Bulb to be Nationalised?

Energyinsider

With all the entrants of new suppliers offering loss leading tariffs the market has become a race to the bottom. Which meant that as a whole the average profit margin has been negative the last 2 years and this is the industry everyone accuses of being super greedy.

Given that all suppliers have been running on very tight or negative margins they’ve not built up any excess capital, which is why this crisis is causing so many to go bust so quickly.

Wholesale costs are just one part of the equation, policy and network costs have risen significantly over the last few years as well.

Also while many blame suppliers for not lowering their prices when the wholesale costs fall, now that prices are rising everyone is saying suppliers should have hedged further in advance so they don’t need to increase them.

You can’t have a hedging strategy that means you can quickly lower prices when they fall, and then not increase them when they rise. 

You can either hedge long in advance and not follow the market as it moves up and down, and so be blamed for not lowering your prices when wholesale costs fall.

or hedge short term, and follow wholesale prices quickly, but meaning you’re left exposed when an event like this happens.

There’s several strategies a supplier can take, and all have their advantages/ disadvantages, but with the CAP some of these strategies are no longer made viable.

wittynamegoeshere

Really the choices are between...

An open market, where suppliers charge as much or as little as they like, customers get nothing back when they go bust.

Or nationalisation, where the government runs it as a public service.

At the moment we have an a largely artificial market that is severely restricted to the point that it's ceased to function at all - companies are going bust and nobody can switch.

A "race to the bottom" is the sort of term used by companies that don't like competition.  This is exactly what a free market should encourage.

I doubt that any politician would want to be the one that removes customer protection that already exists, so hopefully nationalisation will be the only remaining solution.

singhini

i just got an email from Bulb saying their "planning to enter special administration"

prowla

So, several energy companies go bust and their customers get hoiked onto a higher price supplier.

This one goes bust and the customers get to keep their cheap rates.

MWT

prowla said:

So, several energy companies go bust and their customers get hoiked onto a higher price supplier.

This one goes bust and the customers get to keep their cheap rates.

You probably haven't looked at the Bulb rates recently.

They didn't have any fixed rate tariffs, just a capped variable rate.

masonic

The reason for the special administration is that Ofgem didn't think any larger supplier could survive being forced to take on the customers on a price-capped tariff. They were probably right. Suggests other large suppliers will be subject to the same fate if they fail.

gt94sss2

prowla said:

So, several energy companies go bust and their customers get hoiked onto a higher price supplier.

This one goes bust and the customers get to keep their cheap rates.

Bulb's prices are already at the cap.

bagand96

masonic said:

The reason for the special administration is that Ofgem didn't think any larger supplier could survive being forced to take on the customers on a price-capped tariff. They were probably right. Suggests other large suppliers will be subject to the same fate if they fail.

Basically that.  They obviously felt that the Supplier of Last Resort process wouldn't work.  Keep in mind that Ofgem have the power to nominate a supplier to be a SoLR whether they volunteer to or not, but they've not used that power here.

I wonder what will happen in the end? Ride out the current crisis and try and sell it off once the market has stabalised maybe?   Or if that doesn't work hive off the customer base in portions to the other suppliers?

masonic

bagand96 said:

I wonder what will happen in the end? Ride out the current crisis and try and sell it off once the market has stabalised maybe?   Or if that doesn't work hive off the customer base in portions to the other suppliers?

Perhaps keep Bulb in limbo until the price cap is raised in April. At that point presumably a SoLR can be appointed with a deemed tariff that is not automatically loss-making. In the mean time said supplier can be groomed and given some time to prepare. The special administration also gives Bulb time to get its affairs in order for a smooth transfer (or takeover).

QrizB

masonic said:

bagand96 said:

I wonder what will happen in the end? Ride out the current crisis and try and sell it off once the market has stabalised maybe?   Or if that doesn't work hive off the customer base in portions to the other suppliers?

Perhaps keep Bulb in limbo until the price cap is raised in April. At that point presumably a SoLR can be appointed with a deemed tariff that is not automatically loss-making.

Or even keep Bulb afloat until April, raise the Bulb tariff to the new cap and hope the customers all decide to leave of their own accord? Not many people are going to hang around and pay 30p for electricity and 7p for gas if there are cheaper deals on offer, and if there aren't any cheaper deals there still won't be a SoLR willing to take on 1.7M new loss-making customers!