Ofgem Unveils New Energy Regulations: Firms Must Provide ‘Zero Standing Charge’ Tariffs
Energy suppliers will soon be required to introduce tariffs without standing charges in addition to their current offerings, as mandated by the latest guidelines from energy regulator Ofgem. The move comes amidst a rising crisis of energy-related debt in households, with the watchdog aiming to address this issue by requiring companies to include ‘zero standing charge’ tariffs as an alternative for consumers. Ofgem intends for these new standards to be in place alongside existing tariffs by the upcoming winter season.
The escalating costs of standing charges have become a cause for concern, with Ofgem’s price cap showing a significant 43% increase since 2019. By January next year, dual fuel households are expected to face an average yearly cost of £338. These fixed charges disproportionately affect lower energy users, as they constitute a larger percentage of their total bill. As of October 1, households on standard variable tariffs using direct debit for electricity have been paying an average unit rate of 24.5p and a daily standing charge of 60.99p. For gas, the average unit rate has been 6.24p with a daily standing charge of 31.66p. From January, the daily standing charges are set to decrease slightly to 60.97p for electricity and 31.65p for gas, although regional variations may apply.
Standing charges cover the fixed costs faced by suppliers in providing energy to homes. While some companies already offer tariffs with low or no standing charges, these options are not universally accessible. Although these tariffs come with a higher unit rate, making them more suitable for low-energy users, they are often priced below the cap. Ofgem reports that its consultation on standing charges featured significant input from tens of thousands of customers, with many advocating for the removal of these charges to simplify bill management and debt repayment processes. However, considerations must also be made for high energy users, particularly those with health-related requirements, to ensure they are not disadvantaged by the changes.
In response to the ongoing energy debt crisis, Ofgem is proposing a “debt guarantee” initiative to enhance the support provided to customers struggling with financial obligations. This scheme would allow suppliers to accept debt repayment plans proposed by reputable entities such as debt advisors or consumer organisations. The regulator has highlighted the unsustainable growth in consumer debt stemming from the energy crisis, stressing the need for a comprehensive solution to alleviate this burden and reduce long-term costs for all customers. Energy debt and arrears had surged to £3.82 billion by September, marking a substantial 91% increase or a £1.82 billion rise over the past two years.
Discussing these developments, Tim Jarvis, director general of markets at Ofgem, acknowledged the ongoing challenges faced by households post-energy crisis. He emphasised the regulator’s commitment to addressing affordability and debt issues, including the impact of standing charges. Jarvis outlined Ofgem’s goal of empowering consumers to make informed choices that best suit their needs while maintaining fairness across all consumer groups. Notably, Ofgem aims to introduce a zero standing charge tariff to offer consumers more flexibility and control over their energy bills.
Renowned financial expert Martin Lewis, founder of MoneySavingExpert.com, expressed support for reducing standing charges within the price cap framework. Lewis highlighted the current standing charges as a significant financial burden on consumers, particularly impacting low-energy users and certain demographics such as the elderly. He stressed the importance of ensuring that vulnerable customers are automatically placed on the no standing charge tariff or receive similar beneficial arrangements. Lewis’s advocacy for consumer rights aims to protect all energy users from undue financial strains caused by standing charges.
In conclusion, the forthcoming changes in energy regulations by Ofgem signal a proactive approach to address the growing challenges faced by consumers in managing their energy bills and mitigating debt pressures. The introduction of ‘zero standing charge’ tariffs represents a step towards enhancing consumer choice and affordability in the energy market. By providing clearer options for consumers and refining support mechanisms for those in financial need, Ofgem aims to foster a more equitable and transparent energy landscape for households nationwide.