Ofgem announces standing charges review

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Ofgem has launched a review into energy standing charges, and you can have your say until 19th January 2024.

The standing charge covers the cost to maintain the energy supply network, take meter readings, and support government social schemes, for example helping people that cannot afford energy, and environmental schemes.

Some suppliers do not include a standing charge in their tariffs. Instead, they offer a tariff that works in a similar way, but you pay a bit more for the first one or two units called kilowatt hour (kWh) of energy you use.

If the standing charge were to be removed, then suppliers would still need to cover the costs like maintenance in other ways. It could mean that the cost of energy you use would go up. This could help some people to use less energy. However, people who cannot use less energy due to health problems or age, for example those who have electricity-powered medical equipment, would have higher bills.

Read the standing charges call for input discussion paper and reply with your views by 19th January 2024.

Responding to the review, Peter Smith, from fuel poverty charity National Energy Action (NEA), said:  

For years, there has been growing alarm about increases to standing charges. Many people rightly feel they are now too high and the current approach is unfair. How can it be right that someone who can’t afford any energy for their home, still pays a daily charge that is the same or more than someone in a mansion? An overhaul of the system is long overdue.’

Standing charges aren’t just a matter for the energy suppliers or the energy regulator. How much people pay is often due to government policy. If there was the political will to prioritise these issues in the Autumn Statement, the UK government could cut standing charges to zero for prepayment customers this winter. This would particularly benefit those who are more likely to have missed out on support last winter like the £400 discount Energy Bill Support Scheme and who are much more likely to in debt or struggling now to afford their bills.

In the longer term, more policies should be paid out of taxation and Ofgem should be encouraging suppliers to reflect a customer’s usage when they recover these charges, or a customer’s payment method, which fuels they use, or their ability to pay.

Bill Bullen, Founder and CEO of Utilita Energy, responded to the news:

Standing charges represent the overheads associated with delivery of energy to households – but the standing charge mechanism is particularly unsuitable for prepay customers.

We are keenly aware that PAYG households – who have a closer relationship with their energy usage and spend – feel that standing charges are like a leak in the meter that slowly drains away their credit. That’s why we have always opted for a two-tier tariff as a better and fairer way to recover standing charge costs.

Since we launched in 2003 we have never applied a standing charge. Only Utilita customers have been able to pay nothing if they use no energy that day, and we’re popular for it.

With standing charges in the spotlight, we fully expect to see more suppliers follow suit until the regulator finds a fairer way to calculate them.