Citizens Advice response to Ofgem’s Call for Input on standing charges

Citizens Advice response to Ofgem’s Call for Input on standing charges 246 KB

We recognise that many consumers find standing charges hard to understand, and that they can appear unfair if it’s unclear what costs they go towards. They can be particularly challenging for low energy users, for whom they make up a larger part of the bill, and those on prepayment. As the statutory advocate for microbusiness consumers, we’re aware these issues can also affect non-domestic consumers. Despite this, we have concerns that a short term response to these concerns could lead to poorer outcomes in the long run. 

We recognise that Ofgem has not set out the full range of actions it could take following the Call for Input. However we have 3 main concerns in relation to adjusting how costs are allocated between unit rates and standing charges, without reforming the costs that underpin them:

1. For most consumers, the impacts of reallocation are very small

2. There are some unfair outcomes - including some low income consumers facing higher prices and affluent ones avoiding paying their fair share

3. Ofgem cannot easily mitigate the negative impacts of reform, as the tools to do so sit with government 

We’re concerned that actions to force suppliers to offer zero or low standing charge products to some customers carry some of the same risks, and that consumers may move onto these products in the mistaken belief that they will save money. 

Overall, we don’t consider it prudent for Ofgem to continue with activity looking at standing charges as a standalone project. This is informed by the generally small benefits Ofgem has identified from reallocating costs, the clear complexities and unfair outcomes of any simple reallocation, and our concerns regarding the viability of any measures to force or encourage suppliers to offer tariffs without standing charges. There’s also a significant opportunity cost to continuing work in this area, given the pressing need for reform of other aspects of the retail market. 

We think Ofgem should continue work that can minimise fixed costs in the energy system - including its review of supplier operating costs and network price controls - as well as protecting people who face particular challenges from standing charges, including people disconnecting from their prepay meters. 

We also want the Government to act, by meaningfully reducing the energy costs faced by consumers on low incomes and ensuring a fair transition to net zero. This should include better targeted energy bill support and improved energy efficiency schemes.