Too many energy retailers are using rocketing standing charges as a ruse to inflate bills for small firms, according to lobbyists at the Federation of Small Businesses.
In its response to Ofgem’s current consultation on the standing charges issue, the FSB flagged complaints from its members of rises as high as 12-fold in the per day 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.
Small businesses are often left, the FSB claims, with no explanation from suppliers, and have no means to challenge what they call stealth charges.
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.
In its evidence to the Ofgem enquiry, the group cited an auto parts business in Dorset was paying. After multiple increases over two years, standing charges of 70p per day in July 2021 rose to £9.69 per day.
A second case had a tech firm in the Highlands suffering a jump in its standing charge from 32p to £7.50 per day, adding £2,500 to its annual bills.
Currently, “operational costs” of energy suppliers make up around half of standing charges costs. The lobbyists conceded that many elements of operational costs are relevant to SME supply, including metering, customer support and billing collection.
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 is calling for:
- greater transparency on suppliers’ calculations of standing charges, including disclosing any commission to third-party Intermediaries TPIs
- 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 62.5% of small firms, a position they have held since Q1 2022.
The business group is urging 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.
Said McTague: “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.