Zero standing charge tariff proposal

Scot_39

EssexHebridean said:

Unless I am confused or out of date though there is no suggestion that the only tariffs available will be zero SC ones - just that those should also be offered? My biggest concern is the number of folk who will decide that because they are no longer paying the SC it “must be cheaper” and will jump without doing the sums - indeed in some cases perhaps without having the ability to do those sums - and will end up costing themselves money they can ill afford through a simple lack of understanding and knowledge. 

Ofgem are concerned - rightly so about this risk too.

But arguably the whole exercise is in response to a vocal minority - mainly the c30,000 responses last time. From Feb 20 consultation

"Direct feedback from consumers has highlighted that some people would prefer to pay for their energy solely based on use (unit rates) rather than also pay a standing charge. Households will have many different reasons for this preference, and these reasons could be financial or otherwise."

Lets be clear that is a tiny minority - 30,000 / c29million domestic connected homes = c0.1%.

And also lets be clear - the charities and likes of Martin Lewis who vocally demanded this - have largely lost the argument - on this as a method to significantly lower bills for all poor users.

As without additional govt / taxpayer funding - and given there is no real wriggle room as Ofgem see it.  

Just look at the Feb 20 consultation example charts for "single rate" and "rising block rate" (as used in some EU states) and you will see the clear harm this might will do to below median let alone median and even more so heavy energy users - like poor disabled and elderly trying to stay warm enought e.g. to nhs guidelines - in inefficient homes - who end up on the wrong sort of tariff.  

Anyone who as Ofgem puts it suppliers "under-recover" fixed costs from - on a zero SC - is a problem for other's bills - potentially everyone else's - not just those on zero SC.

The whole idea is not what energy charities or likes of MLewis wanted at all when backed this campaign - which was lower bills - not "shuffling deckchairs on the titanic" i.e. moving costs between lines on the bill - when the total remains the same - and for many remains simply unaffordable.  Millions are in arrears.

Either those the suppliers "over-recover" from on zero SC - i.e. paying more than they would on a SC tariff - will pay more to balance them.

And when surprise surprise - very few who would or find they are switch back to SC tariffs - because Ofgem are likely to oblige suppliers to provide both estimates before signing - and I hope a dynamic warning to encourage them to move off if by choice or lack of financial acumen (or even if you like lack of basic arithmetic skills) - do so - as are well aware of the risks - that leaves a global underfunding. 

For many here the concept of folk not understanding their bills - might seem strange - it is not - it is a very real risk. 

And if there isn't enough paying over the odds on the zero SC - guess what - that means the non zero SC - via their SC or unit rates - will then have to compensate suppliers for that lost revenue.

Just as we pay the debt specials - for those not paying their bills - if say just 10% of customers (not a fanciful figure given c1.5m solar and nearly 1m - more by some estimates - empty second homes) and some very low users a la Hertslad type thread on living without heat - under recover by even just half the SC - £160 say on average for dual fuel - thats another £400 million - increasing their £3.7bn bad debt deficit another 10% per annum - assuming they reover profits / costs elsewhere - which they will be allowed to - so adding another £2-3 to special payments needed to offset it.

Some no doubt will scream those "big bad energy companies" can afford it - they cannot - many have made big losses in the last 4 years - at least in their retail sales divisions. 2.4% EBIT and £3.7bn in bad debt is not a healthy basis for any set of businesses.  Adding another say 10% to that downside on cash flow a potential disaster waiting to happen.

Another example of the law of unintended consequences.

Whilst not helping the cases many charities hoped it would - in fact at severe risk of costing them far far more - £100s pa for even median TDCV on some of the example charts - for simple single rate - and the rising block rate methodologies (favoured by some in the general energy news thread here in last few days - because they have it in likes of Spain iirc - but with exemptions no one at Ofgem appears to be considering here) - in the Feb 20 documents - many so wrongly - as predicted from the beginning by others naively - expected this exercise to produce.

Even worse for say the examples in the Aug report - like the young couple in 2 bed flat - or elderly couple using iirc well over double TDCV to survive and heat an inefficient property to a decent temperature on all electric (which currently Ofgem is not minded to offer zero SC tariffs to anyway - in part due to complexity - in part I would hope due to that significant upside risk). 

