The ins and outs of 'deemed' contracts

If you supply energy to a site, you are 'deemed' to have a contract even if the customer has not signed a piece of paper - or are you? Tim Speed explains.

The law on "deemed" electricity supply contracts - where power is supplied to a customer without a formal contract having been drawn up, commonly when the ownership or occupation of a premises changes - is hazy.

The relevant paragraph in the Utilities Act 2000 states: "Where an electricity supplier supplies electricity to any premises otherwise than in pursuance of a contract, the supplier shall be deemed to have contracted with the occupier (or the owner if the premises are unoccupied) for the supply of electricity as from the time when he began so to supply electricity." The act also allows suppliers to incorporate their own terms and conditions into deemed contracts, including parties' rights and obligations, price, payment terms and so on.

This wording leaves it open to question whether electricity actually has to be consumed by the customer for a deemed contract to come into play. Suppliers would argue that making a supply available should be enough. After all, they have provided a service and will have paid out charges to the distribution network operator that they would normally pass through to the customer. Under this interpretation, suppliers would be contracted with more customers and would be able to recover more pass-through charges.

However, Ofgem recently clarified its view on the matter: it said that deemed contracts apply only once gas or electricity is consumed. It accepts, though, that its view is non-binding and that interpretation of the legislation is ultimately a matter for the courts.

The wording in the act itself sits somewhere between those two camps. As stated above, it specifies that for a deemed contract to arise, an electricity supplier must satisfy the test that it "supplies electricity to any premises".

The definition of "premises" is wide and unhelpful, as it "includes any land, building or structure". Therefore, electricity has only to be supplied to any land, building or structure, which would include not just the factory, say, but the whole site, including anything within its grounds such as a substation or security building.

If you pin down the definition of "supply" in the act, it means "to convey to the premises". While this does not define supply as "making electricity available" for consumption, as the supplier would prefer, importantly neither does it go as far as to support Ofgem's view.

So where does that leave power suppliers? Ultimately, the matter will not be finally resolved until taken to court for judicial scrutiny. In that event, in addition to Ofgem's advice, the court would consider factors supporting a supplier's case - for example, that consumers can easily discover who their supplier is but often choose not to; and the fairness that any unrecovered charges paid to networks will likely be passed on to other customers through higher bills. Factors against the supplier view - for instance that suppliers could monitor a site where there is zero consumption and seek to de-energise if agreement cannot be reached with the customer - would also be considered.

Even if the courts upheld Ofgem's position, suppliers should remember that if the customer consumes just one unit of electricity, which could easily happen during a monthly security inspection or a one-off visit, arguably a deemed contract has arisen. If this is the case, then the supplier's deemed contract terms and conditions would govern the relationship and pass-through charges may become payable. Even if there is no deemed contract, a supplier may still argue that they have an equitable claim. Arguably, a service has been provided by making electricity available and the owner or occupier has acquired a value from this because their property is worth more than if it were de-energised.

Perhaps the best option is for suppliers to encourage owners and occupiers not to give rise to the situation in the first place. They need to promote the message that they need to be kept updated on who is responsible for electricity charges and notified of changes of occupation, that contracts need to be entered into as soon as possible to create certainty and reduce supply charges, and that if a site is to be mothballed, suppliers can de-energise them.

Tim Speed is a senior associate at Martineau.

Author: Paul Newton,
Tags: Electricity Distribution , Electricity Retail , Regulation

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