Martin Lewis: Why are energy standing charges so high? What can be done

Chris_b2z

molerat said:

On a standard variable tariff the energy supplier is constrained by the cap as to what they can charge.  On a fixed tariff they are free to charge whatever they wish.  Some of the standing charge is supplier costs so they are free to absorb that into the unit charge. They still have to make the same contribution to the grid per customer though.

Flexi is not a typical fixed tariff as it includes a variable element. In order to be transparent, Scottish Power publish a detailed breakdown of costs for each region. All costs calculated daily contribute towards the 'Standing Charge' and those calculated by usage contribute towards the 'Unit Rate'.
Therefore, I would expect exactly the same 'Standing Charge' costs to apply on the SVT. If correct, then Ofgem includes a very significant margin for profiteering by suppliers when setting the quarterly standing charge cap.

MattMattMattUK

Chris_b2z said:

molerat said:

On a standard variable tariff the energy supplier is constrained by the cap as to what they can charge.  On a fixed tariff they are free to charge whatever they wish.  Some of the standing charge is supplier costs so they are free to absorb that into the unit charge. They still have to make the same contribution to the grid per customer though.

Flexi is not a typical fixed tariff as it includes a variable element. In order to be transparent, Scottish Power publish a detailed breakdown of costs for each region. All costs calculated daily contribute towards the 'Standing Charge' and those calculated by usage contribute towards the 'Unit Rate'.

That link misses off various costs that are added to the energy costs, as an example it misses off the government social and environmental costs, often called the policy costs which are around 11% of bills, temporary adjustments, headroom costs, Profit (EBIT), subsidy for pre-payment customers, allowance for bad debt, VAT and probably other costs. 
https://www.ofgem.gov.uk/energy-price-cap

Chris_b2z said:

Therefore, I would expect exactly the same 'Standing Charge' costs to apply on the SVT.

As Molerat said, the suppliers have to pass on the money to the grid, government etc. regardless of how they choose to collect it, how they choose to bill for and collect it is entirely up to them on any non-SVT tariff. 

Chris_b2z said:
If correct, then Ofgem includes a very significant margin for profiteering by suppliers when setting the quarterly standing charge cap.

Not correct, profit is capped at 2.8% (Previously 1.9%) on the SVT, there is not a significant margin on energy, the margins are tiny, the reason for large profits is because of the scale. There is not "profiteering" going on and to suggest so demonstrates a lack of understanding of the sector. 

Chris_b2z

MattMattMattUK said:

That link misses off various costs that are added to the energy costs, as an example it misses off the government social and environmental costs, often called the policy costs which are around 11% of bills, temporary adjustments, headroom costs, Profit (EBIT), subsidy for pre-payment customers, allowance for bad debt, VAT and probably other costs. 
https://www.ofgem.gov.uk/energy-price-cap

Thank you. Do Ofgem publish a 'full' detailed breakdown by region showing how they arrive at the standing charge cap value each quarter?

LeesArt

dealyboy said:

The Standing Charge is a composite of various charges, that we all pay or would pay even if they were raised differently, for example if they were included in unit rates or general taxation, but of course some don't pay income tax. Whether the SC is fair? ... well it's fairer than NI or road tax ... at least the money (apart from VAT) is all kept within the energy industry.

So on balance I am now of the view that the standing charge should be retained, having been persuaded by many contributors over the past couple of years.

I respectfully disagree, I was with a supplier who charged zero standing charge and rates were below the top 6. 

We have bailed out the energy companies with public funds when in my opinion it should have been the shareholders who were made to pay that, even if they were pension funds or what other excuse is given. 

The cost of the infrastructure is a cost any business must pay, kitting out a factory, getting the product or service to the consumer, nobody bails out any other company except banks and of course they are recouping now.

The money is not kept within the energy industry if it paid out to shareholders.

It seems to me that they should not be able to pay out dividends until every penny is repaid, including the amounts we were charged to pay them for taking on the customers of companies who went bust (something they benefited from).

