Friday 23 February saw the announcement of the latest Ofgem price cap update and, as always, Ofgem announced a few other things on the same day, no doubt hoping to draw less media attention.
It’s hard to be mad at Ofgem for using this tactic to avoid further media attention, they’ve received a lot of bad press since the beginning of the energy crisis in 2021 and it doesn’t appear to be getting any easier on them.
However, one area where they are still receiving a tonne of attention from struggling consumers, angry consumer groups and charities is the widely detested Standing Charges we’re all paying on our bills. There have been major increases to the standing charges, primarily on our electric bills, since the beginning of the crisis with them going from around £100 per year per dual fuel household to now over £300 per year. That’s a 200% increase in less than 3 years. And it’s set to get worse…
Ofgem announced proudly on Friday that the price cap would be falling by £238 going into the summer months, which is great, but peak behind the curtain and you see they’re setting us up for a more expensive Winter at the end of this year. The actual drop was comprised of around £270 decrease in unit rates, but a £30 increase in standing charges which is set to stay.
In October 2023, Ofgem announced that the average usage of households is falling, which has caused some background changes to the price cap methodology I won’t mention here, but it is a useful insight into the increases in standing charges. If unit rates are high, and standing charges are low, then energy suppliers will get less profit in a world of falling energy usage. So, as usage declines and we move toward Net Zero, increasing standing charges is best for energy suppliers.
Ofgem’s view over the recent years is that “increasing investability” in the retail domestic energy supply market is key for reaching net zero targets, creating new infrastructure and ensuring a strong and financially resilient market. What that sentence of jargon really means is that Ofgem thinks what’s best for us consumers is to give energy suppliers more profit.
Couple Ofgem’s goal of increasing supplier profits with the fact that households are using less energy, we reach the inevitable outcome of ever-increasing standing charges. This is the only way to logically increase supplier profits when people are using less usage. The outcome of this change of balance from unit rates to standing charges is that those with high energy usage, typically the wealthier in society, will end up better off whilst those with low usage, typically lower income households, will find it impossible to make any reductions on their energy bills.
Take back control
This is why consultation engagement is critical. This is why I’ve started being The Regulator Guy. Ofgem allows us all to have our say in every decision they make, the catch is that we have to put forward reasonable, logical arguments to sway them, we can’t just say “we don’t like that idea”. If Ofgem receive 10 logical replies from energy suppliers, with reasonable justifications as to why it is in the consumers’ best interest to pay more, and they receive 100,000 replies from consumers saying “we don’t want to pay more”, Ofgem will listen to the 10 logical answers.
As The Regulator Guy, my aim is to turn the 100+ pages of confusing text given for each consultation into easy-to-understand, short blog posts, I’ll be posting those here and each can be read within 5-10 minutes rather than hours. I’ll then give you my response, which (hopefully) will have logical arguments designed to sway Ofgem to reduce costs where it is in consumers’ best interest. Finally, I’ll let you know how you can get in contact with Ofgem and either send a copy of my response or edit it to reflect your own personal views. It’s okay if you don’t agree with what I have to say, but get involved in the consultation and share your views. The more people that send reasonable responses to Ofgem on each consultation, the more likely it is that they will regulate the market in the way we want.
Each consultation I get involved with will include a short video for those that would rather hear it than read it, so subscribe to this blog and subscribe to my Youtube channel, follow me on X or follow me on TikTok (@TheRegulatorGuy) to stay up to date with all of my latest consultation work.
