At last some good news for owners of second homes: Ofgem has ordered electricity providers to offer tariffs which have no standing charges, but where instead householders pay more per unit of electricity consumed. True, it isn’t second-home owners which Ofgem had in mind when it came up with the idea, rather low income consumers whom it believes are losing out under the current system. But there is no question as to whom will be the biggest beneficiaries: people who only use their properties occasionally. If you visit your Cornish clifftop mansion for only four weeks a year you stand to make a substantial saving.
Standing charges have become the latest bugbear for poverty campaigners. According to Martin Lewis, they amount to a ‘poll tax’. But there is sound logic behind them. It costs money to maintain an electricity connection to a property. Wires must be maintained, as must substations and other electricity infrastructure. If you leave a property empty for months on end and don’t use any electricity, your electricity supplier would be making a loss on a tariff with no standing charge. How is it going to bear that? By jacking up the per-unit prices that it charges everyone for power.
In spite of this, electricity suppliers have in the past been happy to offer tariffs with zero standing charge. In 2021, there were three companies doing it: Npower, Eon and Utilita. The latter does, in fact, still offer a zero standing charge tariff. The ability of energy companies to offer such tariffs has, however, been undermined by the energy price cap. Since unit prices for gas and electricity have been capped, energy companies have less flexibility to offer a range of different tariffs, from which you can choose one which best matches your pattern of electricity usage. Energy companies have all gravitated to pretty well the same tariff, making it fairly pointless to shop around.
This wasn’t what was intended when utilities were privatised in the late 1980s: we were all expected to use our consumer power to switch suppliers and so help force prices down. Indeed, for the first quarter of a century after privatisation, that is how things worked: we had a healthy amount of competition. Some suppliers, it has to be said, did behave badly – tales emerged of people who had been switched from one supplier to another without apparently being aware of it.
Sometimes, as I found out myself, suppliers messed up the switch and took over the supply of the wrong property, suddenly landing customers with a bill for a house which was not their’s. But then Ed Miliband came up with his idea for an energy price cap, and Theresa May – who was actually in power – copied it. The electricity and gas market has since become a bizarre beast, where there is notionally loads of consumer choice but where competition has effectively been regulated out of the system.
Moreover, the original justification for the energy cap – the notion that the big six companies, as existed at the time, were ripping us off – turned out to be wrong. One after another, the challenger energy companies which started offering us enticingly low tariffs went bust. Their business models, it turned out, were fatally flawed. It is all very well Ofgem forcing electricity suppliers to offer tariffs without a standing charge, but there is really no substitute for genuine competition. That is far from what we have at the moment.
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