Ofgem launches public consultation on energy standing charges which impact North Wales residents hardest

In a move to reassess the fairness and effectiveness of the standing charge on energy bills, Ofgem has today launched a public consultation.

The standing charge is a fixed daily cost paid to energy suppliers covering essential services, irrespective of actual energy use.

This fee includes the maintenance of energy networks and other operational costs necessary to deliver energy to consumers.

Ofgem’s scrutiny of standing charges reveals a complex scenario with varied impacts on different customer groups.

Scrapping these charges could lead to higher per-unit costs for energy, disproportionately affecting customers, especially the 1.2 million low-income households with electric heating who would face increased expenses.

Regional disparities in charges due to supply costs also contribute to the complexity.

Fixed daily charges in North Wales are over £120 more per year than those in the East Midlands.

The standing charge is covered by the energy price cap, which sets a ceiling on how much suppliers can charge for it.

Since the price cap was introduced in 2020, standing charges for households in North Wales have increased by almost two-thirds, significantly impacting low-income and vulnerable households.

Energy standing charges in North Wales and Mersey are higher due to a combination of factors, such as regional variations in network costs, regional distribution network operators’ (DNO) charges, and historical differences in supply and infrastructure.

DNOs are responsible for managing the regional energy distribution networks.

They charge suppliers for using their infrastructure to deliver electricity and gas to households.

These charges can differ between regions due to various factors such as population density, terrain, and the age of the network infrastructure.

As a result, higher DNO charges in North Wales and Mersey can contribute to increased standing charges for consumers in these areas.

There are already tariffs on the market with no standing charge, but a higher unit rate.

The energy regulator is now asking charities, consumer groups, businesses, bill-payers, and suppliers for their views on the standing charge, and for proposals on alternatives.

Today’s call for input is the first time since before the energy crisis of 2021 that Ofgem is explicitly reopening the public debate around how the standing charge is spread between customers and what any alternative could look like.

Alyn and Deeside MS Jack Sargeant said:

“Standing charges should be scrapped; they are unfair and arbitrary. People in North Wales pay the highest electricity standing charges anywhere in the UK. This is a disgrace.

“Energy suppliers have announced record profits this year at a time when customers are struggling, and vulnerable customers are being forced onto prepay meters.”

“We need a social tariff now and the complete reform of our energy sector.”

Director for Markets at Ofgem, Tim Jarvis, 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 people as possible respond to our call for input with their experiences of it, how it affects them, and what the alternatives could be.”

Fuel poverty charity National Energy Action (NEA) criticises the fairness of the current standing charges on energy bills, arguing that they disproportionately affect those who can’t afford energy.

NEA reports a 65% increase in standing charges since April 2019, with prepayment meter customers facing nearly double the charges despite reduced consumption.

National Energy Action’s Head of Wales, Ben Saltmarsh, said:

“Beyond the overall increases to standing charges, where you live also has a big impact on how much you pay.”

“People in North Wales and Mersey pay a third more a year than Londoners.”

“How can it be fair that areas across Great Britain that are more likely to struggle with their bills, pay so much more?”

“The review needs to recognise these areas are being hit hard by the wider cost of living and there should be a clear focus on reducing or eliminating these regional variances.”

The call for input on standing charges is now open, until Friday 19 January 2024, and Ofgem is interested in hearing ideas from any interested parties.

Views of any energy customer can be sent to StandingCharges@ofgem.gov.uk