual one has ended.
- Rollover describes a new fixed-term contract the supplier has created automatically at the end of the previous one, usually at non-competitive rates. Ofgem restricted rollovers for micro-business customers in 2014 but they have not been abolished.
In pricing terms, out-of-contract rates typically sit a few pence per kWh below deemed rates because the supplier already holds a customer record and has lower credit risk. Rollover contracts behave like negotiated fixed-term contracts in legal structure but carry the higher pricing of a non-competitive renewal.
Rights to end a deemed contract
A deemed contract starts without the customer’s signature. It also ends without their signature, in the sense that no termination notice is required if a new contract is signed with another supplier.
The 30-day termination right
Standard Licence Condition 7A requires every licensed supplier to allow a deemed customer to switch away on no more than 30 days’ notice, with no termination fee or exit penalty. In practice, when a new supplier is appointed via a fresh contract, the new supplier raises the objection process with the incumbent and the meter transfers in 21 to 30 days.
The right to the deemed terms
A customer on a deemed contract is entitled to receive the full deemed terms in writing on request. This includes the unit rate, standing charge, any additional charges, the published basis for the rates, and the termination conditions. A written request by email is sufficient and the supplier is required to respond.
The right to dispute
Disputes about a deemed contract follow the supplier’s complaints process. After 8 weeks without resolution, or upon receipt of a deadlock letter, the customer may escalate to the Energy Ombudsman, whose decisions are binding on the supplier up to the financial limit set by the scheme.
How to identify a deemed rate
Three indicators on a bill confirm a deemed rate is in effect.
- The contract type description. Usually printed on page one or two. Words like “deemed”, “out of contract”, “default”, “no contract”, or the absence of any contract term and end date.
- The unit rate level. An electricity unit rate above 35 p/kWh or a gas unit rate above 9 p/kWh almost always indicates a non-contracted tariff.
- The standing charge level. A daily standing charge above £2 on a small supply or £4 on a larger one is a further signal.
Where the bill is ambiguous, the supplier is required to confirm the contract type in writing on request. A short email to the account contact address asking “What type of contract is this meter on?” produces a definitive answer.
Why business deemed rates aren’t capped
The Energy Price Cap that limits domestic deemed and standard variable rates does not apply to business supply. The cap was created by the Domestic Gas and Electricity (Tariff Cap) Act 2018 specifically for residential customers and has never been extended to business supply.
The reasoning
Ofgem’s view, restated in the Microbusiness Strategic Review published in 2021, is that business customers have the means and obligation to negotiate their own contracts, that imposing a price cap would distort competitive dynamics, and that intervention should focus on transparency and switching support rather than price control.
The temporary schemes
Two government interventions provided temporary relief on business energy costs including deemed contracts. The Energy Bill Relief Scheme (EBRS) ran from October 2022 to March 2023; the Energy Bills Discount Scheme (EBDS) ran from April 2023 to March 2024. Both have ended. Business deemed rates are once again subject only to the supplier’s commercial pricing decision.
The protection that does exist
The protection on a business deemed contract is procedural rather than price-based. Ofgem regulates how the contract is communicated, how it is billed, how complaints are handled, and the customer’s right to switch. The deemed rate itself is left to the market.
Deemed rates FAQs
How much more do deemed rates cost than a contracted rate?
Usually 50 to 80 per cent more on the unit rate and 30 to 60 per cent more on the standing charge. The exact differential varies by supplier, region, meter type, and consumption band.
How long can a supplier keep a meter on deemed rates?
Indefinitely, as long as the customer continues to consume energy and pay the bills. There is no automatic transition to a better tariff. A contract has to be signed for the deemed arrangement to end.
Are deemed rates legal?
Yes. Deemed contracts are explicitly created by statute: Schedule 6, paragraph 8 of the Electricity Act 1989 for electricity and Schedule 2B, paragraph 8 of the Gas Act 1986 for gas.
Are deemed rates regulated by Ofgem?
The conduct around deemed contracts is regulated, the price level is not. Ofgem regulates communication, billing, complaint handling, and the right to switch under Standard Licence Condition 7A. The actual unit rate and standing charge are set by the supplier.
What is the notice period to end a deemed contract?
The maximum notice period is 30 days, set by Standard Licence Condition 7A. In practice, signing a new supply contract triggers the transfer process and the meter moves to the new supplier within 21 to 30 days.
Can a deemed rate change without notice?
Yes. There is no statutory requirement for individual notification of changes to deemed rates. The supplier publishes its updated schedule (usually quarterly) and the new rates apply from the published effective date. The customer sees the change reflected on the next bill.
Do deemed rates apply to gas as well as electricity?
Yes. Both fuels operate on parallel statutory frameworks. The deeming provisions in the Gas Act 1986 and Electricity Act 1989 are functionally equivalent and the practical effects on the customer are the same.
Can past overpayments on a deemed rate be reclaimed?
Almost never. The deemed contract was legally valid for the period it covered, so the charges were technically correct. Recovery of past payments only applies where billing errors, missing meter reads, or breaches of the supply licence can be demonstrated.
Does a new supplier inherit the deemed contract?
No. A new supplier replaces the deemed contract with the fixed-term contract that has been signed. The deemed arrangement ends at the moment the new contract goes live on the agreed start date.
Does ending a deemed contract affect the supply?
No. The physical supply of electricity or gas continues uninterrupted. Only the commercial arrangement between the customer and the supplier changes.
Are domestic deemed rates the same as business deemed rates?
No. Domestic deemed and standard variable tariffs are capped under the Domestic Gas and Electricity (Tariff Cap) Act 2018. Business deemed rates are not capped and operate under different licence conditions.
What is the micro-business threshold for additional protections?
Ofgem defines a micro-business as consuming less than 100,000 kWh of electricity or 293,000 kWh of gas per year, or having fewer than 10 employees with annual turnover below £2m. Micro-businesses receive additional Ofgem protections on contract renewal, cooling-off periods, and backbilling.
Where can a deemed contract dispute be escalated?
Internal complaint to the supplier first. After 8 weeks without resolution, or upon issue of a deadlock letter, the dispute can be referred to the Energy Ombudsman. The Ombudsman’s decisions are binding on the supplier within the scheme’s financial limit.