Energy standing Charges - OFGEM's inability to address unfair standing charges on consumers

Chris_b2z

BarelySentientAI said:

the_lunatic_is_in_my_head said:

One other issue is that the National Grid, apparently £28 billion paid out in dividends since privatisation, also some of the distribution network companies are paying out large sums to already rich shareholders, one article suggests bringing transmission and distribution into public ownership would save around £3.7 billion a year but of course that comes with the age old problem of governments not being able to run things the same way private companies do. 
 

Have just posted about this on another thread - network company profits are also capped like retail supply, for distribution networks this is officially at 5.23% with a bit of wiggle and a profit sharing agreement (up to 90% claw back) if they go over.

You paint a picture of an industry being squeezed by Ofgem and struggling to survive. Here's a quote from a recent report commissioned by a group of charities within the 'Warm this Winter' campaign -

Network owner and management companies pay out dividends unusually high for a sector so heavily regulated: dividend payments from the major Distribution Network Operators (DNOs) totalled £3.6 billion from 2017 to 2021, while gas distribution companies paid out £2.4 billion over the same period. Distribute these figures across 28 million households and the annual bills would reduce by £32 for electricity and £21 for gas. In 2021 this would cover the full standing charge on network costs for electricity.

The report also provides a breakdown of how various costs are currently split between standing charge and unit rates together with interesting suggestions showing how standing charge could be reduced.

https://cdn.prod.website-files.com/62ffd881e64ce370208de307/6672ab01d1754a2ae42a97f9_Standing_Charges_Final-compressed_1.pdf

Qyburn

EssexHebridean said:

coupleuk said:

An electric-only user in a 2-Bed on Economy 7 = Better Off by £67 per Year

Could you supply the calculations that led to that conclusion for E7 users please? 

Both Ofgem's all-electric example households would be worse off by shifting cost from S/C to unit rates. Page 52. Page 51 shows the actual S/C and unit rate changes.

They don't assess the result of shifting all of the S/C, but clearly that's going to have more impact than shifting just part.

It's logical as well, an all-electric household only benefits from one standing charge reduction, but pay the unit price uplift on all their energy. Ofgem's figures for E7 give break-even around 4,250kWh/year, above that and you lose out.

Hoenir

the_lunatic_is_in_my_head said:

born_again said: They also do not pocket the standing charge.

To be fair around 46% of the SC is to go towards billing, meter reading, sales and other admin, there's 1.9% profit in it and 2% for unexpected costs, I wouldn't say they are "pocketing" that element of the SC but it isn't all going straight back out the door on infrastructure and green levies. 

As I've said before an element of the SC was to cover SOLR where the big companies still standing gained millions of customers, these same companies are now paying out referable bonuses to capture new customers, Octopus claims to have paid out £100 million for such over the last 5 years so whilst SOLR was no doubt a big headache it did give these companies lots of customer via a process "we" paid for via the SC. 

born_again said:

They are also limited to the profit they can make. 2% 

There was mention of it being raised to around 4%, the regulars will know if that went ahead but obviously 1.9% of a larger cap is more profit and that limit isn't dead set, if they can buy cheaper or cut costs then they can make more, the government did OK out of Bulb as they were able to purchase energy cheaper than what the cap was set at due to falling energy prices and sold energy to Octopus at a mark up bringing in around £1.2 billion (IIRC). Also the cap applies to the standard variable tariff, they are free to set prices on fixes, other types of tariffs plus business tariffs,  although of course limited by competition and market forces

The other aspect to the bigger picture is their core business allows them to profit via other avenues so for example British Gas being be an energy supplier means they are in a good position to install boilers and sell boiler cover which no doubt is more profitable than selling energy to consumers, it's a bit of an Amazon model, i.e make little to nothing on the core business but have something else which turns a profit.

Ultimately the whole issue is very complex and, in general, debates seem to go from "scrap the SC" to "stop complaining" with little focus on the various aspects, presumable because it's easier to pick a side and argue rather have a in-depth debate  

One other issue is the National Grid, apparently £28 billion paid out in dividends since privatisation, also some of the distribution network companies are paying out large sums to already rich shareholders, one article suggests bringing transmission and distribution into public ownership would save around £3.7 billion a year but of course that comes with the age old problem of governments not being able to run things the same way private companies do. 
 