They have had something between £10bn to £15bn for the smart meter fiasco, this website had people showing these obscure smart meters that were apparently commercial meters not suitable for domestic premises.  They used that money to lumber people with SMET1 meters which were not fit for purpose unless upgraded and as consumer programmes keep repeating there are millions stuck with these and they are facing battles getting them upgraded. 

It was obvious that they were not going to meet their targets, they still haven't so it was madness to install all these SMET1 meters and expecting us to pay for them to be replaced or upgraded.  Even top end company like British Gas installed a Smart Meter for a relative of mine who lived in a first floor flat in London, but the Gas Smart meter could not communicate with the Elec smart meter.

On the radio they said a woman was being charged for energy of a meter 270 miles away.

https://www.thisismoney.co.uk/money/bills/article-12997659/My-smart-meter-charged-house-270-miles-away-devices-going-haywire.html

Then you read articles lile this one and wonder whether it just might have been an idea to try to do these first.

https://www.express.co.uk/news/uk/1872915/smart-meter-warning-bbc-radio-teleswitch

Next we hear that the so called Regulator (aka shill) OFGEM has said that energy companies don't have to replace an IHD if it goes wrong after 12 months, THE CONSUMER HAS TO PAY,  This was met with a backlash by consumers.

https://www.telegraph.co.uk/business/2024/02/23/smart-meters-be-fixed-free-rash-breakdowns/

The question is why is it that the Consumer Rights Act 2015 does not apply, well it probably does and after consumer lawyers said they were prepared to fight this for groups of customers the companies in the article above caved.

Consider that it that when a broadband router fails the supplier must replace it 

Obviously the consumer rights act 2015 provisions of culpability should apply about customer misuse but the pletora of failures show that the products had a manufacturing defect.

The simple fact is that the energy companies massively benefited from sacking thousands of meter readers.

If you read the original programme plan the business case was never going to be achieved.  

Why is this relevant to Standing Charges?

Because they already got paid and now they want to be paid again for the same thing or cleaning up the mess of their previous installs. 

They have managed to kill off the competition, which is why they feel so emboldened to demand to keep increasing these charges.

Every pound of the £300+ they charge is a pound people can't spend on energy itself or on food for their kids, not just the vulnerable who are trying to pay for food that is still 50% to 80% above what it was at yet they have only had a 19% increase in income on average.

No other business has it so good, so many pubs and shops closed, 120,000 retail jobs lost 10,000 shops in 2023

https://www.thegrocer.co.uk/people/120000-retail-jobs-lost-and-10000-shops-closed-in-2023/686845.article

Still 14 a day closing

https://www.theguardian.com/business/2024/mar/14/nearly-5000-uk-chain-stores-closed-last-year-at-rate-of-14-a-day

Energy is a factor, some were told they had to pay £17,000 a month, with three months upfront, standing charge  increased from 29p to £4 a day 

'UK Hospitality said restaurants, pubs and bars were being hit with 600% rises in standing charges with "absolutely no justification or explanation".'

Energy apologist Ofgem told the BBC it was "aware" some businesses were being asked to pay additional costs. It said it was looking to see if action was needed.

https://www.bbc.co.uk/news/business-64864030

"But the trade body for energy firms said charges were higher due to costs."

Yes a levy for legal fees for defending 2bn legal claim over businesses paying secret commission to brokers

https://www.restaurantonline.co.uk/Article/2023/02/14/Energy-firms-face-2bn-legal-claim-over-businesses-paying-secret-commissions-to-brokers

oh but we can't let this disinformation from these credible sources fester unchallenged.

At what point do people say ENOUGH IS ENOUGH, not just of the energy companies profit gouging but of OFGEM who enable them.  Just look at their board, look at the backgrounds of each member, look at their role at OFGEM and check how many are there for the consumer.

