According to Ofgem’s chief executive, Jonathan Brearley, energy prices are predicted to remain “high and volatile” for the foreseeable future. His comments were made during a discussion with MPs just as new data was released showing a 50 percent increase in customer bad debt over the past year.

Brearley, addressing the Energy Security and Net Zero Committee explained that energy costs are significantly higher than before and he anticipates that they will remain high and erratic over time.

During this conversation, Ofgem’s director general of markets, Tim Jarvis, underlined that non-payment of energy bills, also known as bad debt, has emerged as one of the biggest challenges for the sector at present. He disclosed: “If you look at bad debt over the last 12 months, it’s increased by over 50 percent. So it’s gone from £2billion to over £3billion.”

Jarvis also pointed out an alarming trend saying: “We’ve seen an increase both in the numbers of people in debt but also a much bigger increase in the total amount of debt, suggesting those people are getting further and further into debt.”

In the past, the cost of bad debt was spread among all customers, averaging around £23 per person. But in February, Ofgem decided to add a temporary additional charge of £28, boosting the total annual cost to roughly £50 per customer, reports the Mirror.

This move is designed to ensure that suppliers have the necessary funds to support customers who are struggling to make payments. Mr Jarvis expressed his concerns to the committee about the sustainability of the current charges, saying: “Going forward we think that risks being unsustainable, to be honest, spreading those costs across the whole customer base in that way is not the best way to tackle the underlying causes of that.”

Ofgem has recently wrapped up a consultation on standing charges, which are the fixed daily rates that households pay for their energy supply, regardless of how much they use. In April, the standing charges increased from an average of 29.6p to 31.43p a day for gas, and from 53.35p to 60.1p a day for electricity.

This change means that the annual standing charges for the average direct debit customer have gone up from £303 to £334. With the cost of living crisis continuing to bite, Ofgem announced in November that it was looking into alternatives to the current system of standing charges.

Previously, Ofgem’s examination of standing charges before the energy crisis revealed a “complex situation where there are winners and losers”. The regulator pointed out that scrapping standing charges would mean suppliers would have to recoup costs through higher per-unit charges.

Currently, the standing charge for energy can vary by region due to different costs of delivering energy. Ofgem’s analysis indicates that moving to a usage-based charge could generally benefit low-income households, but it also cautions about potential adverse effects on a substantial number of consumers.

Ofgem’s case studies reveal that around 1.2 million low-income households, particularly those dependent on electric heating, could be hit hard by such changes. Mr Brearley told the committee that Ofgem is poised to announce proposals soon, which will include revisions to the standing charge and protective measures for the most vulnerable.

He outlined the wider impact: “If we were to make a change to the standing charge, that has significant distributional consequences. So in simple terms, those who are on a low income and have high energy use, around 1.2 million customers, will be around £100 worse off were we to get rid of the standing charge completely.”

Mr Jarvis highlighted the overarching approach: “The more important thing is that we’re tying this up with our work on affordability, because our view is that if you make changes to the standing charge, it has to be accompanied by something that will protect those low income users who will be most harmed by changes to it.”

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