National Grid derives around 50% of revenue from it's operations in the US. A sizable contributor to UK pensions. Tampering with one thing creates ripples elsewhere. Easy to take the simple micro view of a topic.   Whereas the macro picture is far more complex and causes any number of unintended consequences.                                                                                                                                                          

silverwhistle

the_lunatic_is_in_my_head said:

Ultimately the whole issue is very complex and, in general, debates seem to go from "scrap the SC" to "stop complaining" with little focus on the various aspects, presumable because it's easier to pick a side and argue rather have a in-depth debate

Indeed! Only skimmed the thread and the OP was immediately met with (from a rather wealthy person) "why should your neighbours pay more?". But there seems no acceptance that the argument is about the level, not the existance of the SC. Why not have a standard high SC and then use what you want? Reductio ad absurdem, but it does illustrate that there is a debate to be had.

I think every comment here should have full disclosure of personal circumstances.:-) Me: low user, 4kWp PV on my roof, EV, SSE shareholder (!).  I pay a high electric standing charge but it enables me to access Agile where I can game the system due to my flexible personal circumtances and currently pay about 10/11p a unit. I also have a SC similar to what I actually pay for gas used so my next move  will be a heat pump and getting rid of gas entirely.

This raises another issue. If the SC is to cover infrastructure what happens when there are fewer gas customers to pay it as so many have come off gas with heat pumps? This is a government policy and entirely understandable but what happens to those left behind? Will the costs then be apportioned via the SC to those left with gas? We are back to the regressive nature of SC where low users pay more per unit.

Another question to those claiming the SC is fair is does everybody make the same demands on the system? The demands on infrastructure (including generation capacity, sub-stations etc.) is greater from higher users. If there is some competitive jacuzzi installing from a group of richer neighbours there may well be the need for a substation upgrade! Silly example to illustrate a point, but why should a poorer, lower user have to contribute to that? I'm referring to some of the earlier posts in this thread who made the same point from the opposite stand point.

My own energy bills are not a worry to me at all, but I think a few on here could do with recognising that for many it is an issue, and one causing a great deal of stress and worry.

the_lunatic_is_in_my_head

Hoenir said:

National Grid derives around 50% of revenue from it's operations in the US.                                                                                                                                                        

Not a topic I know enough about to comment on, if National Grid are generating profit in the US and investing it here in the UK then that would appear positive for UK consumers.

There is the question of their debt mountain sitting at around £40 billion, Thames Water has been in the news with their debt levels mentioned and Pizza Express is another high(ish) profile case (who lends a pizza chain a billion quid?) 

I've heard companies get deliberately loaded with debt to profit via the interest payments, although can't say if that applies to above three companies or not.

Hoenir said:

 A sizable contributor to UK pensions. Tampering with one thing creates ripples elsewhere. 

Well indeed and it's an argument I've seen many a time with regards to various organisations but there is the question that if these large companies weren't hoovering up all the money and there was more for public services would you need such a great pension?

Currently end of life care can be extremely expensive, really the state should be able to afford to look after everyone but it seems they can barely keep up with potholes.

I'm assume the pensioners who currently struggle with their heating bill don't take much solace in a later generation being a bit better off then than due to National Grid doing well and putting a few quid in the pension pot. 

Hoenir said:

Easy to take the simple micro view of a topic.                                                                                        

Well that's the intention of the post, I can't write war and peace on the subject but rarely see comments here relating to how the SC is actually broken down (I've seen several suggest the energy companies "don't get the money" which isn't true) nor questioning whether the current profit aspect of the system is positive or negative.

These threads usually boil down to "it has to be paid for one way or the other really so doesn't matter how it's split" which is about as micro view as you can get  

Qyburn

the_lunatic_is_in_my_head said:

Hoenir said:

 A sizable cotributor to UK pensions. Tampering with one thing creates ripples elsewhere. 

I'm assume the pensioners who currently struggle with their heating bill don't take much solace in a later generation being a bit better off then than due to National Grid doing well and putting a few quid in the pension pot.  

The pensions benefitting from investment in National Grid will be corporate and public sector pension schemes, maybe some private pensions. It won't be doing anything for the State Pension.

BarelySentientAI

silverwhistle said:

the_lunatic_is_in_my_head said:

Ultimately the whole issue is very complex and, in general, debates seem to go from "scrap the SC" to "stop complaining" with little focus on the various aspects, presumable because it's easier to pick a side and argue rather have a in-depth debate

Another question to those claiming the SC is fair is does everybody make the same demands on the system? The demands on infrastructure (including generation capacity, sub-stations etc.) is greater from higher users. If there is some competitive jacuzzi installing from a group of richer neighbours there may well be the need for a substation upgrade! Silly example to illustrate a point, but why should a poorer, lower user have to contribute to that? I'm referring to some of the earlier posts in this thread who made the same point from the opposite stand point.

