Energy Firms to Offer Zero Standing Charge Tariffs Under Ofgem Reforms

A household energy bill displayed on a mobile phone held next to a gas hob, in a file photo dated Aug. 25, 2022. Yui Mok/PA

Energy suppliers will have to offer customers tariffs without standing charges by next winter amid a series of proposed reforms by regulator Ofgem announced on Thursday.

The shake-up of energy bills aims to provide consumers with more flexible and fair billing options, while addressing the growing issue of household energy debt.

Standing charges are applied by energy firms to cover the costs of supplying gas and electricity to UK homes. These fees are separate from the costs associated with the amount of energy used and cover the costs of maintaining the firms’ infrastructure and services.

In response to Ofgem’s call for public views on standing charges, over 30,000 consumers provided feedback, with the majority of responses opposing fixed daily fees by energy providers.

Ofgem said that tariffs with low or no standing charge are not widespread, and switching supplier is not an option for all customers, particularly those in debt.

The regulator said that suppliers should offer both a price-capped tariff that includes the standing charge and one that loads these costs on energy usage charges instead.

Consumers then can choose the most suitable tariff based on their needs and energy consumption.

The announcement follows two energy price cap increases for standard variable tariffs, announced by Ofgem on Aug. 23 and Nov. 22. From January, the latest price cap will see the average household bill increase by around £1.75 a month, from £1,717 to £1,738-a-year.

The regulator said that the price cap has remained relatively stable but acknowledged it will be a challenge for too many households.

Impact on Consumers

Under a proposed block tariff cap, rates will change once a certain level of usage is reached. The unit rate would include the costs that are currently allocated to the standing charge.

Ofgem said that tariffs under such a cap would likely appeal to consumers with very low usage or those who simply prefer to have more direct control of their costs.

It also noted that some consumers, many in low-income households or those with special medical needs, could be hurt by a change in how standing charges are allocated.

By preventing the decrease in standing charges from affecting the unit rate prices, consumers with high-energy needs will be protected from surging costs, Ofgem said.

Hospice care charity Marie Curie has warned that people with a terminal illness may see their energy costs increase significantly. Consumers who use an electric bed could be paying 6.9 percent above average, and by 15.8 percent if they are receiving at-home dialysis.

One consumer, Jacqueline, said, “My electric wheelchair, nebuliser and powered hospital bed make my mobility so much easier to deal with, but we have had to really cut back on other things, such as food, to pay for the increased cost.”

Ofgem’s view remains that at this stage, the default position for all customers should not be changed because it risks vulnerable households having to foot higher bills.

However, it acknowledged the need to “balance between standing charges and unit rates that will be better for everyone.”

Tim Jarvis, director general of markets at Ofgem, said: “Many people feel very strongly that standing charges are unfair and prevent them from being able to manage their bills effectively.

“We want to give consumers the ability to make the choice that’s right for them without putting any one group of consumers at a disadvantage. And by having a zero standing charge tariff, we would create that choice for everyone.”

Debt and Guarantees

If implemented, the reforms will be available from next winter, alongside the possibility of some unpaid bills that built up during a recent high-price crisis to be written off.

Matt Copeland, head of policy at National Energy Action, said on social media platform X that lack of any significant reform on standing charges from April was “extremely disappointing.”

Commenting on Ofgem’s proposals, he said that a zero standing charge option within the price cap, alongside the existing tariff, could be advantageous, but noted there are “no real firm decisions or guarantees in the regulator’s package.”

The amount of money owed to suppliers by customers reached £3.82 billion in September, which is a 91 percent increase in two years.

The regulator is outlining a plan for next winter to address some of the debt accumulated during a period of high energy prices, much of which is unlikely to be repaid.

Energy suppliers may also be mandated to accept debt repayment proposals from reputable third parties, such as debt advice agencies or consumer organisations.

“So there are potentially some good things coming down the road. But there are no real firm decisions or guarantees in this package, apart from one - that standing charges will not be reducing from April. The status quo remains for now,” said Copeland.

PA Media contributed to this report.