Energy price cap standing charges will continue to include the cost of supplier failures, as Ofgem rules out changes
Energy regulator Ofgem has decided against moving the cost of supplier failures out of the standing charges for gas and electricity and recovering it through the unit rates instead. MoneySavingExpert.com founder Martin Lewis has been calling on Ofgem to shift the burden in the price cap away from the standing charge, to ensure that those who cut down their use see a real impact on their bills.
In July, the energy regulator consulted on whether it should shift the cost of supplier failures away from the standing charge in the October price cap change, and instead recover it through the rates we pay for each unit of gas and electricity (it wasn't about reducing bills overall, but about shifting costs from one part of the cap to another).
But Ofgem has now decided against this. According to the regulator, while this would have helped people that don't use a lot of energy, it would result in much higher costs for those that use a lot of energy, including disabled consumers and those with electric heating.
Encouraging Ofgem to look at standing charges was one of the ongoing actions announced when Martin met with charities and energy suppliers in July, to come up with more ways to help struggling households.
At the meeting, participants promised to "investigate working together to ask the regulator to shift the burden in the price cap away from the standing charge while also ensuring protections are in place for vulnerable customers with high usage (such as some disabled people)."
For more info on how the price cap works, see our Price cap FAQs guide, or check Martin's Should you fix your energy? guide for full info on whether it's worth considering switching away from a price-capped tariff.
How standing charges work
Standing charges are a fixed daily rate that you pay for having an electricity and/or gas connection to cover the cost of supplying energy. Under the energy price cap, Ofgem is using standing charges to recover the costs of the huge number of energy firms that went bust last year – a total of £1 billion this year.
About £68 of the typical £1,971 a year bill under the current price cap is for supplier failures, while other costs, such as increases in fixed network costs (the cost of maintaining energy networks) and policy costs (such as green levies and the rise in the warm home discount rebate) also contributed to higher standing charges.
Currently, electricity standing charges are 45.34p per day for electricity and 27.22p per day for gas.
'The standing charge is a moral hazard'
Gary Caffell, MoneySavingExpert.com's utilities editor, said: "It's disappointing to see no action being taken to start to shift the burden of fixed costs away from the standing charge.
"The standing charge is a moral hazard, as it means those who are desperate and trying to cut back their energy usage gain little benefit from it – that's why we've been calling on Ofgem to address this, while ensuring protections are in place for vulnerable customers with high usage."
What does Ofgem say?
An Ofgem spokesperson said: "We looked long and hard at whether moving the costs from standing charges to usage was the right thing to do, but the numbers just didn't stack up.
"Our analysis shows it would disproportionately negatively affect some of the most vulnerable consumers who use high amounts of energy and are least able to reduce their use, such as those with disabilities and the elderly, while resulting in minimal savings for those it would benefit – around just £1 a month.
"While this was specifically in relation to recovering supplier of last resort costs, we will continue to keep standing charges under review and consult widely on any possible future changes."