Citizens Advice response to Ofgem’s ‘Requirement to offer lower standing charge tariffs’
Introduction with PDF link to full consultation response. 245 KB
Citizens Advice does not support Ofgem’s proposal to require suppliers to offer at least one lower standing charge tariff.
Whilst we agree with the principle of improving consumer choice, we do not believe increasing the availability of lower standing charge tariffs in the market provides the best route to achieving this. We encourage Ofgem to consider the distinction between increasing choice and enabling better choices for consumers. It is our view that bringing down bills for those hit hardest by energy costs would help to achieve the latter, as would reforms targeted at boosting innovation in the sector.
There is a clear consensus across industry that lower standing charge tariffs are not in consumers’ best interests, whilst Ofgem’s case for change is predicated on consumer research that lacks consensus - as recognised in the findings. The consultation also fails to explore the extent to which wider affordability concerns are driving some appetite for tariffs that recover fixed costs differently.
Charities, consumer groups and suppliers alike have warned the regulator of the risks involved with driving forward such proposals, to either mandate tariffs which shift fixed costs to unit rates partially or fully (the latter of which was set out in Ofgem’s previous consultation). Most likely is the risk that consumers will switch to low standing charge tariffs under the false assumption that they will save money on their energy bills. We emphasise that this could happen despite messaging by Ofgem describing lower standing charge tariffs as a means of increasing choice. We reiterate that most consumers will either see no benefit, or will be worse off, as a result of switching to low standing charge tariffs.
Prepay consumers, who may marginally benefit from lower standing charge tariffs in low usage periods, will see these gains offset by higher costs in winter months. This seasonality means that costs will rise suddenly in winter when consumption is higher, which heightens the risk of energy rationing and disconnection..
We encourage Ofgem to channel its focus on to the broader Cost Allocation and Recovery Review (CARR) which can deliver more enduring change to energy pricing, and potentially bring down costs for those hit hardest - if more progressive approaches to recovering fixed costs are applied to the system. Redirecting focus would also avoid an undesirable scenario in which the CARR leads to the overriding of short-term proposals such as these, which in turn, could further complicate the market at a time where stability is a priority for consumers.