Broadly, each individual connection is the same demand on the system from the planning and regulation perspective.

You and your jacuzzi-toting neighbour are both expected to have the same size fuse, the same size supply cable, the same contribution to ADMD, the same requirements for substation controls, the same responsibilities and requirements for power quality, the same risk of supply interruption, the same targets for restoration and repairs...

It seems to have been decided a long time ago that fixed (i.e. per connection) electricity infrastructure costs would be (mainly) regionally socialised.  Gas infrastructure costs are generally, on the other hand, nationally socialised.  A large proportion of the scaling costs (system losses for example) are already in the unit rate.

Other countries, notably France seem to get discussed here a lot for this, do it differently.  They charge a different SC depending on what your maximum power requirement is (which matches system planning needs much better than energy usage - designing for a 24kW spike one hour a day but zero other times is much 'harder' than designing for 1kW constant load)

Some of the rise in network costs have come out of the same discussion as this, but from the generation side.  Various schemes there have been discussed where the power station pays only for itself and the grid pays for the substation, where the power station pays for the connection substation but the grid does all other upgrades itself, and where the power station pays for the connection and the grid upgrades.  Referred to as shallow charging through to deep charging. 

We used to do deeper charging and rely on the power station to fund a lot of the upgrades (like the bunch of jacuzzi neighbours paying for a new substation) - a larger up front fixed cost and lower ongoing network fees.  This then got changed towards shallower charging - less up front, but has raised the amount that the networks charge because they are having to fund more upgrades themselves.

Two reasons for that.  Firstly, investors were reportedly getting scared away from building wind farms and things (or asking for much higher guaranteed power prices) if they thought they had to pay for millions of pounds of grid works.  And secondly, which might translate into this discussion, because why should one party pay for upgrades that anybody can later use.

Into the retail context, deeper charging would be like your neighbour buying an EV and so having to pay for a new transformer at the local substation, then because there is now lots of spare capacity due to the upgrade everyone else in the street could get an EV without paying anything extra.

MP1995

silverwhistle said:

the_lunatic_is_in_my_head said:

Ultimately the whole issue is very complex and, in general, debates seem to go from "scrap the SC" to "stop complaining" with little focus on the various aspects, presumable because it's easier to pick a side and argue rather have a in-depth debate

Indeed! Only skimmed the thread and the OP was immediately met with (from a rather wealthy person) "why should your neighbours pay more?". But there seems no acceptance that the argument is about the level, not the existance of the SC. Why not have a standard high SC and then use what you want? Reductio ad absurdem, but it does illustrate that there is a debate to be had.

I think every comment here should have full disclosure of personal circumstances.:-) Me: low user, 4kWp PV on my roof, EV, SSE shareholder (!).  I pay a high electric standing charge but it enables me to access Agile where I can game the system due to my flexible personal circumtances and currently pay about 10/11p a unit. I also have a SC similar to what I actually pay for gas used so my next move  will be a heat pump and getting rid of gas entirely.

This raises another issue. If the SC is to cover infrastructure what happens when there are fewer gas customers to pay it as so many have come off gas with heat pumps? This is a government policy and entirely understandable but what happens to those left behind? Will the costs then be apportioned via the SC to those left with gas? We are back to the regressive nature of SC where low users pay more per unit.

Another question to those claiming the SC is fair is does everybody make the same demands on the system? The demands on infrastructure (including generation capacity, sub-stations etc.) is greater from higher users. If there is some competitive jacuzzi installing from a group of richer neighbours there may well be the need for a substation upgrade! Silly example to illustrate a point, but why should a poorer, lower user have to contribute to that? I'm referring to some of the earlier posts in this thread who made the same point from the opposite stand point.

My own energy bills are not a worry to me at all, but I think a few on here could do with recognising that for many it is an issue, and one causing a great deal of stress and worry.

All el3ctric home 7500kwh electricity only per year so Electric sc only on Agile with 4kwh battery and small solar (not connected to house it's home brew but runs the tunbkedryer, cooking from 4-7pm etc etc) ASHP. Each A detached 5/6 bed house heating a hot water total 3900kwh a year, the rest general usage from adults working from home.

We also hover around the 11-12p kwh on Agile and a cheaper SC of 42p per day. Also being with Octoous as J said in another post th3g also give me a free £4 coffee each week that I would purchase anyway so that's effectively free SC plus £1 in my pocket for disclosure (I do hope that continues)

Our energy bills are not a worry to us either we are coming in less than £100 a month.

