Out-of-Contract Rates: The Most Expensive Way to Buy Business Energy

Out-of-Contract Energy Rates Run 40–80% Above What You’d Pay on a Negotiated Fixed Deal. Every Day You Stay There Is an Avoidable Cost.

Out-of-contract (OOC) rates — sometimes called “default tariff” or “deemed rates” — are the prices energy suppliers charge when a business has no active negotiated contract in place. They are deliberately set high. Suppliers are not acting unreasonably in a legal or regulatory sense by charging them; they reflect the genuine cost to a supplier of carrying an unhedged supply commitment at short notice. But for the business paying them, they represent the most expensive way to buy energy available in the UK market, and every week spent on OOC rates is a direct cash cost compared to what a negotiated contract would have delivered.

In a market where the average UK SME energy contract saves 20–30% versus OOC rates, a manufacturing business spending £200,000 per year on energy could be leaving £40,000–£60,000 per year on the table simply by not having a contract in place. The process of fixing that is, in most cases, achievable within two weeks.

How Businesses End Up Out of Contract

There are four common routes into out-of-contract status:

Auto-renewal missed — and the rollover expired too. Some businesses miss their notification window, roll onto an auto-renewed contract, and then miss that renewal window as well. The second miss typically results in genuine OOC status — the auto-renewed contract has expired without a replacement. At this point, the business is on the supplier’s published default tariff, which is set substantially above contracted rates.

New premises — no contract arranged. As covered in our Change of Tenancy article, moving into new premises without arranging an energy contract immediately results in deemed contract status, which is functionally equivalent to OOC pricing. The business is on the supplier’s deemed rates from day one of occupation.

Deliberate waiting for prices to fall. Some businesses — particularly those who experienced the 2021–22 price spike and fixed at high rates — decide at contract expiry to stay off-contract and buy energy at spot or default rates in the expectation that prices will fall to a level at which fixing makes sense. This is a calculated gamble. When it pays off, the business captures a lower rate than they would have obtained by fixing early. When it doesn’t — when prices stay elevated or rise — they pay OOC premium on top of an already expensive market.

Supplier failure and SoLR transition. When a supplier fails and customers are transferred to a Supplier of Last Resort, the incoming supplier is not obligated to honour the previous contracted rate. Businesses in SoLR situations are effectively renegotiating their contract from a position of limited leverage and may find themselves on rates closer to OOC levels until a new negotiated contract is arranged.

What OOC Rates Look Like in Practice

OOC rates vary by supplier and are not published in a transparent, comparable format. Suppliers set their own default tariff schedules, which means there is no single “OOC market rate” to benchmark against. What we can say with confidence, based on 20 years of reviewing business energy bills:

• OOC electricity rates typically run 40–70% above the equivalent competitive fixed rate for the same supply period.
• OOC gas rates typically run 30–60% above competitive fixed rates.
• The premium is larger during periods of elevated wholesale prices, because suppliers set OOC rates with a significant buffer to avoid carrying unhedged price risk.
• Standing charges on OOC supplies are often elevated as well — the unit rate headline is not the only component that increases.

For a business spending a notional £8,000 per year on electricity at contracted rates, an OOC equivalent could run £11,200–£13,600 per year. For a business spending £150,000 per year, the OOC equivalent could represent £210,000–£255,000 annually. These are not theoretical figures — they are the range of overpayments we see when businesses come to us mid-OOC period.

Can You Negotiate OOC Rates?

Yes — with caveats. If you contact your current supplier and explain that you’re aware you’re on OOC rates and want to negotiate a new contract, most suppliers will offer you a contracted rate. The rate they offer initially may not be their most competitive; the fact that you’re currently captive gives them less urgency to sharpen the pencil.

The more effective approach — which produces meaningfully better outcomes — is to simultaneously contact multiple suppliers and obtain competing quotes while in OOC status. Present the competitive landscape to your incumbent: “We have quotes from three other suppliers at X, Y, and Z. We’re prepared to stay with you if you can be competitive.” This changes the dynamic.

Alternatively, and most efficiently, appoint a broker to run a competitive tender on your behalf. A broker with access to 15–20 suppliers can typically arrange a new contracted rate within 48–72 hours for a standard business profile. The time savings alone — versus managing multiple supplier conversations yourself — is significant when every day on OOC rates is costing money.

The OOC Rate Premium vs Early Termination Costs

One specific scenario deserves attention: businesses that are in an existing contract but facing very high rates — perhaps locked into a deal signed at or near the 2021–22 market peak — sometimes ask whether it’s worth paying early termination charges to exit and re-contract at current market rates.

This is a calculation, not a principle. The variables are:

• The early termination charge: Usually calculated as the remaining contract value at contracted rate less the supplier’s cost of re-selling the energy — the “mark-to-market” cost of the position. In a falling market, this can be significant. In a stable or modestly falling market, it may be manageable.
• The saving on the new contract: The difference between the current contracted rate and what a new contract would cost, multiplied by consumption over the remaining contract term.
• Time remaining on the contract: A 6-month remainder makes the arithmetic different from an 18-month remainder.

We run this calculation for clients on request. In some cases, early exit is economically rational. In more cases, the early termination charge exceeds the saving available from re-contracting, and the correct advice is to wait out the current contract and optimise the next renewal. The answer is always in the numbers, not in a blanket position on contract exits.

If You’re Out of Contract Right Now

The process to fix this is straightforward and fast:

1. Confirm you’re on OOC rates — check your bill for “default tariff,” “deemed rate,” or ask your supplier directly.
2. Gather your current consumption data — an annual kWh figure for electricity and/or gas, or a recent bill.
3. Contact Telnergy — we’ll run a competitive tender across 18+ suppliers within 24 hours and present you with contracted options that end the OOC exposure.
4. Agree a contract — typically documentable and effective within 3–5 working days for straightforward sites.

Every day you’re out of contract is costing you more than you need to pay. The fix is genuinely quick.

📱 WhatsApp Business: 07360 272168

📧 Email: hello@telnergy.com

📞 Direct line: 01202 028888

Telnergy Limited • Independent Energy Consultants since 2002 • Ofgem TPI Registered • Christchurch, Dorset