- New plans could see more energy deals launched and debt reduced
Energy companies will have to offer customers gas and electricity contracts without fixed costs next winter, regulator Ofgem is proposing.
Fixed costs are daily bills that are paid regardless of how much gas and electricity is used, and total £388 for an average home.
These costs are hated by many households because they cannot be avoided by simply using less energy and can leave homes in debt.
Some energy companies already offer no-fixed-cost deals, but these are rare.
The trade-off with these deals is that unit rates – the price of the energy used – are usually higher.
Ofgem’s consultation today shows that many consumers want fixed costs to be completely removed from energy bills.
It feels cold: Fixed costs are loathed by many because they add unavoidable costs to bills
A statement from Ofgem said: ‘Tens of thousands of consumers responded to our call for input on fixed costs, with many asking for fixed costs to be abolished altogether. They said reducing or eliminating fixed costs would make it easier for them to manage their accounts or repay debts.”
The regulator will launch a consultation in early 2025 proposing that all energy companies should offer price-capped deals with no fixed costs, in addition to existing deals that include them.
However, Ofgem said banning fixed charges would mean rising energy bills for groups who tend to use a lot of energy, such as the elderly and disabled.
“Many people feel strongly that fixed charges are unfair,” said Tim Jarvis, director general of markets at Ofgem.
‘We want to give consumers the opportunity to make the choice that suits them, without one group of consumers being disadvantaged.’
Peter Smith, director of policy and advocacy at fuel poverty charity National Energy Action, said: ‘Households using prepayment meters are particularly affected by the continuation of high fixed charges.
‘If their credit is used up, the fixed costs form a debt on the meter that must be paid off in full before they can access energy again.’
Energy debt is reaching record levels
Ofgem is also proposing action to tackle record levels of energy debt, which rose to £3.82 billion in September – a 91 per cent increase in two years.
The average home with energy debt has a debt of £1,541.
The regulator is not suggesting that energy companies cancel these debts.
Instead, the country wants to overhaul the way energy debt is handled by gas and electricity companies, which is expected to shave £1 billion off the debt mountain.
For example, Ofgem is proposing new standards that will require suppliers to provide consistent and thoughtful support to customers in debt.
The regulator also wants to set up a scheme to improve the treatment of customers with debts by energy companies.
It also wants to encourage energy suppliers to accept debt repayment offers from reputable third parties, such as debt advice agencies or consumer organizations.
Ofgem hopes this will make it easier for households struggling with their bills to get help.