I thank Martin for his effort but sadly I don't think he will win on this one, but I really hope he does

LeesArt

profiteering

the act of taking advantage of a situation in order to make a profit, usually by charging high prices for things people need: 

PROFITEERING | English meaning - Cambridge Dictionary

The scale of the income is exactly why the the cap on profits needs to be reduced, probably to 0.002%

MattMattMattUK

Chris_b2z said:

MattMattMattUK said:

That link misses off various costs that are added to the energy costs, as an example it misses off the government social and environmental costs, often called the policy costs which are around 11% of bills, temporary adjustments, headroom costs, Profit (EBIT), subsidy for pre-payment customers, allowance for bad debt, VAT and probably other costs. 
https://www.ofgem.gov.uk/energy-price-cap

Thank you. Do Ofgem publish a 'full' detailed breakdown by region showing how they arrive at the standing charge cap value each quarter?

Ofgem publish lots of information, you will find that information somewhere on their site, though it will be in a rather technical document that will range from several hundred to thousands of pages long. This has all been covered ad infinitum, there are not huge margins in energy supply, the suppliers are not profiteering. You can also look at the published accounts of the energy suppliers, indeed Octopus as a group (though there are several wholly owned subsidiaries) make a far higher margin on software licensing than they do on domestic energy supplies. 

MattMattMattUK

LeesArt said:

dealyboy said:

The Standing Charge is a composite of various charges, that we all pay or would pay even if they were raised differently, for example if they were included in unit rates or general taxation, but of course some don't pay income tax. Whether the SC is fair? ... well it's fairer than NI or road tax ... at least the money (apart from VAT) is all kept within the energy industry.

So on balance I am now of the view that the standing charge should be retained, having been persuaded by many contributors over the past couple of years.

I respectfully disagree, I was with a supplier who charged zero standing charge and rates were below the top 6. 

We have bailed out the energy companies with public funds when in my opinion it should have been the shareholders who were made to pay that, even if they were pension funds or what other excuse is given. 

We did not bail out the energy companies, we bailed out consumers. You also completely misunderstand limited liability and abolishing it would hugely damage business. You also conveniently ignore the reason that many suppliers (not all*) went bust was because they were forced by Ofgem to sell their product below cost. *Some were badly manged and failed to hedge their customers fixed rate supplies.

LeesArt said:

The cost of the infrastructure is a cost any business must pay, kitting out a factory, getting the product or service to the consumer, nobody bails out any other company except banks and of course they are recouping now.

The money is not kept within the energy industry if it paid out to shareholders.

The profit margins on the energy supply in the UK is tiny, 1.9-2.8% depending on the year. What they can charge is set by Ofgem so they cannot price for investment. Again, energy suppliers were not bailed out.

LeesArt said:

It seems to me that they should not be able to pay out dividends until every penny is repaid, including the amounts we were charged to pay them for taking on the customers of companies who went bust (something they benefited from).

What is it that you think should be "repaid"? The amounts that they were paid to take on customers of suppliers who went bust was because they were being made to sell below cost to those customers, so for around a year every one of those "customers" cost them hundreds of pounds in losses. They all initially refused to take on those customers because it would have make them go bust as well. The other money was not for suppliers, but was to cover positive consumer balances so that consumers benefitted, not suppliers.

LeesArt said:

They have had something between £10bn to £15bn for the smart meter fiasco, this website had people showing these obscure smart meters that were apparently commercial meters not suitable for domestic premises.  They used that money to lumber people with SMET1 meters which were not fit for purpose unless upgraded and as consumer programmes keep repeating there are millions stuck with these and they are facing battles getting them upgraded. 

It was obvious that they were not going to meet their targets, they still haven't so it was madness to install all these SMET1 meters and expecting us to pay for them to be replaced or upgraded.  Even top end company like British Gas installed a Smart Meter for a relative of mine who lived in a first floor flat in London, but the Gas Smart meter could not communicate with the Elec smart meter.

The energy suppliers made no profit from smart meters, they are really just intermediary booking agents for smart meters, the system was mandated by government, designed by government agencies and it was decided that the suppliers would be responsible for "fitting" them, but with no real control over the process. The suppliers had no choice but to fit SMETS1 meters, they were not allowed to wait for SMETS2. They should have been mandatory from the start and done street by street until complete nationally, instead of the drip drip approach of people booking appointments randomly. 

