Citizens Advice response to Ofgem’s ‘Introducing a zero standing charge energy price cap variant’
Introduction taken from exec summary (below for reference):
We welcome the opportunity to engage with Ofgem on proposals to introduce a zero standing charge variant within the price cap. We do not support the proposals contained within the consultation, given their significant complexity and implementation challenges. The proposed consumer journey is unclear and incoherent, considering that consumers are being asked to choose between default tariffs, at which stage a fixed product is likely to be more beneficial.
The proposals also carry high levels of risk. Poor choices on tariffs could mean that consumers are worse off, with limited means of rectifying this if a ban on switching is also implemented. This is exacerbated by poor consumer understanding of standing charges, and could create risks of mis-selling. It’s important to emphasise that some consumers in vulnerable circumstances - namely those with medical needs that require higher energy usage and prepay consumers - are more prone to harm under some of the variants, given that fixed costs will be recovered through an increase in unit rates.
Poor design choices could create loopholes which enable consumers to avoid paying a fair share and drive up prices for everyone else. Policies to counteract these risks, like eligibility criteria and risk premia, add further complexity and cost. Some of the options are likely to exclude electricity-only customers from any benefit. They may be using less energy overall than some dual fuel households, but are high users of electricity. This includes those on traditional electric heating who are often in the deepest fuel poverty. Others, like Rising Block Tariffs, are not feasible for non-smart meter customers and create more significant risk of rationing and under-recovery of costs.
The consultation recognises that whilst zero standing charge tariffs already exist in the market, there is low take up. Ofgem hypothesises this is due to them being unattractive to consumers as they offer little-to-no cost savings for consumers. As such, we are unconvinced (based on the case put forward in the consultation) that sufficient consumer demand exists for a zero standing charge default tariff that is designed to recover fixed costs. We ask that Ofgem provides a more compelling evidence base before taking this work forward.
We encourage the regulator to focus its attention on minimising fixed costs in the energy system as well as its longer term project to consider alternative ways of recovering fixed costs that may be fairer. These workstreams can have more lasting benefit to consumers and avoid the unintended consequences of the short-termist reforms proposed thus far.
We’re also concerned that these changes counteract the need for tariff innovation and increased consumer flexibility as part of the Clean Power 2030 plan, and could increase overall system costs. The introduction of a Consumer Duty, removing the need for some prescriptive rules, alongside wider retail reform will give more meaningful consumer choices that pass through the benefits of low carbon energy.