Ofgem published options in August 2023 for levelling the cost of standing charges across payment methods, according to its October 2023 consultation on an additional debt-related costs allowance1. The August decision also introduced a temporary allowance for additional support credit bad debt costs, set at £8.77 per typical dual fuel customer across cap periods 11a to 12b1.
The regulator's own account of the work sits in a document published on 12 October 2023, which states: "In August 2023, we set out options to levelise prices across payment methods"1. The same consultation records that the levelling work sits alongside other measures, including more Additional Support Credit to avoid self-disconnection and improved standards around involuntary prepayment meter installation1.
The debt-related costs allowance within the price cap covers three cost types: bad debt charge, debt-related administrative costs and associated working capital costs1. Ofgem estimates that for cap period 11a, October to December 2023, the allowance represents approximately 6% of typical dual fuel standard credit bills, 1% of typical dual fuel direct debit bills and 1% of typical dual fuel prepayment bills1.
| Payment method | Share of typical dual fuel bill from the debt-related costs allowance, cap period 11a |
|---|---|
| Standard credit | Approximately 6% |
| Direct debit | Approximately 1% |
| Prepayment | Approximately 1% |
Source: Ofgem consultation, October 20231
Ofgem states that current energy debt and arrears total over £2.6bn1. It says its July 2023 request for information asked suppliers to separate costs by payment method for debt-related administrative and working capital costs1. The consultation also notes that the allocation of costs between payment methods interacts with the outcome of the consultation on levelisation of payment methods1.
The consultation document does not set out the specific options for levelling standing charges, their values, or a decision date for that work. Those details have not been reported in this document1.
Why it matters for households
Standing charges are the fixed daily amounts paid whatever energy is used, and they differ by payment method. A household on a prepayment meter typically pays its standing charge through a standing charge deduction, and the gap between prepayment and direct debit standing charges has been a long-running feature of the price cap. Levelling those charges would change how the fixed cost of a supply is shared between payment methods, which affects the floor cost of having a supply at all, before any units are used.
For a household, the practical effect depends on which way any levelling runs: prepayment standing charges could fall while others rise, or the gap could close by other means. The consultation does not state which option Ofgem favours or what it would mean for individual bills1. The separate debt-related costs allowance is a supplier cost recovered through the cap, and Ofgem's own figures show it falls most heavily on standard credit customers at around 6% of a typical bill1.
Energy independence at household level rests partly on predictable fixed costs. A standing charge that is stable and comparable across payment methods makes it easier to judge what a supply costs before use, and to compare that with alternatives such as energy bills and energy independence measures. The August 2023 options are a step in that direction, but no rates have been published1.
What happens next
The October 2023 consultation on the additional debt-related costs allowance closed on 2 November 2023, with responses considered before a decision on next steps1. Ofgem states it will not have actual data on any under or over allowance for debt-related costs in cap periods 11a and 11b until at least the October 2024 price cap1. No timetable for a decision on levelling standing charges is given in the document1.