MILLIONS of bill payers will breathe a sigh of relief when the price of energy falls next week.
After the new price cap comes into effect on Monday, an average household will pay £238 less a year.
But while the cost per unit of energy is falling, the standing charge is creeping up from £303 to £334 a year for most of us.
James Flanders explains what this payment is for — and how you can keep more of your hard-earned cash . . .
WHAT IS THE STANDING CHARGE?
A FIXED daily fee averaging 92p, the standing charge is slapped on to your tab just for staying connected to the grid.
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It covers operational costs, including maintaining the network of wires, pipes and cables essential for delivering power to your doorstep, which firms say has become more expensive.
Additionally, it encompasses staffing costs and office maintenance expenses.
Simon Francis, of the End Fuel Poverty Coalition, says: “It is particularly unfair that someone who slashes their energy use down to the lowest possible amount still ends up paying a fixed fee just to be connected to a grid they are no longer using as much.”
Campaigners argue that these charges often fund other less vital aspects of the industry.
Mr Francis added: “These charges cover everything from paying energy firms to sponsor football teams to a postcode lottery of fixed charges.”
The exact amount you pay depends on your chosen payment method and the location of your home.
WHY IS IT MORE EXPENSIVE IN CERTAIN LOCATIONS?
STANDING charges vary due to the differing cost of transporting power to and within each region, according to Richard Neudegg, director of regulation at price comparison site Uswitch.com.
He adds: “Regions with more rural locations may pay a higher amount due to the higher price of the necessary infrastructure.”
Residents in north east England will be hit harder than most, with the standing charge reaching £375 a year from Monday.
Those living in London pay £109 less at £266 a year.
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Despite campaigner calls for a universal charge, regulator Ofgem opted against it in 2015.
CAN I AVOID THE STANDING CHARGE?
MOST suppliers slap you with the charge, but there is one exception.
Utilita, which only serves prepayment meter customers, has ditched it altogether.
Instead, the company integrates the cost into its gas and electricity rates.
Utilita operates a two-rate system. The first rate, which is slightly higher, covers standing charge costs.
Once 2kWh is consumed (and standing charge costs are covered), customers automatically switch to a cheaper rate for the rest of the day.
But this alternative might not suit everyone, particularly those who do not want to prepay for their energy.
According to industry association Energy UK and watchdog Ofgem, eliminating the standing charge altogether isn’t a straightforward solution.
A spokesperson for Energy UK said: “If you were to switch these costs to the ‘per unit’ charges, then those customers disadvantaged by the current system, such as low usage households, would benefit.
“But other customers, who might be more reliant on energy or have a less well-insulated home, could end up paying significantly more.”
CAN I GET IT REDUCED?
FIVE million households opt to settle their energy bills through bank card, standing order or cheque — and they shoulder higher costs for standing charges.
It costs more because energy suppliers need to recoup the administrative costs associated with these types of payments.
These households will see their standing charge climb from £346 a year to £369 a year.
Switching to direct debit will reduce your standing charge — and unit rates, too.
CHANGE ON THE HORIZON
IN November, Ofgem launched a review and consultation on the future of standing charges.
Feedback from suppliers, consumer groups and charities will be collected, and a formal consultation will be published later this year.
Centrica chief executive Chris O’Shea advocates for scrapping the standing charge and integrating its costs into the unit cost regulated by the price cap.
He believes this move could offer significant benefits to those who take care to manage their energy usage.
However, Citizens Advice has urged the regulator not to compel suppliers to offer zero or low-standing charge products.
Instead, the charity has suggested that Ofgem should focus on minimising fixed costs within the energy system to level the playing field and decrease standing charges for every household.
An Ofgem spokesperson said: “We know that the standing charge is a hugely emotive issue, with different balances to be struck, which is why we opened a call for input and 40,000 people shared their views.
“There’s no easy answer here and we need to consider what we do very carefully to make sure there are no unintended consequences and we can deliver the best outcome for the most customers.”