Deemed Rates and Out of Contract Prices
Don’t Get Caught with Higher Tariff Rates
Traditionally SMEs would be automatically liable to commit to an additional term with increased prices of at least 35%. The industry terms these as “rollover contracts”. If your original arrangement spanned three years, then another three-year obligation would be legally extended.
Legal Fixed-Term Contracts
As a legally-bound transaction, it can not be amended under any circumstances, although we know of discretion cases in some situations.
Additionally, you would be required to provide a written termination notice of between eight and 12 weeks to make changes to your original agreement. This practice has now ceased with all six primary providers in terms of exit penalties, although higher prices may still prevail.
Traditional Automatic Rollover Contracts No Longer Exist
British Gas was the first to announce changes to their practices on 24th July via their Twitter feed.
The table below showed when each supplier stopped selling these types of extensions. Increases are still likely, so monitoring your conditions is still critical. For that reason, contracts continue to get rolled over at higher prices outlined in your renewal letter. However, you can switch to a new deal at any time after the rollover event. (Before this change, you’d have to wait for at least one year).
|Supplier||New Customers||Existing Customers|
|British Gas||Sept. 2013||June 2014|
|E.on||April 2014||April 2014|
|SSE||April 2014||April 2014|
|ScottishPower||April 2014||Dec. 2014|
|Npower||April 2014||Nov. 2014|
Contract Extensions are Now Often Flexible
Contracts will effectively continue to be rolled over on the following terms:
- All suppliers will offer a range of fixed or variable priced products
- British Gas will place you onto variable terms that you can leave “at short notice”.
- Eon customers will move onto the cheapest variable price tariff with a 30 day notice period and no exit fees
- EDF will extend current terms for a further 12 months but without exit fees.
- Scottish and Southern’s commitment is for businesses with less than ten employees or £1,750,000 turnover.
All customers should continue to monitor their contracts as a new variable rate tariff could still be much higher.
How to Mitigate Potential 40% Annual Increases
Improvements through the OFGEM code of conduct have brought traditional rollover contracts to an end. For that reason, there’s now no automatic renewal for an additional fixed term. However, all suppliers will effectively place you onto a new tariff that could increase charges by 35%-40%.
Your Contract Negotiation Window of Opportunity
The good news is you can now immediately renegotiate terms and move with limited notice with the following provisions:
- Contract end dates for micro-businesses are still communicated, so always open letters from your supplier.
- Prices rises are still likely at closing renewal points.
- Variable pricing could also fluctuate dramatically driven by the volatile wholesale market.
- With more options available, comparing tariffs becomes more complicated.
- You’ll still be required to provide written notice to change suppliers.
How Can You Manage This Process Effectively?
There are specific measures you can action to ensure you’re placed on the most appropriate tariff each year. Below is our five-point plan that should be reviewed internally within your organisation at least every 12 months. If you can’t find your original documents, contact your supplier or our team for further guidance.
- Ensure you know when your renewal date expires.
- Check your terms and conditions for details on termination notice submissions.
- Communicate your termination letter directly to your current supplier.
- Always check current market trends at least once per year.
If you need any help with managing this process, then please get in touch either through our contact form or telephone 0800 690 6508.
If you take over an existing business, the incumbent supplier will charge you their deemed rates before a change of tenancy comes into force. These are the highest fees charged in the market, and you should get new quotes as soon as possible. Listed below are the current deemed rates charged by each supplier for 01-04 profile meters.
|Supplier||Unit Cost p/ kWh||Daily Standing Charge|
Note: Data correct at 27th August 2019. E.on, Bulb and Npower have regional pricing for deemed rates. The rate shown for the cost per kWh is an average of all regions combined. How much you pay could vary. The graph below shows the above data pictorially.
With the current average tariff at 13.8p/kWh with a 25p daily standing charge, you can see just how much these charges are. If you have just undertaken a change of tenancy, it’s important you move off these tariffs quickly.
Out of Contract Rates
Similarly, if you’re out of contract for any reason, then you’re also placed on special “out of contract” tariffs. For example, you submitted your termination but didn’t agree on a new contract in time. The charges for British Gas are even higher than deemed rates.
Daily charges are 34.19p with 19.81p per kWh for meters with a profile class of between 01 and 04. For customers with a meter number starting in the range between 05 and 08, then the charge increases to as much as 100.66p per day and 21.11p per kWh. Half-hourly customers could be paying up to 894.02p per day and 24.04p per kWh due to their regional location. That’s more than eight times a standard tariff for the standing charge!
Therefore, it’s critical, if you’ve changed a tenancy, moved to new premises, terminated a contract and forgot to renew, to take action now. The good news is that you can enter a new contract without a penalty. Due to the time involved to change, you will incur the higher rates until your new deal comes into force.
Review and Investigation Analysis
To avoid rollover contracts, deemed rates or out of contract rates, please contact us as soon as possible. When you’re ready, either call our team on 0800 140 4672 or enter your details on our online quote form. We’ll help you get on the right tariff for your business right away.
By maintaining visibility of your terms helps protect you from falling into various pitfalls of commercially based contracts. Rules dictate specific communication channels are open, but this affects a small proportion of UK businesses.
You can also set up renewal reminders. This simple diary event helps avoid above-inflation rises when you forget to renew. While this may remind you to do something, it’s important to take action. Contact us today for further information and help.