(qlmbusinessnews.com . Mon 24th Feb, 2025) London, UK —
Ofgem's Energy Standing Charge Overhaul Sparks Uproar: Charities and Suppliers Alike Slam ‘Complicated' Plans
Ofgem's proposed shake-up of energy standing charges has ignited a firestorm of criticism from charities and energy providers across the UK, who are decrying the plans as overly complex and potentially detrimental to vulnerable households.
The current system sees all homes saddled with a fixed daily charge – the standing charge – to cover the cost of connecting to the gas and electricity networks. Many billpayers view these charges as inherently unfair, as they bear no relation to actual energy consumption, prompting Ofgem to launch a review.
However, the regulator's proposed solution – offering consumers a choice of tariffs that redistribute these fixed fees elsewhere on their bills – has been met with widespread disapproval.
Ofgem received a staggering 30,000 responses to its consultation on standing charges, with the vast majority expressing discontent with the fixed fees, which often exceed £300 annually, regardless of usage. Since 2019, these charges have surged by 43% under Ofgem's price cap.
While acknowledging the necessity of covering network costs, Ofgem unveiled plans in December to introduce tariffs without a standing charge. The proposal entails obligating energy firms to offer dual pricing options: one with a standing charge and another without. The tariff lacking a standing charge would feature a higher unit price for each kilowatt-hour of energy consumed. Both options would remain subject to the existing price cap.
As it embarks on a month-long consultation on these proposals, Ofgem suggests that the “no standing charge” option could be implemented by:
Increasing the price of each unit of energy.
Implementing a tiered system where customers pay a higher unit rate until a certain energy threshold is reached, followed by a lower rate thereafter.
Alternatively, a block system could be adopted where customers initially pay a lower unit rate until a certain consumption level, after which a higher rate applies.
Charlotte Friel of Ofgem contends that these options would empower customers with “choice and more control” over their energy expenditure. “We're looking closely at how these tariffs will work in practice, but everyone will need to carefully consider which option best suits their needs,” she stated.
Vulnerable at Risk?
However, a coalition of charities and Energy UK, the energy suppliers' trade body, have voiced concerns that the proposals fail to address the underlying cost of standing charges and introduce unnecessary complexity into the billing system.
Key concerns include:
The failure to reduce standing charges, merely shifting them to other areas of the bill.
The risk that vulnerable customers may inadvertently choose the wrong tariff, resulting in higher energy costs.
The perpetuation of the postcode lottery, where standing charges vary depending on location.
The added complexity undermines the price cap's role as a safety net for non-switching customers.
Jonathan Bean of Fuel Poverty Action criticised the plans as a veiled attempt to conceal standing charges within unit rates, potentially penalising consumers for initial energy consumption.
Peter Smith of National Energy Action echoed these concerns, highlighting the potential impact on pre-payment meter customers, who could accumulate unaffordable charges that must be repaid before accessing essential energy services.
Billpayers, charities, and suppliers alike underscore the failure of the proposals to tackle the overarching cost of energy.
Betty, 76, a member of a knitting group in Islington, lamented the burden of high bills. “It's just too much. You turn off your heating and you're cold but the standing charge is still there,” she said. “When I got my bill recently, it was £300 and we're just two pensioners. It's too high. You just worry about it. It's depressing.”
Energy UK's Dhara Vyas stressed the need for Ofgem to prioritise affordability, noting that customers are collectively £3.8 billion in debt to suppliers. “Right now we're in record levels of debt. We've got huge concerns about affordability and I don't think the standing charges proposal and new price cap is the way to tackle those big concerns,” Vyas stated.
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