Our response to OFGEM consultation on changes to prepayment meter standing charges and other debt costs

We consider that this approach is unfair, as these costs form a disproportionate part of the overall energy costs for customers with very low consumption. It’s important that low users, many of whom are likely to be in vulnerable circumstances or facing affordability challenges aren’t disproportionately impacted.

There could be fairer ways to allocate these costs, ideally delivered through a targeted social tariff. For example, via a flat rate addition to the unit cost for energy.

This would allocate costs more fairly between low and high energy users and could be supported by mechanisms such as ‘energy prescriptions’ for vulnerable customers. Alternatively, some consumers could be given an initial free allocation of energy.    

We believe a social tariff should be introduced to reduce the cost of energy bills for a subset of vulnerable consumers. If a social tariff were to be introduced, it would be possible to future-proof the design of this tariff in a way that allows people to benefit from flexibility.

Such price protection could involve applying any social discounts to the standing charge or on a percentage basis to electricity consumed during off-peak hours. This would avoid distorting signals to the electricity grid about supply and demand, while providing price support to those who need it.  

Energy efficiency offers a long-term solution to permanently lowering bills. Ofgem should consider how it can facilitate increased uptake of energy efficiency measures in fuel poor and vulnerable homes.  

Historical reasons for regional variations in electricity standing charges in the UK include:  

• differences in local infrastructure costs   
• varying network distribution costs (driven by geography, population density etc)  
• the cost of maintaining legacy infrastructure and systems  

The current regional variations in electricity standing charges are designed for the system of the 1990s, with a few centralised power stations that distributed power across the UK.

This is no longer the case, with more renewable energy being generated regionally and locally, removing the argument that standing charges need to be higher in regions such as Scotland to accommodate higher distribution costs. The dynamic, and therefore questions of fairness, are very different now and need to be addressed.  

For example, historically the North of Scotland has paid higher standing charges and unit costs on the basis that the transmission and distribution costs in that area are higher.

The North of Scotland is now a significant net contributor to renewable generation where this infrastructure facilitates cheaper electricity in the rest of Great Britain, which should be more fairly reflected in standing charges across Great Britain as a whole.

Areas that are net generators of renewable energy should, as a matter of fairness and as part of a just transition to net zero, see a benefit through reduced costs.  

From our experience operating Home Energy Scotland, we don’t believe that standing charges in and of themselves have any impact of customers’ incentives to use energy efficiently.

Many customers don’t understand the difference between volumetric charges and fixed charges, simply looking at the total amount of the bill.

We’re aware of customers that are so severely concerned about of the overall cost of their energy bill that they’re turning off refrigerators and freezers in an attempt to save mone. In the case of older customers, going to bed at 5pm to prevent higher bills and try to keep warm. 

Clearly this isn’t sustainable and greater support is needed to help vulnerable customers understand their bills and understand the best measures for them individually to reduce their bills.    

As indicated in response to question 4, we believe OFGEM could do more to encourage the introduction of social tariffs, which if correctly designed would minimise the risk of negative outcomes.

In addition, OFGEM could do more to ensure that independent advice on energy efficiency is available to all customers and consider how it can play a more active role in facilitating the uptake of energy efficiency.

We have recognised the biggest gap in advice provision in Great Britain is in England and know that a key barrier to action is the lack of personalised advice currently available to all households looking to make changes to their homes.

Although many important and respected organisations already provide expert local advice and support to households in parts of England, overall, existing provision is patchy and variable. If we’re to decarbonise homes across the country at the scale and pace needed, advice needs to be comprehensive and accessible to all.  

A potential approach OFGEM could consider is to encourage suppliers to provide a comparison between tariffs with a higher standing charge and tariffs with a higher volumetric rate, thereby enabling customers with a low usage to decide which option would be best for them.

In the past tariffs with no standing charge were available and were particularly valuable to vulnerable consumers who with low usage and Ofgem could encourage suppliers to make these types of tariffs available again. 

We don’t consider that OFGEM would necessarily need to be able to identify the precise needs of vulnerable customers to be able to help them.

Simply being able to identify that a customer is vulnerable should be sufficient to trigger the provision of tailored advice and support to help customers identify and choose the tariffs that would be most beneficial to them.

Ways this could be achieved include:

• linking proactive provision of advice to social security benefits
• linking to the Priority Services Register (PRS)

The PRS identifies people who, in case of a power outage, are likely to be disproportionately affected, for example due to age or medical needs.   

Our experience from running the Home Energy Scotland advice service shows that vulnerable customers:

• are less likely to proactively seek advice
• are less likely to switch tariffs or providers
• may have issues around literacy that make accessing information challenging

An obligation on suppliers to automatically switch customers that have been identified as being vulnerable to the best available tariff, rather than simply providing information on a bill that might not be read, would also help to ensure they’re able to access the tariffs that benefit them most.  

We also note that specific, tailored advice to individual customers is essential to ensuring that the complex needs of vulnerable customers are properly identified and met. 

Our Energy Carers service in Scotland allows us to work directly with vulnerable customers in this way and link personalised advice on suitable green technologies and flexibility services with information on the grant support or green finance such customers may be entitled to. The success of this service in Scotland demonstrates how important advice can be for all customers.