“Great news! Your unit rates are going down.” E.ON’s letter to customers starts with glad tidings – but, as it soon admits, there is an element of their bills that is set to go up in most parts of the country.
Despite a headline cut of 12.3% in April’s energy price cap, yet again standing charges are rising. In E.ON’s case, on its Next Flex tariff, electricity charges are due to rise from 62.205p to 67.9041p – an increase of just over 9% – while for gas, charges go up from 29.595p to 31.894p (up almost 8%).
Standing charges are the daily fees that are applied whether you use any electricity or not. Under the new price cap, those for gas and electricity can rise, and most providers will raise them.
According to the charity National Energy Action, when the new price cap comes into force on Monday, the average standing charge for dual-fuel customers paying by direct debit will be 83% higher than it was in April 2019.
Five years ago, the charges added up to £182.27 a year, while from this April they will be £334.07, accounting for about a fifth of average bills.
The biggest increase has been for prepayment customers. Charges were typically just under 15% of the bill but are now just over 20%, according to National Energy Action.
Matt Copeland, its head of policy, says the regulator, Ofgem, made a decision to put more of the cost of running the energy networks into standing charges so affluent households, who could afford to install things such as solar panels, would still pay their share. “There were good intentions, but there have been bad consequences in the short term,” he says.
Ofgem agrees: it estimates that if the electricity standing charge was moved on to unit rates, it would mean about 5.5m low-income households could benefit by £44 a year, but another 1.2m low-income households would lose out by twice as much: £88 a year.
The argument is that if you remove costs from one part of the system, they will have to go somewhere else.
That said, standing charges are not compulsory – suppliers are free to recoup their costs via other means, and there are already some tariffs on the market with no standing charge but a higher unit rate.
Ofgem says that after pressure from fuel poverty campaigners, it decided that households on prepayment meters would no longer pay higher standing charges. This “levelisation” means metered consumers will save about £49 annually, while those who pay by direct debit will pay £10 more.
“Increasing network costs” have also contributed to the rise, it says.
According to Ofgem, standing charges are used to recover various costs, including “providing and maintaining the wires, pipes and cables that deliver power to a customer’s door, through to the staff and buildings required for the energy business to function”.
E.ON tells us: “Our latest communication to customers sets out how their bills are made up, with the average household seeing a £238 reduction from 1 April.”
It says that “many of the costs included in the standing charge are collected by suppliers, with the money then passed on to other companies”.
