“There’s a balance to be struck on standing charges”

Bill Bullen

With standing charges under review and energy prices forecast to be higher than ever this winter, Lucy Dixon spoke to Utilita’s CEO Bill Bullen about how the company is supporting its vulnerable customers.

Ofgem has opened a consultation on energy standing charges – the cost to maintain the energy supply network, take meter readings, and support government social and environmental schemes. Utilita, set up in 2003, has never applied standing charges, and CEO Bill Bullen says that this policy is popular with its Pay As You Go (PAYG) customer base. He explains: “We service a particular sector of the market and for prepay customers, standing charges are particularly sensitive because they tend to be the lowest consumers. So as a proportion of their bill, it’s a bigger part. And secondly, for example, if you’ve got credit on your gas meter but you don’t use gas for a few months during the summer you might come back and find that all your credit has disappeared. So the standing charge issue for customers in the prepay sector is much, much more acute than it is for the market generally.”

Utilita still has to pay the costs associated with the standing charge of course, and Bill says they try to absorb as much of this as possible. “What we’ve done by having a two-tier tariff means we can say to people ‘if you don’t consume anything, you don’t pay anything’. At the same time, we as a supply business are still being faced with all of those fixed costs that everybody else funnels through a standing charge and we have to deal with that somehow. We can absorb some of it, but we can’t absorb all of it.”

Bill hopes the review will mean the burden will be distributed better between bigger and smaller consumers of energy. He explains: “Currently the overall bill is around £2000 and standing charges are around £200 of that, so it’s a relatively small chunk. But what Ofgem has done, with some of the exceptional costs that came through during the energy crisis, they shoved them into the standing charge. So for a period of time, the standing charges did get somewhat inflated. All of that has now come back out again, so the standing charge is to do with the charges that the distribution companies levy on suppliers for shipping energy into the home. And what we’re saying is, instead of making that a fixed charge, you just have a charge per kilowatt hour. And distribution companies are regulated monopolies, so if anybody can take a risk on fluctuations in consumption, then the distribution companies can take that risk.”

Balancing the charges

He’s not advocating for ditching standing charges completely though, as that could lead to energy suppliers not wanting any small customers at all. Bill adds: “All suppliers are going to be trying to get rid of all the small customers because you’re just not going to be able to supply small customers profitably. So you can’t get rid of standing charges completely. The other problem of course is if you put too much into unit charges, people start making super profits out of bigger consumers. And so there’s a balance to be struck. The big thing that Ofgem can do is to address this big chunk of fixed charges that’s coming from the distribution companies.”

The other issue facing consumers, which is particularly felt by Utilita’s customers, is the rise of energy costs from January 2024 – this time without any support from the government to help soften the blow. Bill says: “We know the benefit that the energy bill support scheme had for our customers, it was an incredibly accurately delivered benefit that genuinely put heat and power in people’s homes. As a taxpayer, I pay my taxes so that I know those that are less well off than me are going to be able to afford to heat their homes, and there’s loads of homes that are just not in that situation at the moment.”

Bill points out the many studies that have shown the wider benefits that energy support can offer, such as reduced strain on the NHS and children performing better at school if their homes are warm, and says politicians need to see beyond the costs of supporting communities through this: “If you really want to make decisions for the long term, you’d make sure that people have enough money in their pockets to meet the basic costs of living. And that’s definitely not going to be the case from January.”

He shares a graph that shows the amount of customers disconnecting – running out of credit on their meter – and the number rockets up as soon as the energy support payments stopped. “It really shot up and we are now up here with peak rates of daily disconnections of 8 or 9% of customers, which is a scary number because we’re not in the middle of winter yet and we’re going to have another price rise in January.” These customers get themselves back on supply again, but they’re still going without energy when they run out of cash, which as Bill says is happening more and more. “A couple of years ago, disconnection rates were down at 3% a day.”

Tackling fuel poverty

With fuel poverty soaring, Bill says he’d like to have seen Jeremy Hunt announce further support for households in the Autumn Statement, but doesn’t seem surprised that nothing was forthcoming. He says: “What we need, if we’re going to really tackle some of the deep-rooted problems like achieving net zero, like solving fuel poverty, is government to plan for the long term. Despite all the claims to be taking the tough decisions for the future, or whatever the slogan is at the moment, they just don’t. So what we see is another short-term thing to boost this week’s opinion polls without any real commitment to solving fuel poverty without any real commitment to addressing net zero. It’s very frustrating.”

Virtually all of Utilita’s customers are on smart prepay meters, meaning if they do self disconnect, they can get back on supply very quickly. Bill says: “They can either do it with a couple of swishes on the app themselves if they have the funds or if they don’t, they can self-serve an energy credit and this will be happening by January on 300,000 occasions a month.” This means that Utilita is giving financial support to customers, what Bill calls “microloans” to keep them connected. He adds: “That’s one of the big advantages of smart meters – they have access to that support. These zero interest micro loans are a massive bit of the support we’ve been giving to customers now for years.”