MSE News: Ovo cancels energy hike but don't expect big six to follow

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"The supplier is axing plans to increase costs due to a drop in the price it pays for gas and electricity ..."

Read the full story:
Ovo cancels energy hike but don't expect big six to follow

horngkai

so they buy it in advance of 3-4 years but used the price rise over summer to increase the price?

Pincher

I thought they can only buy energy futures for 18 months?
If they really can buy four years in advance, surely the idea is to buy a whole bunch of contracts now when it's cheap, and then bundle them up as four year fixed tariffs?

Here's an idea for E.On. Why don't you try an exclusive registration based promotion, for on-line customers only.

Announce that you intend to do a fix (2 year, 3 or 4), whose expected annual bill for average usage will be below, say £1,050. You haven't bought the contracts yet, so you don't know what the actual price will be. On-line customers can register their interest. Based on the number of registration, and the usage history of these customers, you know exactly how much energy to buy, and when. Buy the contracts when they are cheap, maybe taking a few weeks to avoid market blips. Obviously, you only buy if the price is low enough to build the fixed tariff.

Two weeks later, you send out an e-mail to registered customers, with a firm fixed tariff of say £999 per annum for average usage. Anyone who has any sense would log in and grab it. If you have leftover allocation, open it up as a very limited availability tariff to non-E.On customers so they can switch to it.

Shall we call it FixOnline 10?

wozearly

I don't believe that they buy all of their energy that far in advance, even if they do buy a significant chunk, so the big 6 are still affected by short-term rises in wholesale energy prices.

Plus, wholesale prices only make up about 50% of the cost of energy to the customer - delivery charges and operating costs make up about 40%, with tax and other bits and pieces making up the remainder.

That said, rises in wholesale prices do seem to be used as a convenient smokescreen for general price rises. The big 6 tend to be quick to raise prices when wholesale prices increase, but slow to pass back savings if wholesale prices fall.

Even if this is entirely justifiable for reasons other than profiteering, its still distinctly murky...

chriscubed

Funny how the big six can't lower prices when the wholesale prices lower because they've bought energy 3-4 years in advance, but when the wholesale price goes up, mysteriously they have to put it up?

There's a pretty famous graph showing the wholesale price compared to prices charged - it was shown on Newsnight last night.

Rupert_Bear

Ovo is the business. Been with them since March 2011 and although reluctant at first they have turned out to be brilliant. Everything is made easy for the customer.

Ken68

Same with Ebico, simple billing. The British Gas executive Phil Bentley on Newsnight apologised for the confusing tariffs.
So that's alright then.

dobsoncrew

They are all out for themselves. The govenment will not do anything as they all have shares in the big 6. The bigger the profit the bigger their divident. We should all ditch the big 6 for the smaller companies and make them the biggest ones

wozearly

chriscubed wrote: »

Funny how the big six can't lower prices when the wholesale prices lower because they've bought energy 3-4 years in advance, but when the wholesale price goes up, mysteriously they have to put it up?

There's a pretty famous graph showing the wholesale price compared to prices charged - it was shown on Newsnight last night.

There are a couple of graphs available here which show the average big 6 price versus wholesale prices.

The at-a-glance view suggests that the massive 2008 wholesale price spike was followed with significant price rises that didn't drop away substantially even after wholesale costs fell. The blog refers to it as evidence of a rip-off in action.

The graphs can be misleading, though. Bearing in mind that wholesale prices only make up 50% of energy costs, the expectation is that retail price should be, roughly, double the wholesale price - assuming that rises in other costs are broadly the same as rises in wholesale costs over the long term.

From a layman's perspective, it suggests to me that the Big 6 actually haven't done too bad at ensuring price stability at roughly the x2 wholesale price level over time. Customers have overpaid when wholesale costs fell, but underpaid when wholesale costs skyrocketed. This is likely to be supported by the companies having purchased energy in advance, which gives them a buffer in either direction.

However, because the Big 6 tend to move together, there seems to be little incentive to pass on savings to the customer unless the others do. Which I imagine is contributing to the problem of companies becoming more and more profitable over time, at the customers' expense.

I also feel that the companies use wholesale price rises as a convenient smokescreen for price rises whether or not they're directly linked to the wholesale cost changes. Wholesale costs are, after all, beyond their control and so they can adopt the "We did everything we could for our customers and waited as long as we could, but sadly we now have to raise prices" angle.

Premier_2

Ovo managing director Stephen Fitzpatrick says: "Since we announced the planned increase in our variable prices, wholesale costs have fallen.

"In response, we're delighted to announce we will not go ahead with the planned increase."

Hmmm....

I wonder how many people this really benefits?

Ovo are a fairly new company, and despite picking up a number of new customers following recent price hikes, it hasn't offered variable rate tariffs for about 2 years now I think.

I wonder how may customers they have that are on such legacy variable rate tariffs.


Edit: Ovo only started trading in September 2009 and removed their variable rate tariffs for new customers by April 2010

Even today, Ovo only has 69,000 customers ... and presumably the majority of those are on fixed rates having joined either after April 2010, or opted for a fixed rate in the 7 months initial trading of Ovo (or have moved to a fixed rate since).

HalloweenJack

you do know that 2 of the big 6 set wholesale prices anyway?

its the biggest cartel in the world and a total scam