A ‘deemed’ electricity contract comes about when someone moves into a new business premises and starts to use electricity without having negotiated a contract with the current electricity supplier for that particular location. This also applies to deemed gas contracts as well.

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This means that until you contact the supplier to agree on what you will be charged for units of electricity you use, you will be charged according to the standard rates on the suppliers deemed contract.

It is estimated that about 10% of micro-businesses are on deemed contracts, paying around 80% more for energy usage than they need to. If you compare gas and electricity tariffs you stand to make some significant savings.

How much will I be charged?

Most business energy tariffs involve a daily standing charge, and then you are charged per unit of kWh used on top of this. On a deemed contract, these charges are usually much higher than on a contract you negotiate with the supplier. You can be charged in excess of 20p per unit of electricity and over 6p per unit of gas – much higher than you’d be charged on other tariffs.

When will I start being charged?

You’ll be charged from the very first day you take over the lease for your new premises. You’ll have a lot on your plate, and so energy suppliers usually make a small fortune from new businesses moving in and being placed on a deemed contract until they finally get around to negotiating a better deal.

How do I break a deemed contract?

Breaking a deemed contract is easy. As there are no fixed dates relating to minimum period of time you will have to be on a deemed contract, you can call up and switch as soon as you find a better deal. This is why it pays to research business energy deals before you move into a new premises, in anticipation of the extortionate prices you’ll have to pay on a deemed contract.

If you stay with the same supplier you can usually switch to your new tariff quite quickly, but if you decide to switch suppliers entirely it can take anywhere from 3 to 5 weeks for them to move you over. During this time you will have to continue to pay the deemed tariff prices, unfortunately.

How else might I find myself on a deemed contract? 

You can actually find yourself paying deemed rates if for some reason you don’t switch supplier at the end of your current contract. This could happen in a number of ways:

  • You could have given your notice to your current energy supplier, but then don’t post your contract to your new supplier.
  • There may even be an objection from your current supplier to you moving away from their services.
  • Your new supplier may make a mistake that prevents them from completing the changeover in time

In each of these cases, your switch will not be completed, and you’ll fall into the deemed contract and deemed rates of your current energy supplier until it is rectified and your new contract starts.

What are my rights on a deemed contract? 

If you’ve been put onto a deemed contract your supplier must make you fully aware of the terms of the contract as well as the fees and charges. They must also provide you with a full copy of the contract upon request, and inform you of other contracts that are available to you. Ofgem, the energy sector regulator, also puts pressure on suppliers so that the terms of their deemed contracts are not onerous.

Your energy supplier cannot prevent you from switching to another supplier if you are a business customer on a deemed contract, not even for reasons of debt or contract. They also cannot demand an exit-fee or require you to give them notice in order to leave.

In this sense, deemed contracts can be somewhat of an advantage if you want the flexibility and don’t want to be tied into a long-term deal. Though, as most businesses intend on staying in a premises for quite a long length of time, it would be much wiser to shop around and find the cheapest energy deals.

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