Energy tariff membership or standing charges: What's different?
Energy tariffs often seem deliberately designed to make it hard to know if you’re getting a good deal. Standing charges, no standing charges kilowatt hours, peak rates, variable tariffs, fixed tariffs, deemed tariffs, comparing across suppliers can feel as difficult as doing an A-Level maths exam with an abacus. To add to the confusion a new option is entering the UK energy market, membership-based tariffs without standing charges. Read on for Selectra’s guide to how it works.
First let’s take a look at the traditional choices: standing charges and zero standing charges.
What are standing charges?
Until 2016 UK energy suppliers were obliged to levy a standing charge on all customers.
The standing charge is similar to the line rental you have to pay for your broadband or landline phone connection.
The line rental is a fixed monthly cost you have to pay even if you don’t make any calls or use any data, you’re paying for the ability to access the operator’s telecommunications infrastructure.
The standing charge for energy is similar, except it is charged on a daily basis. Any electricity or gas you use is billed in addition to the standing charge.
Why do energy suppliers include a standing charge?
A highly sophisticated system of power stations, transmission lines, substations, cables, wires and pipes are needed to deliver electricity and gas to your home or business. This infrastructure needs investment to develop and maintain it.
Additionally, the government has legislated charges on the industry to promote renewable energy development and support vulnerable people who may be at risk of fuel poverty.
The standing charge is each customer’s contribution towards covering these costs for the supplier as well as for carrying out meter readings, which in turn passes the money on to the energy generators, distributors and to the government.
How much are standing charges?
How much you pay depends on who your supplier is and where you live in the country. There can be quite some difference between suppliers.
Although billed in pennies per day, every day is charged for no matter how much energy you use, so the amounts add up quickly. The good news is that this part of the bill is fixed no matter how much energy you end using. For households with both gas and electricity dual fuel accounts the standing charge works out at around £156 per year.
Electricity-only standing charges averaged £77.02 in 2018, while for gas-only it was £85.53. Which means the fees can make up a significant percentage of a customer's annual fuel costs.
Do I have to pay a standing charge?
No, Ofgem removed the obligation for suppliers to transparently levy the payment on customers in 2016 thanks to a proposal by the Competition and Markets Authority (CMA).
This allowed suppliers to begin including attractive-sounding zero pence standing charges on tariffs or omitting them altogether.
A standing charge of zero has advantages and disadvantages.
On the plus side, if you have a holiday house that is empty most of the year, or you’re a landlord between tenants, a zero-charge tariff makes sense and could significantly reduce your bills as you only pay for the energy you actually use.
In the case of people who own an empty property, switching to a 0p standing charge tariff is a useful alternative to cutting off the supply as it avoids the hassle of connecting it again when the property is reoccupied.
Of course, nothing is free and the infrastructure costs and government levies explained above still need to be paid.
So to compensate, with these kinds of tariffs, the per unit rate is normally a lot more, making them a bad choice for a normal home customer or small business owner who uses an average amount of energy.
The money you save on standing charges is unlikely to offset the higher cost of the electricity or gas you use. Unless you’re a landlord or holiday home owner, zero standing charge tariffs are just a bit of a marketing trick.
So what about membership fee-based tariffs?
Currently the only UK energy supplier using the membership fee model in place of standing charges is Pure Planet. There were two, but troubled supplier Outfox the Market switched to a traditional standing charges model in January 2019.
Pure Planet advertises itself as a “no mark up” supplier. This means the per-unit price covers only the wholesale energy price and the unavoidable costs of transporting the energy, together with government levies, green taxes and offsets and VAT.
The app-only supplier explains that, as an environmentally-aware company that uses 100% renewable electricity and wants to encourage people to use less energy, it would be a conflict of interest for it to make a profit from its customers using more energy.
Instead, it has adopted the membership fee model to generate a profit.
How much does it cost?
For electricity-only households, the membership fee is set at £8.00 a month or £96 a year. The company dropped its fee from £8.50 or £102 a year earlier in 2019. The £8.50 price was itself a reduction on the 2018 fee of £10 a month or £120 annually.
Dual fuel customers (Pure Planet do not offer a gas-only tariff) pay £16 a month in fees which works out at £192 annually. The supplier gives a £30-a-year discount for dual fuel accounts, so the annual membership fee is actually £162 or £13.50 a month.
Again, the fee dropped earlier this year from £17 a month/£204 a year or £174 with the discount. In 2018 the monthly price was £20 and £240 annually or £210 with the discount.
The membership fee is where Pure Planet makes its profits. It also covers the company’s staff and operating costs, meter maintenance and VAT.
So, what makes the membership fee different from a standing charge?
Nothing really. While we admire the company’s commitment to renewable energy, its willingness to reduce its fee and its up-to-date use of technology, in reality it appears the “membership fee” model is nothing but branding.
Pure Planet even admits as much in its FAQs, where it says that the membership fee “is the standing charge. It's the daily rate, calculated and collected in 12 monthly payments.”
If the membership fee was competitive at least that would be something in its favour, but it's actually £18.98 above the 2018 UK average for electricity and £36 more for dual fuel customers or £6 more with the annual discount applied.
Another drawback is that the company only offers one tariff which is variable, meaning it follows wholesale prices, so your energy bills could go up or down due to unit rates changing from month to month.
Indeed, Pure Planet applied for and received special permission from Ofgem to change per unit prices with only 14 days notice instead of the usual 30 days normally required.