Luckily at the moment Ofgem isn't minded to offer the option to profile class 2 / multi-rate deals.  But I am sure there will be a raft of complaints from low users using such tariffs to charge batteries in winter to make up for their lack of solar generation.

wrf12345

One possible concession would be to let an energy company offer only a single tariff with zero s/c (no other tariffs at all), as Ebico did back in the day, thus allowing them sufficient scale and simplicity to make it work overall. The rate could still be capped, probably an extra 10p on the unit rate in unison with the std tariffs, for electric. For gas, April would be the ideal moment to simply abolish the s/c on all tariffs and add it to the unit rate, encouraging less usage in line with Govn Green policy.

Swipe

As long as it's offered as an additional tariff alongside the existing offerings with a standing charge without being subsidised by them, I don't really have a problem with it.

MeteredOut

It's really interesting reading the responses to these proposals (not just on here, but across social media). I'd sum it up as 

- Those that don't want standing charges don't, in general, want to see any increase in their unit price
- Those that accept standing charges are necessary don't want to pay a subsidy for those that choose a non-SC tariff.

And therein lies the challenge.

Scot_39

wrf12345 said:

One possible concession would be to let an energy company offer only a single tariff with zero s/c (no other tariffs at all), as Ebico did back in the day, thus allowing them sufficient scale and simplicity to make it work overall. The rate could still be capped, probably an extra 10p on the unit rate in unison with the std tariffs, for electric. For gas, April would be the ideal moment to simply abolish the s/c on all tariffs and add it to the unit rate, encouraging less usage in line with Govn Green policy.

Except your not in the same operating environment - the under recovery cost risk is far more now - given far more of the current ave c£220 standing charge is external.

£121 from last Aug Ofgem report into SC consulation fig 2 - so c55% is network costs paid to third parties per customer - regardless of income from that customer if a low user.

That figure could have potentially been as low as £18 c 2022 - before TCR moved £103 more of network costs in.

But was transiently in reality far higher due to SoLR levies on electric applied to SC (but again curiously not gas) again from c2022.  

That extra £103 is a lot for a supplier in under recovery risk to make up - from potentially hiking unit rates on others to balance.

Contrary to popular belief - tariff simplification - legislated early 2010s - kicked in c2014 and revised 2016 iirc - never banned zero p standing charge tariffs.

I found an article from c2017/2018 iirc on a quick google a couple of months ago - that listed five companies offering zero SC tariffs

And if their was truly a market for it - a viable and profitable market - then why arent that many or more still offering it ?

wrf12345

"Contrary to popular belief - tariff simplification - legislated early 2010s - kicked in c2014 and revised 2016 iirc - never banned zero p standing charge tariffs.

I found an article from c2017/2018 iirc on a quick google a couple of months ago - that listed five companies offering zero SC tariffs

And if their was truly a market for it - a viable and profitable market - then why arent that many or more still offering it ?"

What happened to the original Ebico offering was that they were later forced to have the std tariff as the default option rather than a singular zero s/c tariff - it was not banned it was just not possible to have it as the only tariff, the point at which it made business sense - they were also way ahead of the game by also charging the same rates for different payment methods, something that the energy companies now, I think, also upped the standing charge to cover the additional cost, totally out of control because Ofgem is hopeless but useful for the government to cower behind.

Qyburn

Swipe said:

As long as it's offered as an additional tariff alongside the existing offerings with a standing charge without being subsidised by them, I don't really have a problem with it.

The problem is that those who would benefit, ie pay less, will switch to the zero S/C and therefore pay less. Those who wouldn't benefit will stay on their current tariff and not pay any more. Who's going to make good the shortfall?

michaels

You do know a big chunk of the SC is part of the benefits system, a direct transfer from the majority of consumers to those the govt deems worthy of subsidy.  Some would argue that benefits should come from taxation and be clearly reported as such but not surprisingly it suits govts of all colours to move benefits out of the national tax and spend figures

Moving cost to the electricity tariff from the SC so that higher users (like my daughter who rents an all electric non Economy 7 single glazed flat) get to subsidise the network and supplier costs of lower users like second home owners and those who have had the 500k needed to build an eco home - does anyone claim it is less costly to set up an account and do the billing and maintain the wires and pipes for someone who uses £50 per month compared to someone who uses £200?

Finally of course it sounds like very bad news for anyone who has or is contemplating a heat pump....

WibbleBaaaaaa

It would be great if supplers could offer at least 1 cheap solar panel that can be placed anywhere, roofs, balconies, windows, to every customer that would generate enough lekky to pay for the daily standing charge automatically.

Qyburn

michaels said:

You do know a big chunk of the SC is part of the benefits system, a direct transfer from the majority of consumers to those the govt deems worthy of subsidy.  

Do you have a source for that? I wasn't able to find breakdown in that detail.