Ofgem decides against taking supplier failure costs out of standing charges
Ofgem has decided against moving the costs of supplier failures out of standing charges for electricity bills.
The energy regulator was considering moving these costs from standing charges onto the unit price of energy.
This change would have resulted in users with low energy use paying less, while increasing bills for those with high energy use.
Following a review, Ofgem decided not to implement this change, concluding that while some consumers with low energy use would benefit from lower bills, a number of high energy users, including disabled and elderly consumers, would be unfairly disadvantaged.
Here, we explore how standing charges affect your bills.
Ease the squeeze on your household bills with our latest cost of living advice and tips.
Why hasn't Ofgem reduced standing charges?
The fixed nature of standing charges means the same costs are paid by all customers regardless of usage or income. Standing charges vary by region, so are more expensive in some parts of the country than others.
People who use less energy have to pay the same fixed standing charge as those who use more energy, and for low energy users standing charges can make up a frustratingly large portion of their bills.
Transferring supplier failure costs from the standing charge to the unit price, as Ofgem was considering doing, would have been a way to help low energy users benefit from lower bills.
But those with high energy use, including people with disabilities who need to run medical equipment or elderly people who are housebound and sensitive to cold temperatures, would be disadvantaged by an increase to the unit price of electricity.
Which? has previously called on Ofgem to reduce standing charges to benefit those cutting back on energy use, but while addressing the need for protections for vulnerable customers with unavoidable high energy usage.
Ofgem claims that recovering supplier failure costs through unit rates would have only lead to small reductions in bills (typically by less than £10 per household per year), while large numbers of consumers with high energy use would have needed to pay around £5 - £30 more compared to the current system.
- Find out more: help if you're struggling to pay your energy bills
Rocio Concha, Which? Director of Policy and Advocacy, said: “Consumers are caught in a perfect storm of rising wholesale energy costs and picking up the tab for the collapse of energy firms after years of regulatory failure. This decision from Ofgem to take no action may be the right one if changes would have had a negative impact on vulnerable consumers, but the regulator must work with others to urgently look at how bills can be made fairer.
“A more thorough review is needed to support the many low-income consumers who are paying substantial bills because of the standing charge, despite using less energy. As part of this review, it should also address the need for protections for vulnerable customers with unavoidably high usage, such as those who are housebound or who need to run medical equipment.”
What are standing charges?
The standing charges that come as part of your energy payments are the fees you pay to your energy provider to access energy, before you've even started paying for what you use. You could think of them as similar to the line rental you pay to your telecoms company.
It's a fixed amount within your gas or electricity tariff, so you'll pay the same price for every day (or month) that you have your energy tariff, even if you don't use any fuel at all. In the past, we've seen some suppliers offer £0 standing charges, but these are no longer available in the current market.
Energy companies justify standing charges by explaining that they cover their costs for maintaining their networks, as well as other elements that come as part of running their business, such as paying government levies and grants like the Warm Home Discount. Standing charges vary in different parts of the country, because network costs are different depending on where you are.
