Ofgem has decided against moving the costs of supplier failures out of standing charges for electricity bills, following a review of the option1. The energy regulator had been considering moving these costs from standing charges onto the unit price of energy, a change that would have lowered bills for low energy users while raising them for those using more1.
Ofgem concluded that while some consumers with low energy use would benefit from lower bills, a number of high energy users, including disabled and elderly consumers, would be unfairly disadvantaged1. It said recovering supplier failure costs through unit rates would have led to only small reductions in bills, typically by less than £10 per household per year, while large numbers of consumers with high energy use would have needed to pay around £5 to £30 more compared with the current system1.
"Following a review, Ofgem decided not to implement this change, concluding that while some consumers with low energy use would benefit from lower bills, a number of high energy users, including disabled and elderly consumers, would be unfairly disadvantaged."
Standing charges are the fees paid to an energy provider to access energy, before any payment for what is used, and are a fixed amount within a gas or electricity tariff, so the same price is paid for every day or month the tariff is held, even if no fuel is used at all1. They vary in different parts of the country because network costs differ depending on location1. Energy companies justify them by explaining that they cover the costs of maintaining their networks, as well as other elements of running their business, such as paying government levies and grants like the Warm Home Discount1. In the past some suppliers offered £0 standing charges, but these are no longer available in the current market1.
Which? said it had previously called on Ofgem to reduce standing charges to benefit those cutting back on energy use, while addressing the need for protections for vulnerable customers with unavoidable high energy usage1. Rocio Concha, Which? Director of Policy and Advocacy, said consumers were caught in a perfect storm of rising wholesale energy costs and picking up the tab for the collapse of energy firms after years of regulatory failure, and that the decision to take no action may be right if changes would have negatively affected vulnerable consumers, but that the regulator must work with others to look urgently at how bills can be made fairer1. She called for a more thorough review to support low income consumers paying substantial bills because of the standing charge despite using less energy, and to address protections for vulnerable customers with unavoidably high usage, such as those who are housebound or need to run medical equipment1.
Why it matters for households
The decision leaves the structure of electricity bills as it is: a fixed daily charge sits alongside the unit rate, so a household pays something for supply even in a period when it uses no energy at all1. For a home trying to cut consumption, that fixed element does not fall with usage, which limits how far reduced consumption can reduce the bill. For a household with unavoidably high use, such as one running medical equipment or keeping a home warm for health reasons, the decision avoids a rise that Ofgem estimated at around £5 to £30 a year for large numbers of high energy users1. The trade-off described is between two groups of households, and Ofgem's conclusion was that the low energy users' gain, typically under £10 a year, was too small to justify the loss to the other group1. The costs of supplier failures remain recovered through standing charges, and the wider question of whether standing charges are fair has not been settled: Which? has asked for a further review1. How these costs interact with the rest of a bill is set out in the site's pages on policy costs and levies and on energy bills and energy independence.
What happens next
No further steps or timetable are set out in the announcement. Which? has called for a more thorough review covering low income consumers who pay substantial standing charges and protections for vulnerable customers with unavoidably high usage, but no commitment to such a review has been reported1.