Green MSP warns new tariff structure will not tackle fuel poverty

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Thursday, 29 August 2013 20:02

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By a Newsnet reporter

Alison Johnstone, Green MSP for Lothian and a member of Holyrood’s economy and energy committee, is warning that a new tariff structure from the energy regulator Ofgem will not adequately tackle fuel poverty.

This week the energy regulator announced new standards of conduct for energy companies, which the regulator claims represent a first step to creating a “simpler, cleaner, fairer” energy market.

However Ms Johnstone is concerned that Ofgem has decided to allow energy suppliers to include standing charges in their new tariffs. These charges discriminate against small-use or energy efficient consumers as they form a larger proportion of their overall energy bill.

In June this year, energy tariff comparison site uSwitch carried out a survey of standing charges, and found that the growing proliferation of different standing charges was complicating the market and making it difficult for consumers to get the best deal. 

uSwitch found that British Gas alone had eight different standing charges, depending on tariff and payment method.  Other energy companies also apply different standing charges depending on the customer’s choice of tariff and payment method.

Ann Robinson, director of consumer policy at uSwitch.com, said:

“With standing charges we are in danger of seeing one layer of complexity being replaced by another. The end result could be that consumers will still be left facing a minefield – it will just be a different minefield to the one they were trying to navigate before.”

Green MSP Alison Johnstone wrote to Ofgem in June 2013, expressing her concerns that standing charges discriminated against small-use users.

Ms Johnstone wrote:

“While I broadly welcome the principle of simplifying tariff structures, the requirement for a standing charge will discriminate against small-use or energy efficient consumers and consumers who have invested in generating their own renewable power. The standing charge requirement is also liable to perpetuate fuel poverty and act as a potential barrier to the benefits of smart metering.

“Standing charges set, in effect, a higher cost per unit for small-use consumers compared to those paid by bigger-use consumers – because the standing charge will form a larger proportion of smaller bills than larger ones. As a consequence, smaller consumers (be that through energy efficiency or relative poverty) will continue to subsidise larger ones. Households at risk of fuel poverty are very likely to be lower energy users and therefore likely to be unfairly penalised.”

In response, Ofgem wrote to Ms Johnstone and said that under their new proposals, energy companies will only be able to offer four different standing charges, and added that the energy companies would be obliged to inform consumers of the cheapest tariffs on offer.

The regulator did not address Ms Johnstone’s central concern, that standing charges discriminate against small-use consumers and those who generate part of their own electricity requirements.

Ms Johnstone commented:

“While the simplification of tariffs is a laudable aim it is disappointing that the regulator has failed to consider the effects of standing charges, which effectively mean small-use consumers subsidise larger consumers.

“It means it will still be difficult to compare energy companies’ charges. I asked Ofgem to justify its proposal to require standing charges and they were unable to do so.

“It is clear we need greater control, greater political will and greater powers for regulators if we are to break the stranglehold of the big energy companies. Only then can we hope to eradicate fuel poverty.”