Fixed-price energy customers face bill shock as standing charges soar
Thousands of households whose fixed-price energy contracts are about to expire may be in for an unpleasant surprise. Not only will they pay more for their energy consumption when they are switched to standard variable tariffs, they will face daily standing-charge increases of up to 100%, whether or not they turn on their radiators.
Standing charges are a daily fee applied to gas and electricity bills regardless of whether customers have used any energy. The levy pays for network, supply and distribution costs across the sector and, since last year, has been increased to protect customers whose supplier has ceased trading.
The charges have been described as “pernicious” by the chief executive of Octopus Energy, Greg Jackson, because they disproportionately affect the poorest households who are having to ration their energy use.
Last year, the fee for electricity was raised by more than 80%, and now accounts for up to 16.5% of the annual bill for a household earning £15,200, according to research by charity the Centre for Sustainable Energy.
It’s expected to rise further when the new price “cap” is announced in April.
EDF customer Stephen Ball was astonished to find that his standing charge for electricity will increase by 102% to 45.76p a day when his two-year fixed-price tariff ends. The standing charge for gas will increase by 12%.
“This equates to around £96 – or 8% – being added to my annual energy bill,” he says. “I’m fully aware of the rise in basic energy costs due to the conflict in Ukraine, and was expecting a significant price increase per energy unit, but it seems to me, that at a time when bills are so excessive, the standing charge should be frozen.”
EDF told the Observer that the daily fee was influenced by factors outside its control, including differing costs in the 14 regional networks. “The standing charge is not there for suppliers to profit from, but to cover the fixed costs suppliers incur, which have risen by over 86% in the last year,” it says.
Energy regulator Ofgem says “average” standing charges are capped at 46p a day. In fact, suppliers are free to set their own sum, as long as it does not exceed the energy price cap when combined with the price per unit of energy.
Standing charges are highest for customers on prepayment meters, who are more likely to be in fuel poverty. A customer on one in the south-west pays an average of 57.67p a day under the energy price guarantee, compared with 33.16p for Londoners with direct debit mandates.
Controversially, 20% of the charge funds the fallout from the supplier company failures that Ofgem is passing on to customers. Households are being forced to pay an average of £66 a year to fund the supplier of last resort scheme, which rehomes customers whose suppliers have stopped trading. Twenty-nine companies went bust between 2021 and 2022, at an estimated cost to consumers of £2.7bn.
Critics claim that customers are being forced to pay the price for regulatory failures. A recent report by the parliamentary public accounts committee found that Ofgem had focused on increasing competition without scrutinising the finances of the companies it licensed. Households, it concluded, would be footing the bill for years.
According to campaign group Fuel Poverty Action (FPA), the impact of increased standing charges on poorer customers has been “devastating”.
The rise equates to around £96 being added to my annual energy bill. At a time when bills are so excessive, the standing charge should be frozen
Stephen Ball, EDF customer
“Those on prepayment meters can accumulate massive debts and these sums must be found before you can even turn a light on,” says the group’s Anna Taylor. “The government’s approach means that those who are least able to do so are paying for the failure to regulate a cowboy energy retail market.”
Ofgem recently consulted on calls to incorporate the standing charge into the unit price, so customers pay in proportion to what they use. But it has rejected this, arguing that “it would have a significant and disproportionate impact on some of the most vulnerable consumers, including the elderly and those living with disabilities, with very small savings of around £1 a month for others”.
It added: “Our priority is to protect the interests of consumers and we’ll continue to keep standing charges under review and consult widely on any future possible changes.”
Suppliers do not tend to publish these charges on their websites, so customers have to wait for a quote, or a bill, to find out what they are paying. The price cap ensures that the higher the standing charge, the lower the unit price, but since customers can control the energy they consume, but can not reduce the standing charge, the breakdown can have an impact on low users.
In September, Octopus Energy announced it was cutting its standing charge on standard variable tariffs by 4%, and giving up to 100,000 of its poorest customers a six-month standing charge holiday. “Standing charges are pernicious,” said chief executive Greg Jackson. “They make it harder for people to save money by using less energy, and Octopus is working with the energy regulator to push them down.”