Standing charge increase explanation (and why it doesn't seem to make sense)

FeaturelessVoid

I appreciate that MSE has supposedly "answered " this question but I'm far from convinced they have, and they helpfully locked the thread so nobody can actually discuss it.

The first reason for the standing change increase is "to cover the costs of companies recently going bust" but that seems to make no sense at all. Prior to last year, I don't think any SoLR actually claimed from Ofgem at all, so why are we paying for something that there is a fund for?  Surely as almost everyone that is going to go bust now has, we can replenish the funds by continuing the levy?  It's a bit like building a personal emergency fund, using it, and then immediately cutting back any and all expenditure to replenish it as soon as possible, but that's not really how emergency funds work, is it?  You should just be contributing a percentage of your money regardless, and if you fill it, then you spend the money. If you dip into it, the funds can't be used for other things?

Perhaps I'm being shortsighted so can someone explain how paying into a fund, using some/all of the assets and then having to pay more in after it's used makes any sense?

EssexHebridean

Think about it this way. If I visit your house and pull one brick out of the bottom of one of the walls, you think “that’s annoying, I’ll get that put back” and your emergency fund picks up the tab. If I come back a while later and pull out another three bricks, things get a bit more unstable, and the job is bigger…now you’ve used ALL your emergency fund fixing it. Again, I return a few weeks later and pull out another 24 bricks, and your house falls down. It’s ok though, because you’ve got an emergency fund…oh, you haven’t though have you, because the EF is designed to deal with patching up small issues, and you now have a major unprecedented issue which you realistically couldn’t have foreseen. Just topping up your EF with the same £50 a month you used to build it in the first place is now insufficient because you have lots of added costs to cover.  (The numbers here reflect the number of energy companies to go bust in 2021). 

EssexHebridean

(And yes - if you DO have to completely empty your EF for some reason, then you should indeed be cutting back to refill it as fast as possible to the “basic” level. Once that level is reached, you return to your £50 a month or whatever your maintenance level is. 

QrizB

FeaturelessVoid said:

Prior to last year, I don't think any SoLR actually claimed from Ofgem at all

Before 2021 there were SoLR cost claims from:

• OVO for Cardiff Energy
• EDF for Solarplicity
• OVO for Brilliant Energy
• Shell for Usio Energy
• OVO for Spark Energy
• Together Energy for OneSelect
• Octopus for Iresa

... and there might be others; I stopped looking once I'd found seven!

The Octopus / Iresa claim resulted in a levy on customers via the supply networks.

[Deleted User]

There is no fund as such to cover supplier failures. The consumer levy just covers consumer credit balances and it is a retrospective tax on all energy consumers. The recent spate of supplier failures and the Ofgem Cap has put SoLRs in a situation where they have had to supply energy at below market cost. Ofgem has already made some emergency support payments to assist SoLRs which may be adjusted when a support payment claim is made. Ofgem recovers these costs by placing a charge on the National Grid which, in turn, passes the charge on to all suppliers. Suppliers then seek to recover their share of these costs via the standing charge mechanism.

The SoLR process is anything but perfect but it has kept the lights on. No doubt when the dust settles, a body such as The National Audit Office will be able to show that the cost of maintaining the October 2021 Ofgem Cap will have cost us more than the cost of supplier failures which all consumers are now having to pay for.

Ultrasonic

Companies recently taking on customers via the SOLR process were being forced to sell then energy for less than it cost as a result. This is not 'normal' and strikes me as an easily understandable reason when there are significant costs to be covered as a result beyond what may have happened in the past.

agentcain

EssexHebridean said:

Think about it this way. If I visit your house and pull one brick out of the bottom of one of the walls, you think “that’s annoying, I’ll get that put back” and your emergency fund picks up the tab. If I come back a while later and pull out another three bricks, things get a bit more unstable, and the job is bigger…now you’ve used ALL your emergency fund fixing it. Again, I return a few weeks later and pull out another 24 bricks, and your house falls down. It’s ok though, because you’ve got an emergency fund…oh, you haven’t though have you, because the EF is designed to deal with patching up small issues, and you now have a major unprecedented issue which you realistically couldn’t have foreseen. Just topping up your EF with the same £50 a month you used to build it in the first place is now insufficient because you have lots of added costs to cover.  (The numbers here reflect the number of energy companies to go bust in 2021). 

So, by that explanation, it seems that whoever's managing this fund (i.e. ofgem) has done a pretty awful job at that. It seems that these people are paid to manage a crisis and they failed miserably when we needed them. 

I do not consider this a "major unprecedented issue that cannot be foreseen". What is the unexpected part? 

Wind generators not producing enough because there's no wind?
Gas prices going up when there's extended consumption and a war by a nation that has always been war friendly?
Energy prices going up when the majority is produced by a single source?
Not diversifying on energy sources?
Not having contingency plans on production, by decommissioning coal plants earlier than having decent replacements in place?

