News

For the report, published 23 August 2024, go to  https://www.ofgem.gov.uk/sites/default/files/2024-08/Standing%20Charges%20-%20summary%20of%20responses.pdf

Standing charge clamour shows need for new kids on the (rising) block
By James Wallin, Utility Week editor

https://utilityweek.co.uk/more-diverse-tariffs-could-reduce-standing-charges/ 

The level of ire over standing charges on energy bills was made abundantly clear by the response to Ofgem’s call for input on the matter. A staggering 30,000 responses flooded in – from campaign groups, charities, individuals, businesses and many more.

And they represented a real range of view points – some of them merely disliked the standing charge, the rest of them hated it.

Some 90% of respondents thought the standing charge was unfair and two thirds wanted to see it abolished entirely. That’s perhaps not surprising given how many individual customers responded but, from Ofgem’s summary of the responses at least, there seems to have been a recognition that this is not a straightforward topic and that there will be winners and losers.

Still the headline request was clear – standing charges are unjust so get rid of them now. Ofgem doesn’t waste much time in disagreeing with this approach, saying that such a move without fundamental market reform could have potentially devastating impacts for vulnerable, high-demand households.

Instead it is seeking views on two near-time options as well as longer term reform. A summary of those is laid out in our news coverage but the one I am most interested in is promoting greater tariff diversity, including options for zero-standing-charge tariffs. As Ofgem points out, these do currently exist in the market but have historically had minimal take-up. Other options include seasonal variation for prepayment meter customers, so that standing charges are higher in the summer when usage is lower. Rising block tariffs are also explored.

This is a long overdue exploration of what a future retail market could look like – an array of propositions reflecting the huge variety of energy consumption patterns for different customer types. It’s an exciting vision of a market that allows competition not just on price but on tailored packages and could be the building block of a very different approach to energy retail

But, like all things in utilities, it is far from straightforward and relies on wider changes to how energy is both regulated and paid for. The price cap is currently a fairly blunt tool which is not designed for tariffs that would see fluctuation of costs (even if Ofgem points out that there are derogations for zero-standing-charge tariffs where the unit price would push it beyond the price cap – essentially by acknowledging that it would be targeted at low-consumption customers).

In the summary of responses from suppliers, concerns are raised about the effective recovery of costs from zero-standing-charge tariffs, while there is caution that rising block tariffs could be confusing for customers. All of these objections, and many more expressed throughout the documents published today, are entirely fair and need serious consideration. Tariff innovation would need to come as part of a suite of changes, not least much greater transparency and education for consumers on which option would be right for them (and that it wouldn’t necessarily be the cheapest at face value).

But surely this is the kind of brave move that can shift energy retail into a new era of truly personalised service, allowing suppliers to compete for particular customer archetypes rather than a race to the bottom on price? Rising block tariffs in particular seems to be an idea that all too often gets filed in the ‘too difficult’ basket despite being a relatively accessible idea that could be an ideal solution for certain consumers.

Let’s hope that the scale of response to this consultation is a signal to others that customers are keen to get deep into this debate. It could herald a welcome move towards nuance in the public debate around energy bills.

It was notable that energy secretary Ed Miliband cited “making standing charges fairer” in his checklist for protecting billpayers when responding to the price cap rise. But how far is he willing to go towards inciting real change? Interestingly, the word “taxation” is only referenced once in Ofgem’s response But surely there needs to be serious exploration of removing some of the policy costs within the standing charge onto the government’s books?