Ofgem new energy rules means firms must offer 'zero standing charge' tariffs

Energy companies will be required to provide household tariffs free of standing charges as an alternative to existing ones, according to plans by regulator Ofgem. The watchdog is pushing for suppliers to offer 'zero standing charge' tariffs alongside other options by next winter, in a bid to tackle the escalating household energy debt crisis.

New standards are also being proposed to make it easier for customers struggling with bill payments to access support. Under Ofgem's price cap, standing charges have surged by 43% since 2019, and from January, dual fuel households will face an average cost of £338 a year.

These charges disproportionately impact those who use less energy, as the fixed costs constitute a larger portion of their overall bill. Since October 1, households on a standard variable tariff paying for electricity via direct debit have been charged an average of 24.5p per unit, with a daily standing charge of 60.99p. For the latest Welsh news delivered to your inbox sign up to our newsletter

For gas, the average has been 6.24p per unit with a daily standing charge of 31.66p. From January 1, average standing charges will slightly decrease to 60.97p per day for electricity and 31.65p per day for gas.

However, these rates can vary by region. Standing charges cover the fixed costs to suppliers of providing energy to homes, reports the Daily Record.

While some suppliers already offer low or no standing charge tariffs, which are at least 10% below the price cap, they are not universally available.

While such tariffs offer a lower standing charge, they come with a higher unit rate; hence, they are more suited for customers who use less energy. Ofgem has disclosed that tens of thousands of customers took part in a consultation regarding standing charges, with a significant number advocating their complete removal to simplify bill management or debt repayment.

However, those who consume large amounts of energy, often due to health reasons, could face significantly higher costs, indicating the necessity for consumers to have access to different tariff options.

Ofgem introduced plans for a "debt guarantee" to upgrade the level of service suppliers provide to indebted customers, promising "consistent, compassionate and tailored support". This would enable suppliers to accept debt repayment proposals from reputable bodies such as debt advisors or consumer organisations.

The regulator also highlighted an "unsustainable" growth in consumer debt resulting from the energy crisis, suggesting the need for a unique, one-off solution to address this issue which could reduce long-term debt costs for all customers. By September, energy debt and arrears had spiked to £3.82 billion – marking a 91% increase or a £1.82 billion rise over two years.

Tim Jarvis, director general of markets at Ofgem, said: "We know that many households continue to struggle with bills after the events of the energy crisis, which is why earlier this year, we took steps to consider all the issues around affordability and debt – including the impact of the standing charge.

"Today we're setting out the next steps in what Ofgem can do to meet these challenges, as part of our work to make sure the energy market is working in consumers' interests."

"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."

Martin Lewis, the founder of MoneySavingExpert.com, said that the optimal solution would be to reduce standing charges within the price cap, but acknowledged that such a move would require government backing for vulnerable high energy users. He expressed his concerns, saying: "Standing charges are a £338-a-year poll tax on energy bills, a moral hazard disincentivizing lower users from cutting their bills."

"They also punish customers that only use gas for central heating in winter, many of whom are elderly, by making them pay for every day in summer. It's by far the biggest single subject of complaint I get from the public about energy bills."

"The problem with presenting a choice of price caps is many vulnerable people won't make that choice. So I will be making representation to Ofgem to ensure firms are mandated to default lower-use price cap customers on to the no standing charge tariff - or at least do that for those on the Priority Services Register."