Standing charge for gas and electricity

Chacha17

Can anyone explain how an existing supplier can have different rates of standing order supply?  If I stay on the current tariff it’s at one rate but if I take up their offer the standing charge escalates. Why? Shouldn’t there be some kind of regulation for all standing charges irrespective of supplier? 

tacpot12

I think it is a fair question, but the Standing Charge is based on all the costs that the supplier incurs in supplying you whether or not you consume any energy. Depending on the tarrif, the supplier might well have different costs. Consider the Octopus Agile tarrif where the price of power changes every 30 minutes. The infrastructure to provide this might well cost more, so the standing charge would be greater.

It is also the case that the supplier might not be able to isolate the cost of supplying YOU particularly accurately. So the Standing Charge represents an assessment of their fixed costs across ALL their customers. Consider as well that if a supplier's customer base is falling, the suppliers costs have to be shared between a smaller number of  customers, but some are on fixed rate deals that cannot be changed, so customers coming off these deals might find that their Standing Charges increase in price significantly.

Regulatory changes, or having to pick up the customers whose previous supplier has failed also increases the costs that the supplier has to cover with the Standing Charges, so it's not unreasonable for the size of the Standing Charge to change more rapidly than you might expect, and therefore that the regulator feels they need to allow the energy companies the ability to change their standing charges in line with their costs and customer base.

Chacha17

This is really interesting and thank you for providing me with an answer that I can begin to understand. I still don’t totally appreciate how British Gas’ standings charges are so out of sync as if a consumer decides to move from their current tariff to their other tariff alternative they can offer as I would have assumed any increase in charges would be added to the unit prices of usage. I doubt their customer base would be shrinking at all and where advice is to stay with our current tariffs and not change why would their new standing charge be so elevated?  I think you’ve given me a glimpse into why but think somehow their standing charge should not change. Thanks 

user1977

No reason why they ought to have the same standing charge on different tariffs. Just work out the figures based on your usage and choose the best option for you. 

Chacha17

Yes thank you again. It makes little or no sense.  I’ve done the maths and will stay with what I was quoted though there wasn’t a big difference. Thank you 

born_again

Higher standing charges on fixed term products are a way for suppliers to mitigate changes in the cost of gas/electricity to them over the period of the fixed term. Just as we are seeing at the moment.
Where as on a variable rate product, they are covered by being able to increase the cost of the fuel supplied.

Chacha17

Thank you.  It's certainly confusing and I personally would like the standing charge to be standardised at a sensible level.  Energy suppliers are in the business to make money and in the current climate we should be able to ensure that the consumers understand what they're paying for. 

Sandtree

Chacha17 said:

Thank you.  It's certainly confusing and I personally would like the standing charge to be standardised at a sensible level.  Energy suppliers are in the business to make money and in the current climate we should be able to ensure that the consumers understand what they're paying for. 

Why should consumers understand what they are paying for? When you bought a loaf of bread from your local cornershop what proportion of that was to cover the wholesale price and how much to cover wages?

I think almost all adults understand when paying for electricity that they are paying to get electricity to their homes. Like everything else the level of understanding of whats exactly involved in doing that and how the costs are apportioned will vary significantly but thats fine. People understand there is a time based element and a use based element and generally can compare across tariffs easily enough. 

The idea of all the changes to the energy supply process was to create competition and innovation. If you start price fixing you may as well go back to each area having a single energy supplies. 

Chacha17

I think you're thinking on a different level to me.  At least if I buy a loaf of bread I know what I'm buying and there's no standing charge for delivery.  I'm not stupid and whilst you may feel "all adults" understand what we're paying for, it makes no sense to be quoted two different standing charges from the same company.  Don't try and generalise what you think most adults understand.  We pay our bills but we don't always have the opportunity to question.  I welcome the chance to raise a question in what I think is a safe place to do so and not feel I'm asking something I instinctively should know or agree with.  I thank you for taking the time to respond but I have to say the previous respondees had a much more rounded way of explaining things to me. 

Sandtree

I think you are just trying to over think it... your electricity bill is £75 then you know you've got to pay £75 for the electricity you used last month. The split between standing charge and consumption is fairly arbitrary and only becomes relevant when you are looking to switch or make substantial changes to your usage and then there are plenty of online calculators if you dont understand how to do it yourself.

The shop has a fixed wage bill it wont change if I buy a £0.75 reduced to clear loaf or a £4 artisan loaf (or even if I leave empty handed) but almost certainly they've applied a percentage uplift rather than fixed amount and so their "standing charge" also varies by product even though their costs dont. 

Fixed cost plus usage is used outside of the energy sector too... our local car club charges a monthly membership fee plus a price per hour for using the vehicles, our local gym offers a monthly membership fee but you pay extra for using classes or a PT, some PAYG motor insurance similarly charge a base amount and then per mile based on use. 

The variability of payment towards standing costs is everywhere just most the time you dont see it because they give you a single price.

user1977

Sandtree said:

Fixed cost plus usage is used outside of the energy sector too... our local car club charges a monthly membership fee plus a price per hour for using the vehicles, our local gym offers a monthly membership fee but you pay extra for using classes or a PT, some PAYG motor insurance similarly charge a base amount and then per mile based on use. 

Or in telecommunications, since the year dot - you pay your line rental and you pay for your calls.