That's no hindsight mind you. It's poor management by a bunch of pretentious people with fancy titles that have done next to nothing to solve the problem.

And who's paying the bill for their impotence? The people, those who can't afford further increases after a pandemic, that's who.

QrizB

agentcain said:

So, by that explanation, it seems that whoever's managing this fund (i.e. ofgem) has done a pretty awful job at that.

There is no "fund".

agentcain

QrizB said:

agentcain said:

So, by that explanation, it seems that whoever's managing this fund (i.e. ofgem) has done a pretty awful job at that.

There is no "fund".

Let's make one.
There were some nice juicy dividends over the years. Suddenly, these companies go belly up and their shareholders are nowhere to be seen. Tax them and pay the SOLR

Also nationalise all their assets. Liquified assets should primarily go into covering these problems.

[Deleted User]

agentcain said:

EssexHebridean said:

Think about it this way. If I visit your house and pull one brick out of the bottom of one of the walls, you think “that’s annoying, I’ll get that put back” and your emergency fund picks up the tab. If I come back a while later and pull out another three bricks, things get a bit more unstable, and the job is bigger…now you’ve used ALL your emergency fund fixing it. Again, I return a few weeks later and pull out another 24 bricks, and your house falls down. It’s ok though, because you’ve got an emergency fund…oh, you haven’t though have you, because the EF is designed to deal with patching up small issues, and you now have a major unprecedented issue which you realistically couldn’t have foreseen. Just topping up your EF with the same £50 a month you used to build it in the first place is now insufficient because you have lots of added costs to cover.  (The numbers here reflect the number of energy companies to go bust in 2021). 

So, by that explanation, it seems that whoever's managing this fund (i.e. ofgem) has done a pretty awful job at that. It seems that these people are paid to manage a crisis and they failed miserably when we needed them. 

I do not consider this a "major unprecedented issue that cannot be foreseen". What is the unexpected part? 

Wind generators not producing enough because there's no wind?
Gas prices going up when there's extended consumption and a war by a nation that has always been war friendly?
Energy prices going up when the majority is produced by a single source?
Not diversifying on energy sources?
Not having contingency plans on production, by decommissioning coal plants earlier than having decent replacements in place?

That's no hindsight mind you. It's poor management by a bunch of pretentious people with fancy titles that have done next to nothing to solve the problem.

And who's paying the bill for their impotence? The people, those who can't afford further increases after a pandemic, that's who.

If you are suggesting that the Government has failed to ensure that we have energy security through diversity and storage, then you are correct. Ofgem is a non-Ministerial Government Department so it only ‘manages’ Government policy. Gas prices have risen because demand is outstripping supply as the World comes out of Covid. For its part, Germany has shut down most of its nuclear capacity and has attempted to revert to gas for electricity generation. China is also taking as much LNG as it can get at any price.

Given that the Government’s only answer to the present crisis is more renewables, it clearly hasn’t a clue how it is going to address the next 10 years. Could we see rationing: I believe that we could.

Thrugelmir

Dolor said:

agentcain said:

EssexHebridean said:

Think about it this way. If I visit your house and pull one brick out of the bottom of one of the walls, you think “that’s annoying, I’ll get that put back” and your emergency fund picks up the tab. If I come back a while later and pull out another three bricks, things get a bit more unstable, and the job is bigger…now you’ve used ALL your emergency fund fixing it. Again, I return a few weeks later and pull out another 24 bricks, and your house falls down. It’s ok though, because you’ve got an emergency fund…oh, you haven’t though have you, because the EF is designed to deal with patching up small issues, and you now have a major unprecedented issue which you realistically couldn’t have foreseen. Just topping up your EF with the same £50 a month you used to build it in the first place is now insufficient because you have lots of added costs to cover.  (The numbers here reflect the number of energy companies to go bust in 2021). 

So, by that explanation, it seems that whoever's managing this fund (i.e. ofgem) has done a pretty awful job at that. It seems that these people are paid to manage a crisis and they failed miserably when we needed them. 

I do not consider this a "major unprecedented issue that cannot be foreseen". What is the unexpected part? 

Wind generators not producing enough because there's no wind?
Gas prices going up when there's extended consumption and a war by a nation that has always been war friendly?
Energy prices going up when the majority is produced by a single source?
Not diversifying on energy sources?
Not having contingency plans on production, by decommissioning coal plants earlier than having decent replacements in place?

That's no hindsight mind you. It's poor management by a bunch of pretentious people with fancy titles that have done next to nothing to solve the problem.

And who's paying the bill for their impotence? The people, those who can't afford further increases after a pandemic, that's who.

Gas prices have risen because demand is outstripping supply as the World comes out of Covid.

Russia has been controlling the flow to Europe for some time. Well before the invasion commenced. The now cancelled pipeline was also due to commence supply.