Energy standing charges are set to be reviewed after customers have been left angered by rising costs.
Regulator Ofgem says now is the “right time” to look at the basic price of energy bills, with households set for further increases next year. Concerns have been raised that energy bills – combined with general living costs – are leaving many households struggling to pay bills.
Every household currently has to pay the same daily standing charge no matter how much energy they actually use. Thise has been around 83p since the start of October – up from 74p 12 months ago.
That means families – no matter how big – have to pay around £303 a year as a standing charge – up £33 in a year. The standing charge is covered by the energy price cap, which sets a ceiling on how much suppliers can charge.
Energy companies are not obliged to have a standard charge. They are also allowed to charge less than what is outlined in the price cap.
There are some tariffs available on the market with no standing charge. They do however tend to have a higher unit rate than plans with the fee.
The charge covers the supplier’s fixed costs of providing gas and electricity. These include providing and maintaining the wires, pipes and cables that deliver power to a customer’s door, through to the staff and buildings required for the energy business to function.
Ofgem now wants to look at how the cost of the standing charge is spread between customers, and whether there could be an alternate way to collect the cash. Tim Jarvis, director for markets at Ofgem, said: “We know that standing charges have provoked a huge amount of debate in recent months and, with wider cost of living pressures meaning customers will continue to struggle with bills, now is the right time to look at this again.
“The standing charge is covered by the price cap, which puts a ceiling on what suppliers can set it. Suppliers are also under no obligation to have a standing charge and can charge less than what is set out in the price cap.
“However, it’s a complex issue and while an upfront set fee to cover a supplier’s fixed costs works for some, it doesn’t work for others. Equally, spreading the costs differently might help some but our previous analysis has found it can also penalise some really vulnerable households.
“So, however we proceed, there is a difficult balance to be struck, which is why it is important as many as people as possible respond to our call for input with their experiences of it, how it affects them and what the alternatives could be.”
Ofgem says previous attempts to look at how the charge works found there were “winners and losers”. It says scrapping the charge would leave suppliers with more costs, and a system were people are charged for what customers use would benefit low-income households overall, it was make a “significant number” of people worse off.
Historically, customers on prepayment meters (PPM) have paid higher standing charges than direct debit customers, reflecting the higher cost to serve these customers.
The Government is currently subsidising PPM customers through the Energy Price Guarantee, to ensure that customers pay no more for their energy than direct debit customers, but this support is due to expire at the end of March next year.
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said: “The current standing charges regime is part of Britain’s broken energy system and so this review is a welcome step forward in ensuring that consumers are getting value for money from their energy bills.”
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