However we do rent out some properties and know how much the circa £340 a year SC for gas and electricity in each C/D properties cost and that added to the rents and all other bills a lot of our tenants are trapped with costs rising everywhere.

What the solution is I do not know. You present solution A, someone shoots it down, same for solution B,C,D

Scot_39

Qyburn said:

Scot_39 said:

I don't dispute that they are worse off than they'd be if they received the WFP, but are they worse off overall given lower energy costs than 2022 and the last two years of benefit increases? If the answer is "yes because everything else has gone up in price" then that's not really a reason to specifically subsidise energy.

...
But not only are many pensioners potentially losing the standard WFP.

Arent they all already scheduled to lose the extra £150-£300 the "Pensioner cost of living payment"  paid upto last winter.

That's exactly the point I was trying to make. Why does removing an unrelated benefit axiomatically mean energy should be subsidised? 

Basic State pension is 19.5% higher than Winter 22/23 and the headline price cap looks to be a bit lower even accounting for the £400 hand out.

2 issues

First the presentation problem it was paid as an uplift to the winter fuel payment - so charities and Martin Lewis and his ilk - are linking it and using the drop from the combined upto £600 single payment last year to try to influence the debate. 

Secondly
Energy is one of the core costs for elderly and disabled  - many - not all - of them simply need to use more for physical comfort and health reasoms - than the rest of the population.  And it remains one of the - compared to pre crisis - the majorly inflated domestic costs. 

It's basically therefore an ideal area to target specific aid - if you are going to arguably continue to do it that way. 

Ideally I would rather the past and present govts had / would take an honest long term view at the true rate of inflation for the poor - working and benefits , poor pensioners etc  - and stopped the patchwork short term sticking plaster approach - the removal of which is now causing or at least forecast to cause more real hardship. 

I dont like cross subsidy via bills - never have - to me it risks one set of vulnerable paying for another selected set who get help - regardless of relative income.



But I would prefer if remains as energy bills help  - say the concept of social tariffs (that do exist at at least some water firms) - that any discounts on SC or unit  rates - should be paid by govt via taxation - exactly as per targetted EPG for prepay - an EPG for social tariffs.

l will likely pay via taxes or bill cross subsidy either way - its just my preference.  

Do I believe the richest pensioners need WFP - no.  But for those struggling just £100s, even maybe £1000s above the pension credit threshold  - yes I really do think - like Age UK 's upto 2m estimate - they will still need targetted help.

They claw back child benefit for rich on a sliding scale, why not same approach for wfp - than a hard cut. The PC top up is to c£11.3k pa for single person, £ 17.3k couple they get full amount, for simplicity say to zero over £20k pa band  (or 10k as pre Apr HICBC taper band - as 10k closer to diff between single min wage c22k and the c11.3k single top up).

Off topic I know and a bit controversial 
But on subject of HICBC - why is the state helping those on a now even higher £60-80k - or couples on now upto potentially  £120k -£160k combined - with upto £1300 pa per child in child benefit ?
And yet proposing cutting £200-300 help to pensioners on just over £11.3k, couples £17.3k.
So here's another suggestion for Rachel Reeves to help balance books - reverse the Apr 24 HICBC changes - claw back that estimated £540m cost to treasury - and use it to pay the Age UK estimated upto 2m more pensioners not on PC being driven into hardship - their full £200-£300 WFP - or even more on a sliding recovery like HICBC .

EssexHebridean

Qyburn said:d

EssexHebridean said:

coupleuk said:

An electric-only user in a 2-Bed on Economy 7 = Better Off by £67 per Year

Could you supply the calculations that led to that conclusion for E7 users please? 

Both Ofgem's all-electric example households would be worse off by shifting cost from S/C to unit rates. Page 52. Page 51 shows the actual S/C and unit rate changes.

They don't assess the result of shifting all of the S/C, but clearly that's going to have more impact than shifting just part.

It's logical as well, an all-electric household only benefits from one standing charge reduction, but pay the unit price uplift on all their energy. Ofgem's figures for E7 give break-even around 4,250kWh/year, above that and you lose out.

Yes - this matches my understanding of what had previously been said, and, as said, my own workings out on the subject a few years ago when this was discussed. Let’s be honest too - that Ofgem figure for E7 use is optimistic - we were pretty frugal on energy use, and of course had gas for cooking, and yet even we struggled to get our use as low as that 4,250kWh - there is no chance that the average user would manage it.