The regulator wants suppliers to have to offer “zero standing charge” tariffs alongside other tariffs by next winter as part of plans to address ballooning household energy debt.
It is also proposing new standards for suppliers to make it easier for customers who are struggling to pay their bills to get support.
Under Ofgem’s price cap, standing charges have risen by 43% since 2019, and from January will cost dual fuel households an average of £338 a year, although they disproportionately affect those who use less energy as the fixed costs make up a higher proportion of their overall bill.
From January 1, average standing charges will decrease slightly to 60.97p per day for electricity and 31.65p per day for gas.
Standing charges pay for the fixed costs to suppliers of providing energy to homes.
Some suppliers already offer low or no standing charge tariffs, which are at least 10% below the price cap, but they are not universal.
However, while these tariffs come with a lower standing charge, they do have a higher unit rate, and are therefore more likely to benefit customers who use less energy.
Ofgem said tens of thousands of consumers responded to its call for input on standing charges, with many asking for them to be removed altogether, saying that this would make it easier for them to manage their bills or pay back debt.
However, those who were high users of energy, often for medical and health reasons, would see their bills rise significantly, meaning it was important for households to retain a choice of tariff.
Ofgem also set out plans for a “debt guarantee” to improve the standard of service offered by suppliers supporting customers in debt, which it said would give households “consistent, compassionate and tailored support”.
Suppliers could also be required to accept debt repayment offers from reputable third parties such as debt advice agencies or consumer organisations.
It also warned that the level of debt built up during the energy crisis had become “unsustainable”, saying it required a “bespoke, one-off solution to tackle it that will drive down the costs of debt in the long term for the benefit of all consumers”.
Energy debt and arrears have continued to grow, reaching £3.82 billion in September – a 91% or £1.82 billion increase in two years.
Martin Lewis, founder of MoneySavingExpert.com, said the best option would be to slash standing charges within the price cap but this would require Government support for vulnerable high energy users.
He said: “Standing charges are a £338-a-year poll tax on energy bills, a moral hazard disincentivising lower users from cutting their bills.
“They also punish customers that only use gas for central heating in winter, many of whom are elderly, by making them pay for every day in summer. It’s by far the biggest single subject of complaint I get from the public about energy bills.
“The problem with presenting a choice of price caps is many vulnerable people won’t make that choice.
“So I will be making representation to Ofgem to ensure firms are mandated to default lower-use price cap customers on to the no standing charge tariff – or at least do that for those on the Priority Services Register.”
Richard Neudegg, director of regulation at Uswitch.com, added: “The promise of more zero or low standing charge tariffs options by next winter could help bring more choice to the market, and might be a good choice for some lower consumption households.
“But consumers must beware that the trade-off for lower standing charges will be higher unit rates, so comparing options will be important.”
