Response to Ofgem's options paper on standing charges

Response to Ofgem's options paper on standing charges 311 KB

We have previously set out our concerns in relation to standing charge reform, and in the current context we do not support proposals to reduce the level of operating costs recovered via standing charges and increase them from unit rates. 

Ofgem’s assessment shows these changes lead to relatively small gains for low usage households, and much greater losses for those with relatively high usage. This includes some people on low incomes who cannot safely reduce their energy use due to living in homes with poor energy efficiency, old fashioned heating systems and medical requirements for a warmer home or electrical equipment. 

The paper argues that there is ‘clear consumer interest in increased control over their energy bills’. We agree - but these proposals would increase control for some consumers at the cost of less control for others who cannot reduce their usage. They would also reduce control for prepayment meter users, who will face even higher costs in winter, increasing the chances of self-disconnection. 

We are concerned that the changes clearly act against the target outcomes in Ofgem’s consumer interests framework, or have not been adequately explored in the impact assessment. Where risks have been identified, they increase as more recovery  of operating cost is moved from standing charges to unit rates. 

Whilst this consultation considers changing the balance of how operating costs are recovered, how actual costs are incurred will be unchanged. We are concerned that the distortions arising from making reforms through the price cap could lead to worse outcomes. The paper also says that these changes are ‘a zero sum change where, in financial terms, some consumers will benefit, and other consumers will not’. However, because of some of the negative impacts in areas like the net zero transition, competition, incentives for efficiency and supplier resilience, costs may actually increase overall for consumers. We recognise that Ofgem presents a range of options and that the impacts of smaller changes are likely to be more limited - but so will any benefits.

The public response to Ofgem’s call for input demonstrates the charged debate and negative sentiment around standing charges, and political commitments have been made to see them reduced. However, we think the significant risks involved for some of the most vulnerable households mean any changes that increase unit rates should only go ahead if there are appropriate mitigations in place, and as part of a more comprehensive approach which can limit the risk of market distortions.