Gas and Electricity Contracts – When Fixed Rates Are Not Always ‘Fixed’

By Saagar Mehta


A bottleneck in energy supplies caused largely by Europe experiencing a ‘cold winter’ leading to a high demand for heating energy, a ‘windless summer’ in 2021 ensuring a relatively low amount of wind energy generated, and increasing demands from Asia, has caused a sudden and unprecedent hike in wholesale gas and electricity prices, which has to an extent been passed on to households and businesses who may now be facing ‘fuel poverty’.

The squeeze has however arguably been felt most keenly by energy suppliers, partly because of a government imposed “price cap” on the amount that can be charged for gas and electricity for those on default tariff contracts, but also because customers often have the benefit of fixed rate contracts, supposedly guaranteeing that for the duration of the contract they will pay a fixed price per unit for their energy use. There is a level of assurance and certainty this provides to customers, who not unreasonably believe that their bills will not be affected when large increases in the wholesale energy prices occur and therefore should have a level of protection.

However, this has been far from the case. We have witnessed many energy suppliers collapsing because they could not support their customer base when their costs increased. A fixed rate contract with a supplier that no longer exists is not of much use. In addition, many energy suppliers faced with such an existential crisis have sought to pass on the additional costs to all customers, including those on supposed fixed rate contracts.

Surely this means that fixed rates don’t always mean fixed rates?

Energy providers have sought to rely on a range of terms in their standard terms and conditions (which usually not many people read closely except for at times like the present) to hike prices even for customers on ostensibly fixed rate contracts.

The most common contractual term relied upon is that the supplier reserves a right to recover any additional charges owed by the customer based on any ‘changes’ that occur to the contract or the supply. Often, when read by a customer, these terms seem more intended to operate when the customer has made a change (i.e. they have wanted to add an additional supply point) rather than when there is a change on the supplier’s end of the bargain. If the matter were otherwise, the customers’ legitimate expectation that it would be protected from wholesale price rises would surely be frustrated. However, suppliers’ terms and conditions are inevitably drafted by the supplier to benefit the supplier, not the customer, and the true interpretation of a contract may not always accord with a customer’s reasonable expectations.

There are two pieces of legislation that may assist householders and businesses in these circumstances:

  1. Households – Part 2 of the Consumer Rights Act 2015: There is a requirement for contract terms with consumers to be fair, and “a term in unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer” (section 62 CRA 2015).
  2. Businesses – Section 3 of the Unfair Contract Terms Act 1977: There is a requirement for contract terms to be fair, but a supplier cannot try to perform its contractual obligations in a vastly different way to what would be reasonably expected from it at the start of the contract, unless it is reasonable.

These may apply if you have a fixed rate contract, and your supplier is now seeking to levy additional charges. Unfair terms in a contract are not permitted by law, and it is arguable that to advertise a contract as a ‘fixed price contract’ to then seek to change the price, would be seen as unfair by the Court, regardless of any other terms and conditions present. It is also arguable the basis upon which you may have entered the contract has now changed as the supplier is trying to perform its obligations in a vastly different way to what both parties agreed at the outset, which in some contexts, may be deemed unreasonable.

It is also important to note that just because you may believe your supplier is unjustly or unlawfully seeking to increase the prices, you are not usually entitled to withhold payment or make reduced payments, as there are usually provisions prohibiting set-off. Set-off is the legal principle by which monies that are purportedly owed to a ‘creditor’ (the supplier in this example) are offset by monies that the debtor (the customer in this example) claims are owed to it, and therefore the debtor only seeks to pay the balance of what they believe is actually owed. Further just because one party may be in breach of contract, that does not give a right to another party to breach the contract, and you must continue meeting your contractual obligations. This could have catastrophic consequences depending on the termination provisions that have been incorporated into the contract, particularly on the part of the supplier. The supplier may have reserved a right to turn off the supply if the charges, as invoiced, are not paid in full. We have seen some terms and conditions drafted stating that any disputed payments must be paid in full, and the customer to then raise the dispute to the customer services team following payment. Whilst there is an argument to suggest they are not permitted to do so, the only sure-fire way to prevent this happening is through obtaining an injunction from the Court. Therefore, often, it can be a safer method to comply with your contractual obligations and pay the sums due, and to take up take up any disputes thereafter.

For more information and to find out how we can help you, please contact us on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.