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Understanding out-of-contract gas rates
Seeing your bill jump right after your contract end date can feel like you have missed something obvious. In many cases, you have moved onto out-of-contract gas rates.
Out-of-contract gas rates are the default prices your supplier applies when your fixed term ends and you have not agreed a new deal. Your gas supply does not stop. The contract pricing stops.
A simple way to think about it is a gym membership. If your discounted 12 month deal ends and you do not renew, the gym still lets you in, but you fall back onto the standard walk-in price.
How businesses end up out of contract
This usually happens when the contract reaches its end date and nobody signs a renewal or new agreement in time. It is often an admin gap rather than a deliberate choice.
Common reasons include:
- The renewal email goes to an old address or a former employee.
- The contract end date is not recorded anywhere that gets checked.
- Decision making takes longer than expected, especially with multiple sites.
- A move, refit, or busy season pushes utilities down the list.
Out-of-contract rates are a business pricing situation. There is no domestic style price cap that limits what suppliers can charge businesses in this position.
If you are trying to work out whether you are out of contract or in a different default arrangement, this is where deemed contracts come up. Deemed contracts often apply when you move into a new property and have not signed anything yet. Our guide on what is a deemed gas contract explains that scenario in plain English.
Why out-of-contract rates cost more
The primary reason these rates are so high is that the supplier is taking on more risk. In a fixed contract, the supplier knows exactly how much gas they need to purchase in advance for your business. When you are out of contract, you could leave at any time. This lack of certainty means the supplier charges a premium to cover the volatility of purchasing gas on the short term market.
The cost of your gas bill is generally split into two main parts.
- The unit rate which is the price you pay for every kilowatt hour of gas your business consumes.
- The standing charge which is a daily fee that covers the cost of maintaining the pipes and the meter.
When you fall onto default rates, both of these figures usually increase. The unit rate can sometimes be double or triple what you would pay on a fixed deal. Standing charges also rise significantly to account for administration and the lack of a long-term commitment from the customer.
| Feature | Fixed Rate Contract | Out-of-Contract Rate |
|---|---|---|
| Price Stability | Prices are locked for the duration. | Prices can change with short notice. |
| Cost Level | Generally the most competitive. | Very expensive default pricing. |
| Notice Period | Must wait until the end of the term. | Usually zero to thirty days. |
How to avoid falling onto default rates
Prevention is always better than cure when it comes to business utility costs. Staying off these expensive rates requires a proactive approach to managing your energy portfolio.
The most effective strategy is to understand your renewal window. Most suppliers will send a renewal offer around three months before your current contract ends. This document should detail what your new rates will be if you stay with them. However, you do not have to wait for this letter. You can start exploring your options much earlier. If you want to stay ahead of the game, learning exactly when to renew a business gas contract will help you avoid the last-minute rush, and it is also worth understanding how fixed rate business gas contracts are usually structured.
Another key step is to keep your contact details updated with your supplier. Many businesses fall into out-of-contract rates simply because the renewal notice was sent to an old email address or a former employee. Ensuring that the person responsible for the bills is receiving the correct notifications is a simple but vital part of business administration.
For a more comprehensive look at managing your utility supply, our main business gas resource provides further context on market structures and pricing.
What to do if you are already on out-of-contract rates
If you discover that your business is already paying out-of-contract rates, you should take action immediately. Every day you wait is a day you are paying more than necessary for your energy.
The first step is to check if there are any notice periods. While most out-of-contract arrangements allow you to leave at any time, some suppliers may require a short notice period such as thirty days. You should confirm this with your current provider to ensure a smooth transition.
The second step is to secure a new fixed-term contract. You can do this by either negotiating a new deal with your existing supplier or switching to a new one. In many cases, switching provides the best opportunity to find more competitive rates. Because you are out of contract, you will not face any exit fees or financial penalties for moving your supply.
Once you have chosen a new deal, the new supplier will handle the transfer process. It typically takes a few weeks for the switch to complete. During this time, you will still pay the higher rates to your old supplier, but once the new contract begins, your costs should drop significantly.
Frequently asked questions
Can a supplier switch me to out-of-contract rates without telling me?
Suppliers are required to send a renewal notice before your contract ends. However, if that contract expires and you have not taken any action, they will automatically move you onto their default rates. They do not need your explicit consent to do this because they must continue supplying gas to your property.
Is there a price cap for out-of-contract business gas?
No. Unlike the domestic energy market where Ofgem sets a price cap, there is no upper limit on what a supplier can charge a business for out-of-contract or deemed rates. This is why the prices are often so much higher than fixed deals.
How long does it take to move off these rates?
If you stay with your current supplier and sign a new contract, the change can often happen quite quickly. If you decide to switch to a different supplier, it can take between five working days and a few weeks depending on the speed of the transfer process.
Can I be charged an exit fee if I am out of contract?
No. One of the few benefits of being on these rates is the flexibility. Because there is no active contract in place, you are free to leave and switch to a new provider without paying any termination fees.
Managing business gas costs requires staying informed about your contract status. By keeping track of your expiry dates and acting before they pass, you can protect your business from the high costs of default pricing. For more information on how to handle the end of a term, you might find our guide on what happens when a business energy contract ends helpful.
