Ofgem launches review into energy bill standing charges

Energy regulator Ofgem announced a comprehensive review into standing charges on electricity and gas bills on Thursday.

The review was intended to gather public opinions and insights on the existing system and explore potential alternatives.

Ofgem said it was keen to understand consumer perspectives and assess various approaches to cover essential costs associated with energy supply.

Standing charges are fixed costs included in every electricity and gas bill determined by individual energy suppliers and are also part of the regularly reviewed energy price cap.

Consumers are billed a standing charge daily, irrespective of actual daily energy consumption.

The specific amount of the standing charge varies based on the energy supplier and the consumer's geographical location within England, Scotland, or Wales.

Ofgem said the primary purpose of the standing charge is to fund crucial aspects of the energy supply network, including maintenance, meter readings and support for government initiatives, such as aiding individuals facing financial difficulties with their energy bills and promoting environmental schemes.

Criticism of the standing charge has increased in recent years, as they have risen significantly alongside unit charges, apparently to cover the costs of solvent energy suppliers taking on the customers of suppliers that have collapsed.

The regulator said some energy suppliers offer an alternative tariff structure that does not include standing charges.

Instead, consumers pay slightly higher rates for the units of energy they consume.

Ofgem said its review recognised the complexity of incorporating standing charges into energy bills and would examine the potential consequences of their removal.

If standing charges were eliminated, energy suppliers would still need to cover the costs through alternative means, potentially increasing per-unit energy costs, which could encourage some consumers to reduce consumption.

However, individuals with health conditions or those reliant on electricity-powered medical equipment could face higher bills as they cannot easily reduce their energy usage.

Ofgem said it invited input and feedback from various stakeholders, including consumers responsible for paying electricity or gas bills within their households; the energy sector, including energy suppliers; consumer advocacy groups; and charities engaged in energy-related matters.

Reporting by Josh White for Sharecast.com.