Energy suppliers have been accused of using “rocketing standing charges” to inflate bills for small businesses.
The Federation of Small Businesses (FSB) said that small business are “often left with no explanation” as to why standing charge increases have been applied.
Consequently, the group said energy suppliers “have some explaining to do” and is calling for greater transparency around standing charge calculations.
The recommendation is made within the FSB’s submission to Ofgem’s call for input on standing charges.
It calls for:
- Greater transparency on suppliers’ calculations of standing charges, including disclosing any Third-Party Intermediary commission included
- Exclusion of SOLR (Supplier of Last Resort) 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
The submission adds that FSB members have reported 12-fold increases in the fixed fee set by energy suppliers.
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.
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.
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.”
Responding to FSB’s claims, a spokesperson for Energy UK said: “We recognise it is a hard time for many businesses, in which energy prices are a contributing factor. Suppliers continue to offer considerable support and flexibility to help their customers through this difficult period.
“A recent comprehensive and thorough review of the non-domestic market, conducted by Ofgem, found that post-crisis, prices were coming down, as you’d expect in a competitive market, and suppliers were only just returning to a period of ‘normal’ profit following a period of losses. Additionally, suppliers are working with Ofgem and consumer groups to take forward work to improve transparency around billing and commissions.”
Ofgem launched its review of standing charges in November following pressure from politicians and industry alike.
When launching its call for input, the regulator warned that a “significant number of customers” could be made worse off if standing charges are amended to reflect usage.
Several submissions to the call for input have suggested reforms.
The government advisory body has suggested the tariff mandate to replace standing charges, which are applied at a flat rate across all billpayers.
Standing charges paid to networks by energy suppliers should be replaced with a unit rate charge to help consumers, the boss of