LeesArt said:

Next we hear that the so called Regulator (aka shill) OFGEM has said that energy companies don't have to replace an IHD if it goes wrong after 12 months, THE CONSUMER HAS TO PAY,  This was met with a backlash by consumers.

https://www.telegraph.co.uk/business/2024/02/23/smart-meters-be-fixed-free-rash-breakdowns/

The IHD is a toy, an almost pointless gimmick, forcing suppliers to continually replace these would have just increased bills.

LeesArt said:

The question is why is it that the Consumer Rights Act 2015 does not apply, well it probably does and after consumer lawyers said they were prepared to fight this for groups of customers the companies in the article above caved.

Because the energy customer is not a consumer for the meter, the meter is owned by the supplier, it functions as a meter regardless of the presence of an IHD, the IHD is not included in the service offering, so fairly obvious to anyone with even a basic understanding of the CRA that it would not apply, that is before the fact that the CRA does not apply to domestic energy supplies anyway.

LeesArt said:

Consider that it that when a broadband router fails the supplier must replace it 

Obviously the consumer rights act 2015 provisions of culpability should apply about customer misuse but the pletora of failures show that the products had a manufacturing defect.

That is different, without a router the broadband does not work, the router is supplied to the consumer to allow them to use the service, the lack of an IHD in no way impedes the supply of energy.

LeesArt said:

The simple fact is that the energy companies massively benefited from sacking thousands of meter readers.

The energy companies do not, the consumer might, based on a small cost saving, but as profit is capped it will not benefit the energy suppliers.

LeesArt said:

If you read the original programme plan the business case was never going to be achieved.  

The original plan was to modernise the energy billing system and the grid, all advanced economies are doing this via various smart metering models. The marketing pitch was that it would save consumers money, but any saving was going to be marginal for most.

LeesArt said:

Why is this relevant to Standing Charges?

I am not sure, you have made a lot of factually incorrect and irrelevant statements, so the reality is none of them are relevant. 

Chris_b2z

MattMattMattUK said:

Chris_b2z said:

MattMattMattUK said:

That link misses off various costs that are added to the energy costs, as an example it misses off the government social and environmental costs, often called the policy costs which are around 11% of bills, temporary adjustments, headroom costs, Profit (EBIT), subsidy for pre-payment customers, allowance for bad debt, VAT and probably other costs. 
https://www.ofgem.gov.uk/energy-price-cap

Thank you. Do Ofgem publish a 'full' detailed breakdown by region showing how they arrive at the standing charge cap value each quarter?

Ofgem publish lots of information, you will find that information somewhere on their site, though it will be in a rather technical document that will range from several hundred to thousands of pages long. This has all been covered ad infinitum, there are not huge margins in energy supply, the suppliers are not profiteering. You can also look at the published accounts of the energy suppliers, indeed Octopus as a group (though there are several wholly owned subsidiaries) make a far higher margin on software licensing than they do on domestic energy supplies. 

The topic of this discussion is 'Why are energy standing charges so high?'.

Surely, it's critical to understand how Ofgem calculate the standing charge within the SVT cap. How else can anyone decide whether it's set fairly or not? Why would Ofgem bury that in a thousand page technical document?

MattMattMattUK

LeesArt said:

Because they already got paid and now they want to be paid again for the same thing or cleaning up the mess of their previous installs. 

They did not "get paid", the same as they were not "bailed out". They did get fined for not being able to install them quick enough, because they were not made mandatory, the government failed to secure supply and completely ignored the lack of trained installers. 

LeesArt said:

They have managed to kill off the competition, which is why they feel so emboldened to demand to keep increasing these charges.

Competition was killed off by the price cap, which mandates suppliers sell energy at 2.8% profit margin or less, that as well as constrained global supply and higher prices on the global markets.

