What Is a Deemed Energy Contract?

A Deemed Contract Is the Energy Supply Arrangement That Activates Automatically When No Formal Contract Is in Place. It Is the Most Expensive Way to Buy Business Energy.

If your business is consuming electricity or gas without a formal negotiated contract in place, you are on a deemed contract. This applies to businesses that have moved into new premises without arranging supply, businesses whose contracts have expired without renewal, and businesses whose previous supplier has failed and no replacement contract has been established.

The deemed contract is not an arrangement you agreed to. It is a default supply obligation — the legal mechanism that ensures energy continues to flow to your premises even when no commercial agreement exists. The supplier providing deemed contract supply is entitled to charge at rates set entirely at their commercial discretion. Those rates are consistently the highest in the market.

How Deemed Contracts Come Into Existence

Deemed contracts arise in three primary scenarios:

Change of occupancy: When a business moves into new premises, the previous occupant’s supply arrangement ends at the point they vacate. If the incoming occupier does not immediately notify the existing supplier and establish a new contract, the supply continues flowing under deemed terms. Every day of occupation without a formal contract is a day on deemed rates. There is no grace period.

Contract expiry without renewal: When a fixed-term business energy contract expires and neither a new contract nor an auto-renewal has been triggered, the supply continues under deemed contract terms. This is distinct from auto-renewal — in an auto-renewal, the supplier has rolled the contract forward at a new rate (typically above market but still a contracted rate). In a deemed situation, there is no contracted rate at all.

Supplier of Last Resort (SoLR) transition: When a licensed energy supplier fails and Ofgem appoints a Supplier of Last Resort to take over their customer base, business customers are initially transferred on deemed terms. The SoLR is not obligated to honour the failed supplier’s contracted rate. Business customers in SoLR situations should treat the deemed supply as temporary and arrange a new competitive contract as quickly as possible.

What Deemed Contract Rates Look Like

Deemed contract unit rates are set by each supplier independently. There is no regulated ceiling on deemed rates for business customers — unlike the Ofgem price cap which protects domestic customers on default tariffs. Suppliers set deemed rates to reflect the genuine cost of providing unhedged, uncontracted supply — plus a commercial premium for the absence of a competitive procurement process.

In practice, deemed contract unit rates run 40–80% above competitive contracted rates for equivalent consumption profiles. The premium reflects:

• The supplier’s cost of providing supply without forward hedging (spot market exposure)
• The administrative cost of managing uncontracted supply points
• A commercial margin reflecting the customer’s lack of alternatives in the immediate term

The standing charge on deemed contracts is also typically elevated above contracted standing charges.

The Legal Status of Deemed Contracts

Deemed contracts are legally binding supply agreements, despite the customer having signed nothing. The legal basis is the Electricity Act 1989 and the Gas Act 1986, which impose an obligation on licensed suppliers to provide supply to any premises within their supply area and to offer deemed contract terms for that supply.

The deemed contract terms are part of the supplier’s published schedule of charges and standard terms — documents that the supplier is required to make publicly available. By consuming energy, the occupier of the premises is deemed to have accepted those terms, even without a signature. This is the mechanism by which deemed contracts become binding without a formal agreement process.

The legal enforceability of deemed contracts is well established — attempting to dispute a deemed contract bill on the basis that “I didn’t sign anything” is not a successful strategy. The obligation flows from occupation and consumption, not from signature.

Deemed Contracts vs Out-of-Contract Rates

These two terms are often used interchangeably but have a technical distinction:

Deemed contract: Strictly, the supply arrangement for a premises where no contract has ever been established with the current occupier — typically a new occupier situation or a post-supplier-failure situation. The deemed terms are drawn from the supplier’s published deemed contract schedule.

Out-of-contract (OOC) rate: The rate applied when a previous fixed-term contract has expired and no renewal has been executed. Some suppliers have separate OOC rate schedules distinct from their deemed contract rates, though in practice both represent expensive default supply arrangements well above competitive contracted rates.

For practical purposes, the distinction matters less than the shared characteristic: both are significantly more expensive than any competitively negotiated contract, and both should be exited as quickly as possible.

How to Exit a Deemed Contract

Exiting deemed contract supply is straightforward in principle:

1. Identify the current supplier: Use the MPAN (electricity) or MPRN (gas) to identify who is currently registered as the supplier at your premises. Your broker can check this through industry databases.
2. Take a meter reading: Record a dated meter reading to establish your consumption liability from a known point.
3. Obtain competitive market quotes: Approach multiple suppliers for contracted supply. A broker can typically produce a competitive comparison within 24–48 hours.
4. Agree and execute a new contract: Once a contract is agreed, the new supplier registers against your MPAN/MPRN, and the transfer process begins. Supply start dates for new contracts are typically achievable within 1–4 weeks depending on the supplier and the transfer process.

While the transfer is processing, you remain on deemed rates. This is the unavoidable gap period — minimising it by acting quickly on steps 1–4 reduces the total deemed rate exposure.

Telnergy and Deemed Contract Rescue

We handle deemed contract situations as a standard part of our service. If you are on deemed rates — whether from a new premises move, a contract expiry, or a supplier failure — we can identify the current supplier, obtain competitive contracts, and execute the transfer process, minimising your time on above-market rates.

📱 WhatsApp Business: 07360 272168

📧 Email: hello@telnergy.com

📞 Direct line: 01202 028888

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