Change of position on deemed energy contracts and rates

Change of position on deemed energy contracts and rates

Overview

A deemed contract is normally in place when a customer moves to new premises and starts to consume gas or electricity, or both, without agreeing a contract with a supplier. A deemed contract may also exist where an existing contract comes to an end, but the customer continues to use energy.

Customers on deemed rates are likely to have to pay more than customers on contracts, for two main reasons. Firstly, suppliers are not able to purchase gas/electricity in advance and instead must pay the market rate at the time energy is consumed – meaning they are often not buying energy at the most optimal time. Secondly, deemed rate customers are more likely than others not to pay their bills, meaning there is a greater credit risk.

For these reasons, it generally costs more to supply gas and/or electricity to deemed rate customers (as a group) and these increased costs are passed on to customers on deemed rate contracts.

Change of position

We have previously issued some decisions that have included conclusions that deemed prices were unduly onerous. This was usually because of a significant difference in price between the deemed rates and contracted rates. However, for the reasons above, that difference may have been justified by higher costs to serve customers on deemed contracts.

Considering whether prices are unduly onerous would require analysis of the costs of supplying, and the profits derived from, customers other than the one complaining to Ombudsman Services. We do not have the remit to request the necessary information to do this. Further, looking at a company’s overall pricing policy goes beyond our role of investigating individual complaints.

Therefore, we will no longer make decisions about whether deemed contract prices are unduly onerous.

Further reading

You can read more in our new guidance note (published June 2020).