Some energy suppliers are using rocketing standing charges as a way to inflate bills for small firms, according to the Federation of Small Businesses (FSB).
In its response to Ofgem’s recent consultation on the standing charges system, FSB flagged fresh complaints from members of staggering rises – up to 12-fold increases – in the fixed fee set by energy suppliers regardless of energy usage.
While standing charges are capped for household customers, they are now on a second year of hikes for business customers of the same energy suppliers providing the same electricity.
Small businesses are often left with no explanation and have no means to change these stealth charges that drive up their energy bills.
In one case, an independent auto parts business in Dorset was paying 70p standing charges per day in July 2021. After multiple increases in the following two years, the charges have now increased by 12 times to £9.69 per day.
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In another similar case, a small tech firm in the Highlands saw its standing charges jump from 32p to £7.50 per day, adding £2,500 to its annual energy bills.
Currently, “operational costs” of energy suppliers make up around half of standing charges costs. While elements of operation costs are relevant to SME business operations and upkeep including metering, customer support and billing collection, others directly relate to the suppliers’ operational costs, such as advertising, branding and office costs.
Standing charges also incorporate costs related to energy supplier failure and acquisition from suppliers taking on failed businesses under the Supplier of Last Resort (SOLR) procedure.
FSB would therefore like to see:
- Greater transparency on suppliers’ calculations of standing charges, including disclosing any Third-Party Intermediary commission included
- Exclusion of SOLR acquisition costs that will only directly benefit the profits of larger energy suppliers
- Ofgem and energy suppliers work together to narrow the discrepancy of standing charges between rural and urban areas
FSB’s latest Small Business Index shows utilities were once again the most commonly-cited cause of rising cost pressures, chosen by over three in five small firms (62.5%), a position they have held since Q1 2022.
The business group urges Ofgem to work to ensure that standing charges do not continue to rise at a time when small firms are squeezed under rising business costs.
FSB National Chair Martin McTague said: “Energy suppliers have some explaining to do on the sudden and dramatic hikes in standing charges, which become a regressive form of billing that hamper small business growth, confidence, and investment.
“Even now that the wholesale energy prices have come down from the peak we saw in 2022, small businesses are still scratching their head over skyrocketing bills.
“While parts of the standing charges are being reinvested into green and energy efficiency measures, there’s little to no clarity on the cost make-up, and small businesses are forced to pay the increases with no options and explanations from their energy suppliers.
“Small firms do not have the same protection as household customers when it comes to energy price hikes. Business energy bills could continue to stay high if the standing charges system remains the way it is now.
“A more transparent standing charges system is needed to ensure market competition and, most importantly, to enable small business customers to understand clearly what they are paying for.”
