Ofgem Price Cap

StarD

Hi its probably been addressed before but my question is I'm assuming Ofgem are there to act as a buffer to help prevent excessive overcharging by energy companies.  With the huge profits recently announced, why don't Ofgem take more control, rather than keep increasing the price cap, lower it to balance against the profits made ? I appreciate this is a very simplistic approach and I'm unaware of the complexities in the energy market ...

Mstty

I presume your post is made on the back of profits mentioned in the news?

Those profits are not domestic energy supplier profits so that's why they don't come under Ofgem.

michaels

Profit by energy suppliers is capped at less than 2% of revenue.

Energy producers can make as much profit as they want, however some of this is being clawed back by a windfall tax.

Shell and BP are producers and so their profits are nothing to do with the capped utility price.

BG Centrica both produce and supply so there production profits will be hit by the windfall tax, their supply profits are negligible.

Many suppliers do not produce any power so make absolutely tiny profits, if the price were capped at below the cost of the supply then they would go out of business which would end up costing the consumer more.

Think about Tesco, they charge a markup on each bag of flour they sell, if the price to them of flour goes up they will increase the price to the consumer but the markup and thus their profit remains the same.  Cap the price Tesco sell for below what it costs them to buy the flour in the first place and they won't sell flour anymore.

pochase

The energy suppliers like Octopus, BG or EDF don't make huge profits. Some of the companies belong to a group where other parts of the group make big profits, but not the domestic suppliers.

As part of the cap they are assigned a very small percentage for profit, and we had last year the situation that due to the cap they were selling at a loss, which is why more than 30 companies went bust.

As there is not much profit in the cap what do you expect Ofgem to do? Tell the energy suppliers to sell at a loss and go also bust? If they are unlucky they might still be losing money as the are not allowed to increase the price higher than the cap, even if that means losing money.

spot1034

The companies supplying your energy are  not the same as those producing it, although in some cases they might be part of a larger group which does. But not always. There is very little profit in supply, and in recent times suppliers have been forced by the regulator to sell at a loss. Producers sometimes make profits, and sometimes they make losses. A couple of years ago, many energy producers were making massive losses, having no option but to sell their product at way below cost. Well, no option other than shutting up shop and not bothering to continue in business. 

Profits are what keep a business going, giving it the funds to reinvest in its operations. There seems to be some misunderstanding about what companies do with profits. There will be some reward for the owners of the business, which is fair enough, but the bulk of the money is retained and used to fund future projects. They don't just withdraw all the cash and go off to have wild parties in exotic locations.

StarD

Thanks for everyone's comments, appreciate it

julesone44

OFGEM will be rising the price cap from January 2023 to £4279.  Although we are told that households won’t be affected by the increase due to government help, the price increase will be borne by businesses and the government as they plug the gap.  When the government imposed controls finish in a year or so, everyone will be in for a nasty energy shock with bills doubling again. 

Wholesale gas prices have come down a lot as European countries have filled up their storage and demand has dropped.  

I don’t get OFGEM.  They are not working for the consumer.  I’m fed up with them. Anyone else fed up?

[Deleted User]

I don’t get OFGEM.  They are not working for the consumer.  I’m fed up with them. Anyone else fed up?

What is it that Ofgem is not doing that would help consumers? Ofgem has no control over the wholesale cost of energy which is based solely on global demand and supply. 

Arguably, the reason why we had so many supplier failures this time last year was because a Cap set by looking in the rear view mirror resulted in many suppliers having to sell on energy on to consumers at a loss.

There is a lot wrong with Ofgem but if you think that replacing it with another Regulator will result in lower energy prices then I am afraid you are mistaken. When supply is low in any market - whether it be energy; grain or microchips - then the country that is prepared to pay the most is likely to get the supply that it needs.

Future prices:

https://www.statista.com/statistics/374970/united-kingdom-uk-gas-price-forecast/

[Deleted User]

julesone44 said:

OFGEM will be rising the price cap from January 2023 to £4279.  Although we are told that households won’t be affected by the increase due to government help, the price increase will be borne by businesses and the government as they plug the gap.  When the government imposed controls finish in a year or so, everyone will be in for a nasty energy shock with bills doubling again. 

Wholesale gas prices have come down a lot as European countries have filled up their storage and demand has dropped.  

I don’t get OFGEM.  They are not working for the consumer.  I’m fed up with them. Anyone else fed up?

Would you like to propose your alternative for what they are doing?

Or is this just “stuff is bad, it must be someone’s fault”?

youravinalarrrf

Cornwall Insight's latest revised cost predictions for 2023 as at 24/11/2022

https://www.cornwall-insight.com/press/cornwall-insight-responds-to-the-announcement-of-the-january-price-cap/

Calculations are based on a "typical household" - one that uses 12,000 kWh (kilowatt hours) of gas a year and 2,900 kWh of electricity.

molerat

Deleted_User said:

Or is this just “stuff is bad, it must be someone’s fault”?

Well, there is some truth in that point of view