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Don't be Doomed on Deemed
One in ten businesses are paying twice the standard rate for their energy
One in ten businesses are paying twice the standard rate for their energy because they have been placed on 'Deemed' tariffs by their supplier, research published by Ofgem has revealed.*
- Ofgem figures show the average annual gas & electricity bill for a small business on the cheapest contract is £3,500, while firms on deemed rates face typical charges of £6,500.
- SMEs are placed on these expensive rates after moving into new premises. Half of firms paying deemed rates continue to do so for more than a year, with some staying on such rates for as long as ten years.
- The average business is on deemed rates for a period of 407 days.
Based on Ofgem's figures - which were requested from each of the business energy suppliers last year - more than 150,000 small businesses are currently paying deemed rates. SMEs are automatically placed on these tariffs when they move into new premises because suppliers class them as a 'bad risk'.
These deemed rates are typically 85% more expensive than the cheapest available tariffs but, depending on which supplier you are with, can be as high as 165% more. Below is a table of typical prices by contract type:
|Typical standing charge per day||Typical unit rate per kWh|
|"Deemed" rates||New customer rates||"Deemed" rates||New customer rates|
|Electricity||Up to £2.40 ✘||30p ✓||Up to 25p ✘||11p ✓|
|Gas||Up to £3.60 ✘||35p ✓||Up to 8p ✘||4.5p ✓|
Suppliers have previously explained that deemed rates are necessary due to additional cost drivers associated with businesses moving into a building; the short-term fluctuation of wholesale prices, the expense of serving contracts of uncertain length and an increased risk of non-payment from new tenants. Indeed, one supplier told Ofgem that it has to write-off half the debt for deemed customers because of this last issue - a factor which forces up prices for other consumers.
SMEs should only be on deemed rates for a short period of time before they're offered a standard contract. However, as Ofgem's research shows, this isn't happening, with half of businesses on deemed tariffs remaining so for at least a year. When business price comparison service - Make It Cheaper - asked its customers if moving premises would mean being charged more for energy, only half (53%) correctly answered that they would.
Make It Cheaper CEO and founder Jonathan Elliott said: "More needs to be done to ensure small firms aren't in the dark about gas and electricity prices when they move in to new premises, and better communication could help reduce the cost of deemed rates.
"Suppliers need to make a more concentrated effort to contact tenants who are new to premises, while business owners should also ensure they're contacting suppliers as soon as they move into a building. Once a contract has been agreed, the new rates should be backdated to apply from the date the tenant moved in. That's something we're able to arrange for businesses who come to us on deemed rates, particularly if they're still within three months of having moved in."
Businesses that have recently moved in to new premises or are unsure what rates they're on can take the following action to lower their bills:
- If you're moving into premises, take a meter reading and get in contact with your energy company as soon as possible. If you don't know who is supplying your power then follow our guidelines or call 0800 970 0077 and Make It Cheaper can help you through the process.
- If you've been in your premises for some time and are only just acting on your bills, ask if your new rates can be backdated to when you moved in. This may require you to sign a one or two year contract, but could be the cheapest option.
- If the rates you're offered are more than 11 pence for electricity or 5 pence for gas, shop around for a better deal at MakeItCheaper.com or call 0800 970 0077.
- Any business asking Make It Cheaper to arrange a switch of its energy supplier before the end of April 2014 will be entered into a prizedraw for a year's free energy, worth up to £10,000.
Case Study - The Dreadnought Hotel
- Dayo Ogunyemi took over The Dreadnought Hotel in Callander in September 2013.
- The 60 bedroom hotel uses nearly 600,000 units of electricity per year.
- The incumbent supplier has been billing Dayo deemed rates at 17.93p per unit and £5.36 per day standing charge.
- They also asked for a Security Deposit of around £20,000.
- Make It Cheaper managed to do what two other brokers failed to do and get the rates backdated.
- He is now paying 11.78p for day units and 7.14p for night units with a 33p/day standing charge and no security deposit required.
- This gives Dayo a saving of approximately £45,000 for the next year, on top of the 4 months backdated.
*Source: Deemed & Out of Contract, Industry Workshop (Pages 8-12, published on 18.12.13)
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About Make It Cheaper: Based in Central London with 140 staff, Make It Cheaper has been the No.1 destination for businesses to get a better deal on their utilities since its launch in 2007. Following its acquisition of UK Power in 2012, Make It Cheaper also now provides competitive energy prices and expert advice for households. Its supplier panel includes all of the 'Big 6' and over 20 of the smaller domestic and non-domestic energy companies. For businesses and charities it also offers savings across other overheads including: telecoms, insurance and merchant services (Chip & PIN). By switching suppliers or helping to renegotiate deals with existing ones, Make It Cheaper will typically save over 30% of costs (as well as a considerable amount of time) that its customers can then spend elsewhere. The company has appeared in the Fast Track 100 every year since 2011 and in 2013 it won the titles of 'SME Consumer Champion' & 'SME Most Trusted' at the Energy Live Consultancy Awards. It's 2014 Net Promoter Score, based on 410 customer satisfaction questionnaires completed to date, is 72.
Further information: Nick Heath 020 7654 0730 / firstname.lastname@example.org