LeesArt said:

Every pound of the £300+ they charge is a pound people can't spend on energy itself or on food for their kids, not just the vulnerable who are trying to pay for food that is still 50% to 80% above what it was at yet they have only had a 19% increase in income on average.

That is entirely irrelevant to anything. The cost of energy and supply has to be paid for, if the standing charge is abolished that money would need to be recovered in another way, the end result is the same, the same amount of money is still needed.

LeesArt said:

No other business has it so good, so many pubs and shops closed, 120,000 retail jobs lost 10,000 shops in 2023

No other sector was forced by law to sell below cost for a year, losing tens of billions, very few other sectors (water is the only other I can think of) that has a legally mandated price cap and profit margin.

LeesArt said:

https://www.thegrocer.co.uk/people/120000-retail-jobs-lost-and-10000-shops-closed-in-2023/686845.article

Still 14 a day closing

https://www.theguardian.com/business/2024/mar/14/nearly-5000-uk-chain-stores-closed-last-year-at-rate-of-14-a-day

Yes businesses are closing, retail is closing because buying of physical goods is moving online so far fewer physical shops are needed. Hospitality is being hit hard because business rates are punitively high in much of the country and during a recession and periods of high inflation the public cut back on luxuries. 

LeesArt said:

Energy is a factor, some were told they had to pay £17,000 a month, with three months upfront, standing charge  increased from 29p to £4 a day 

'UK Hospitality said restaurants, pubs and bars were being hit with 600% rises in standing charges with "absolutely no justification or explanation".'

Energy apologist Ofgem told the BBC it was "aware" some businesses were being asked to pay additional costs. It said it was looking to see if action was needed.

https://www.bbc.co.uk/news/business-64864030

"But the trade body for energy firms said charges were higher due to costs."

Yes a levy for legal fees for defending 2bn legal claim over businesses paying secret commission to brokers

https://www.restaurantonline.co.uk/Article/2023/02/14/Energy-firms-face-2bn-legal-claim-over-businesses-paying-secret-commissions-to-brokers

I think you will struggle to find anyone who feels that business energy does not need serious reform and much more regulation, likely with brokers banned and similar rights to consumer rights imposed. That is entirely separate from the consumer market, so much so that they have to be legally different companies supplying each. 

LeesArt said:

oh but we can't let this disinformation from these credible sources fester unchallenged.

That statement makes no sense, similar to the rest of the post.

LeesArt said:

At what point do people say ENOUGH IS ENOUGH, not just of the energy companies profit gouging but of OFGEM who enable them.  Just look at their board, look at the backgrounds of each member, look at their role at OFGEM and check how many are there for the consumer.

Enough is enough? If all energy suppliers were mandated to make zero profit then energy bills would come down by a theoretical maximum of 2.8%, though in reality more like 2.4%. You seem to think margins in the sector are huge, but they are not, they are tiny. Headline profits might be large, but that is because of scale, 29 million domestic customers, but the amount of profit made per customer is tiny. 

LeesArt said:

I thank Martin for his effort but sadly I don't think he will win on this one, but I really hope he does

Martin has done and continues to do a lot of good, but he does sometimes jump on a bandwagon and this is one of those occasions. The demands to abolish standing charges are irrational, illogical and selfish, it would almost entirely benefit those well enough off to install solar and batteries in their well insulated homes and it would penalise those at home a lot, often pensioners and the disabled and those in poorly insulated homes. 

MattMattMattUK

LeesArt said:

profiteering

the act of taking advantage of a situation in order to make a profit, usually by charging high prices for things people need: 

PROFITEERING | English meaning - Cambridge Dictionary

The scale of the income is exactly why the the cap on profits needs to be reduced, probably to 0.002%

The allowable profit margin on domestic energy is 2.8%, in reality most achieve around 2.4% though previously it was 1.9% and for over a year suppliers were required to sell at a loss. You randomly plucking a figure out of the air with zero understanding of the energy sector or business is of no benefit to anyone, man nor beast.