Lapse and Liability: Managing the Deemed-Rate Risk in UK Business Energy

Business energy supply is not switched off when a fixed-term contract reaches its end date. Unless a replacement agreement is in place, the supplier will usually continue to supply the site under deemed rates. Those rates are the supplier’s default out-of-contract terms, and they are rarely designed to reward the customer for staying. For UK organisations with tight margins, a deemed rate is therefore less a tariff choice than a procurement failure that appears on the invoice month after month.

How deemed rates arise

A deemed contract exists where energy is supplied without a live commercial agreement. In practice, this most often follows the expiry of a fixed-term contract that has not been renewed or replaced. The supplier keeps the meters energised because continuity of supply is essential, but the commercial protections in the previous deal—fixed unit rates, agreed standing charges and a defined end date—fall away.

The customer may then be billed on variable, out-of-contract terms. The supplier can generally change the price with notice, and the notice period for leaving may be longer than the organisation expects. Some contracts also contain rollover or renewal clauses, so the first task is to read the existing terms rather than assume that the end date is the end of the relationship.

Why the cost can climb sharply

Deemed rates are not automatically the most expensive tariff in every case, but they are structurally prone to costing more. They remove competitive tension: there has been no tender, no comparison of fixed offers and no negotiation over standing charges or contract length. They also expose the buyer to changes in wholesale costs and non-commodity charges, often with less visibility than a fixed-price contract would provide.

For a site with substantial consumption, a unit-rate increase of even a few pence per kWh can translate into thousands of pounds over a year. Where the previous contract was secured at an unusually competitive level, the gap between that rate and the deemed rate can be wide enough to increase the total bill by half or more. The exact figure depends on consumption, region, meter type and the supplier’s terms, so businesses should test their own position rather than rely on a rule of thumb.

Warning signs to look for

Deemed status is easy to miss because supply continues and invoices may still arrive in a familiar format. Procurement and finance teams should look for invoices or statements that use phrases such as deemed, out of contract or standard variable. Supplier letters headed renewal, notice or contract end deserve attention even when they appear administrative.

A broader warning sign is the absence of a central contract register. Where end dates sit in individual inboxes or with a former employee, the renewal date can pass without anyone owning the decision. Multiple sites and half-hourly meters increase the risk because each supply point may have its own terms and notice requirements.

A practical control framework

1. Record every supply point. Maintain a register showing supplier, contract end date, notice period, meter references and the person responsible. Include gas and electricity separately.
2. Start early. Begin the renewal or tender process four to six months before expiry. Obtain letters of authority, consumption data and any site-specific requirements before approaching the market.
3. Read the exit terms. Confirm the notice period and whether the contract rolls over. Diarise the final date for serving notice, not just the contract end date.
4. Compare like with like. Assess fixed and flexible options against the organisation’s risk appetite, and check standing charges, pass-through costs and termination terms as well as the unit rate.
5. Act quickly if deemed. If the organisation has already lapsed, request the contract terms, confirm the notice position and obtain competitive quotes without delay. Keep a record of correspondence with the supplier.

Governance matters as much as price

A deemed rate is often a symptom of weak energy administration rather than a deliberate commercial decision. The remedy is not only to chase a lower unit rate but to install a process that makes lapse visible. A simple calendar, a named owner and a monthly review of contract status can prevent a routine expiry from becoming a prolonged cost overrun.

For finance teams, the risk should also appear in budget assumptions. Treating a deemed-rate scenario as a downside case makes the cost of inaction explicit and gives procurement a stronger mandate to act before the deadline. In a market where non-commodity costs and policy charges continue to evolve, that discipline is a low-cost safeguard with a clear return.

ExEnergy’s view is that deemed rates belong on the risk register, not just in the invoice pile. The organisations that manage them best are those that treat contract expiry as a project with a deadline, an owner and a decision—rather than an event that happens to them.