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Scrap energy standing charges to keep it simple

A pile of colourful numbers

You may have seen today’s Daily Mail story about the ‘standing charges’ energy companies levy on customers. If you’ve ever read your bill, you’ll be familiar with the term, but what are these charges? Why do they vary?

The British Gas jargon buster on its website describes energy standing charges like this:

‘Suppliers have to pay various costs no matter how much (or little) energy a customer uses. The standing charge is a fixed charge designed to recover these costs.

‘These costs include the distributor’s cost of transporting energy to your premises and the meter operator’s cost of looking after your meter.’

Simple, right? The standing charge is a fixed amount to cover the cost of getting power to your home and maintaining your meter. So you’d think that energy companies would charge a similar amount for all of their customers.

Yet today’s Daily Mail article found two Npower tariffs with different standing charges – a difference that could cost you an extra £140 over the course of a year. Not an insignificant amount. We found another example, British Gas this time, where two different tariffs had total standing charges for a year differing by almost £50. This makes you wonder whether the standing charge really is there to recapture these fixed costs.

Simple prices, not standing charges

Hopefully you’ll have seen our campaign to introduce single unit pricing to the energy market. A single, simple price would allow all of us to compare energy tariffs at a glance. We wouldn’t have to wonder which energy company had both the lowest standing charge and the lowest unit rate. We wouldn’t be scratching our heads working out whether we’d be better off with a high standing charge and a low unit rate, or vice versa.

It would make it clear to all and sundry that one tariff is going to cost you more than another. It would help people to switch to the cheapest deals and stimulate competition in an uncompetitive market.

Continuing with the same old standing charge approach means that people will struggle to find the best offers. And this research clearly questions the energy industry’s claim that standing charges are needed to recover certain fixed costs. Yet, Ofgem’s new tariff proposals will make them mandatory.

The energy market just doesn’t work for the average consumer; people don’t trust their energy supplier and they don’t think they’re getting a fair price. We want people to be much better informed about how much they’re paying. For that to happen, Ofgem and the government need to make sure that simple energy prices are introduced.

We’d love to hear what experiences you’ve had with your energy company’s prices and standing charges. Do you think a single unit price would make energy prices easier to understand?

Comments
Member

I have always advocated the abolition of standing charges, but if the regulator insists on having them in the simplified tariff structure then the regulator should determine the level of a universal standing charge and say exactly what it pays for. At present, the standing charges penalise people who use less fuel. Tapered tariffs for higher volumes should also be phased out. Energy supply combines commodity with utility. The digital age has produced a lot of benefits but the opportunity to apply tariff segmentation [if not fragmentation] and marginal charging have gone too far in this industry [and certain others we could name].

Member

I agree with John about getting rid of standing charges, but I think we should continue to push Ofgem to get rid of them. There certainly are some customers in favour of standing charges, but I believe they are in the minority.

It’s the same problem with Ofcom rejecting the Fixed Means Fixed campaign of Which?, suggesting that all customers deserve is to be able to get out of phone contracts if the payment goes up.

I think it is high time that Which? launches a campaign to get our regulators to do a decent job.

Member

Yep standing charges are a complete rip off, and the energy supplier argument to justify them is total nonsense.
Plenty of suppliers of all kinds of goods and services have fixed costs too but you don’t pay a standing charge to any supermarket, petrol station or anyone else I can think of for that matter.

Standing charges and especially the manipulation of them is a marketing ploy to make your overall bill look better depending on whether you are a high or low user.

No standing charge, no multiple unit prices depending on consumption, just one unit price regardless of usage and choosing the most cost effective supplier would be as easy as buying bin liners. And totally fair regardless of consumption levels.

Of course the marketing departments won’t like it but being honest and fair is a new concept they might eventually get use to.

Member
mick says:
5 May 2013

I’ve been with npower for around 8 years me thinking i was a loyal customer but was informed by them the new easy to understand tariffs. The easiest thing to understand was that my annual bill was going to increase by £120 for the year nothing to do with increased energy prices it is down to the standing charge.Because i am someone who is classed as a low energy user what kind of message does this send out to people who are encourage to manage there energy.Anyway got a better deal through which so npower take a running jump

Member
Vic says:
8 July 2014

Standing Charges are a RIP OFF,there is NO NEED for them at all.THEY make it so hard for the LOW PAID and those on Benefits or Pensions who CUT DOWN on Fuel usage BUT they still have to pay these RIP OFF STANDING CHARGES EVERYDAY.
THERE should be ONE RATE for Electricity and ONE for GAS.
SO TO ALL YOU ENERGY COMPANIES STOP RIPPING OFF THE PUBLIC

Member

Vic, There are costs invoved in providing you with an energy supply that do not depend upon how much energy you use. Some are imposed by the governemt, and in my view should be funded out of general taxation whilst others are real costs incurred by the provider.
For example;
– the policy and regulation costs imposed by the government (fixed costs, not dependent on energy consumption) such as support for low carbon technologies, support for vulnerable customers, improving customer energy efficiency; and consumption-dependent costs such as the carbon tax
– supplier costs – (fixed costs, not dependent on consumption) such as admin, meter reading, smart meter roll-out.
I don’t think a low user should expect to be subsidised in these costs by a higher user. Higher energy users may well be the elderly – in all day and needing a warmer home – those out of work, those in poor-quality housing ( badly insulated) – those on electricity only, no gas; bigger families. There is no discrimination on income between those who need to use more energy than others. The standing charge should be properly regulated to represent real fixed costs, but we should pay fairly across the board.

Member
brat673 says:
8 May 2013

Have been on the previous Electricity Consumers Committee, we strove to get fair tariffs and charges. Just when we seemed to be making progress the politicians ( Labour) combined Gas and Electric consumer organisations and made them weaker. A reasonable standing charge to allow the distributor to invest, improve and repair network. Properly regulated. The politicians and the regulator seem to have let the consumer down. Emphasis should be place on the word KISS- Keep it Simple Stupid.

Member

I tend to agree with this. The standing charge should cover cost of the network maintenance at least, irrespective of any usage. I see no reason why this should not be a fixed amount nationally. Few people would expect to get a telephone or TV land line without paying a line rental, so why should we expect a power line or gas pipe without paying for it?