Ofgem Proposes New Energy Tariffs Without Standing Charges

Regulator Ofgem is proposing a significant change to energy billing that would mandate energy companies to provide customers with tariff options that do not include standing charges. Currently, all households incur fixed daily charges designed to cover the expenses associated with connecting to the energy supply, yet there has been considerable public demand for the elimination of these fees. Ofgem’s proposal suggests that suppliers should present two types of price-capped tariffs: one that incorporates the standing charge, and another that reallocates these costs into the energy usage charges. This would allow customers to select the option most suitable for their needs. This proposed overhaul, slated for implementation next winter, also introduces the prospect of forgiving certain unpaid bills accumulated during a recent period of high energy prices. When Ofgem solicited public feedback regarding standing charges, it received an unparalleled 30,000 submissions. A significant portion of these submissions expressed opposition to standing charges, which are fixed fees, often exceeding £300 annually, that consumers pay regardless of their actual energy consumption. Since 2019, standing charges have increased by 43% under the framework of Ofgem’s price cap. Individuals with low energy consumption, for instance, those living alone, contended that even with further reductions in their gas and electricity usage, their bills showed minimal change. They expressed a desire for greater autonomy over their energy expenses. Conversely, consumers with substantial energy requirements might experience a significant increase in their bills if these charges were integrated into the per-unit price of energy. This would result in elevated costs for individuals with disabilities who rely on charging specialized equipment. Alex Belsham-Harris of Citizens Advice stated, “We hear from people who’ve turned off their heating, ration their hot water, and avoid charging essential mobility devices, yet still feel like they’re fighting a losing battle with their energy bills.” Ofgem’s suggested resolution involves instructing energy companies to provide a dual pricing option: one tariff including a standing charge and another without. The tariff lacking a standing charge would feature a higher per-unit energy cost. Both options would remain subject to the current price cap system. While such tariffs currently exist, they are offered by only a limited number of suppliers and are not universally accessible. Although customers would be required to make a selection, some advocates are pushing for individuals with low energy consumption to be automatically transitioned to a standing charge-free arrangement. Martin Lewis, founder of Money Saving Expert, commented, “The problem with presenting a choice of price caps is many vulnerable people won’t make that choice.” Joanne Wilkinson is identified as one individual who stands to benefit from these changes. She stated, “I try not to look [at the standing charges] because it’s depressing.” She further explained that she already has considerable concerns managing her baby daughter Adeline, yet she observed the rapid depletion of funds loaded onto her energy meter. She added that reduced wages in the north of England exacerbate the difficulty for parents like her to cover energy bills, particularly while she remains on maternity leave. However, Energy UK, the organization representing energy suppliers, indicated that such a foundational proposed alteration necessitates thorough deliberation. Dhara Vyas, the trade body’s chief executive, commented, “It would be a major undertaking to make all customers aware of this change and to ensure they then choose the best option for their circumstances.” She informed the BBC that introducing a price cap option with no standing charge would “quite significantly change the nature of the price cap.” She elaborated, “It would go from being one single regulated price that gives customers protection whether or not they switch, to a situation where I think customers might be expected to make an active choice about which cap they are on.” When questioned by the BBC about the complete abolition of standing charges, Tim Jarvis, director general of markets at Ofgem, confirmed that this possibility had been examined, but emphasized that the associated costs “need to appear in bills somewhere.” He further stated that reallocating these costs into unit rates could lead to “some quite bad effects on people in some of the most vulnerable situations.” The regulator’s current proposals do not address the discrepancies in standing charges across various regions of the UK, where consumers in certain areas face significantly higher payments. Ofgem plans to incorporate this issue into a broader, distinct investigation. The total sum of money owed by customers to energy suppliers has almost doubled over a two-year period, now reaching approximately £3.8bn. Additionally, the regulator is outlining a strategy for next winter aimed at addressing a portion of this debt, which accumulated during a time of elevated prices and is unlikely to be recovered. Ofgem is developing a “debt guarantee” initiative to enhance the quality of service provided by suppliers assisting indebted customers, which it asserts will offer households “consistent, compassionate and tailored support.” Furthermore, suppliers might be compelled to accept debt repayment proposals originating from credible third-party entities, including debt advice agencies or consumer organizations.