Ofgem’s Targeted Charging Review

Ofgem (the energy regulator) has reviewed the way that electricity bills are calculated as part of their Target Charging Review (TCR), and is changing the way customers’ electricity charges are billed.

What exactly is the change?

Electricity customers have traditionally paid a unit rate for usage, which incorporates certain costs to help pay for the maintenance and improvement of the network. This has included the cost of the transmission (TNUoS) and distribution (DUoS) of electricity, split into two parts: residual charges (the cost of moving electricity through pylons and cables) and forward-looking charges (the cost of improving the network).

The residual charges were previously built into the unit rate, but this resulted in high users of electricity paying a greater proportion of the overall cost. As part of Ofgem’s review, it was decided that residual charges should be applied to standing charges instead – to increase fairness.

The TCR changes came into effect for DUoS from 1 April 2022, and for TNUoS this will be effective from April 2023.

What does this mean for you?

Your business will be placed into a band (see below) according to how much electricity you consume. This will determine the amount you pay for TNUoS and DUoS costs. At the point of sale/renewal, your quote may look slightly different to what you‘re used to, as your standing charge will increase, but you’ll pay a slightly lower unit rate.

If there’s no significant change in your consumption, there’s unlikely to be any significant impact to your bill.

If you entered into a contract before 9 May 2022, there will be no change to the prices you agreed at the point of sale and which were confirmed in the contract we sent to you. When your contract expires, you’ll be offered a renewal price which will incorporate the changes being introduced.

The National Grid has developed the new banding system that all energy providers must use when calculating the standing charge for customers. The new bandings can be seen in the table below.

Limits refer to annual consumption

Where can I find out more information?

More information regarding the TCR changes can be found on Ofgem’s website: Targeted Charging Review: Decision and Impact Assessment | Ofgem