Standing charges: domestic retail options

Standing charges options next steps

Moving part of operating costs to the unit rate

We are in the process of conducting a review into the operating cost allowances in the cap and published a consultation on the allowance in May 2024. This included setting allowances based on up-to-date information, and consideration of whether the current split between the unit rate and the standing charge is appropriate. We will come forward with proposals on moving some of the operating costs to the unit rate (including the option not to change our current allocation) through this review. We are currently aiming to implement any updates in April 2025.

Encouraging tariff diversity

We will continue to monitor the fixed term market and, should we deem it necessary, consult with stakeholders on options to improve tariff diversity in due course. In parallel, we will continue to develop options to encourage tariff diversity on variable tariffs through our approach to price cap compliance.

Review of allocation of energy system costs

We will carry out a broad review of how system costs are recovered from all users, including considering how network costs are recovered and working with government on the allocation of future policy costs. We will consider any policy changes that may be required as a result of the review, and we will consult stakeholders in due course.

Interrelated workstreams

Bad debt review

In August 2023, we published a decision on introducing a specific allowance into the price cap for bad debt costs associated with Additional Support Credit (ASC). In February 2024, we published a decision on a temporary bad debt adjustment in the form of a float and true-up. Following the float, we aim to review the need for a true-up with possible implementation in summer 2025. Additionally, we recently consulted on potentially extending the Additional Support Credit allowance in the cap across next winter.

Levelisation of debt-related costs between standard credit and Direct Debit

In February 2024, we published our decision to introduce levelisation of prepayment meter and direct debit standing charges from 1 April 2024. We also set out that we would further consult on the levelisation of debt-related costs between standard credit and Direct Debit consumers. The consultation will take into account developments and wider policy considerations. The options outlined within this paper, and ongoing work with government, may impact the case for change for levelisation. As a result, we have decided to pause further development of levelisation of debt-related costs until there is further clarity on potential alternative policy options.

Debt and affordability 

In March 2024 we published our Call for Input on affordability and debt in the domestic retail market. As discussed in the case for change, standing charge reform has the potential to improve affordability for some customers while reducing it for others. Further, standing charge reform is unlikely to materially reduce the extraordinary levels of debt currently present in the domestic energy market. We aim to update stakeholders on potential measures to address the extraordinary debt levels that are currently impeding the proper functioning of the retail market, and on consumer standards relating to debt management this autumn.