Regulator's Energy Price cap algorithm fit for purpose ?!

TOarew

I've heard Martin Lewis and almost every UK news channel warn about the latest forecast of the regulators next price caps. It seems to me that the algorithm used to calculate based on the wholesale price is not fit for purpose. Why? Well how is it that massive profits are being made by Energy companies as reported in the media. If I owned an Oil & Gas company I would look at how to best work the regulator's algorithm and come up smelling of roses for the share holders and share price! That's what is happening isn't it. Surely the algorithm must now avoid the wholesale price of energy to determine the price level of the cap. The wholesale price can be and is being manipulated. Additionally, with all this green renewable energy on the horizon what would you do if your business was Oil & Gas ? Any other views on this defunct method of setting a price cap?

Mstty

Your energy supplier is lucky to make 2% probably less due to the amount of complaints each of them have to pay towards.

The produces of energy is where your anger should be directed .

jimjames

TOarew said:

I've heard Martin Lewis and almost every UK news channel warn about the latest forecast of the regulators next price caps. It seems to me that the algorithm used to calculate based on the wholesale price is not fit for purpose. Why? Well how is it that massive profits are being made by Energy companies as reported in the media. 

Maybe because the profits reported in the media are not from selling energy to customers? Perhaps worth digging deeper rather than reading a headline at face value.

MWT

wittynamegoeshere said:

However, some of the biggest companies have a boot in each camp.  So they definitely do have the ability to adjust the price that their supplier division pays its generator division.

Transfer pricing is something that gets a lot of audit scrutiny so it isn't as simple as just setting whatever price they want as it has the effect of moving profit around as well...

TOarew

Thanks all. Some interesting comments. I'm interested how Mstty achieves just over 6000 kWh per annum and using only electricity on a 4 bed house. We have done some openplan rework on the ground floor of the house and that makes it harder to be efficient with the bigger spaces.

I like the idea of an inquiry.  It seems crazy to be passing back money for energy bills all over the  place. Too complicated, too much admin overhead and who understands it anyway. Don't disagree with helping out those who need it make it simple and universal. How many energy companies went bust ? I'm not the only one who is lousy at figures.

wittynamegoeshere

MWT said:

wittynamegoeshere said:

However, some of the biggest companies have a boot in each camp.  So they definitely do have the ability to adjust the price that their supplier division pays its generator division.

Transfer pricing is something that gets a lot of audit scrutiny so it isn't as simple as just setting whatever price they want as it has the effect of moving profit around as well...

It's very suspicious that they all seem to manage to shift the profits away from their consumer-facing divisions, and make a prominent point about this if their £massive overall profits are questioned.

All of course having the effect of making that variable that feeds into Ofgem's sums get ever-higher.

If it looks, smells and feels like corruption then there's a chance that it is.  Definitely don't just dismiss the possibility because it's nice to think the world is good and that huge companies are all honest.

MWT

wittynamegoeshere said:

It's very suspicious that they all seem to manage to shift the profits away from their consumer-facing divisions, and make a prominent point about this if their £massive overall profits are questioned.

They are not shifting profit away from the consumer supply market, it just isn't profitable, due to the Ofgem price cap.

You don't have to go looking for conspiracy theories, there just isn't much of a profit to shift...

ihatetrump

jimjames said:

TOarew said:

I've heard Martin Lewis and almost every UK news channel warn about the latest forecast of the regulators next price caps. It seems to me that the algorithm used to calculate based on the wholesale price is not fit for purpose. Why? Well how is it that massive profits are being made by Energy companies as reported in the media. 

Maybe because the profits reported in the media are not from selling energy to customers? Perhaps worth digging deeper rather than reading a headline at face value.

Couldn't agree more - the tabloids are as guilty as anyone when it comes to manipulating headlines to sell news - maybe more so that the alleged or suspected manipulation by suppliers.

There'll no doubt be an almighty furore today after BP announced their 'bumper profits' for the last quarter. Shareholders in BP (not forgetting that they will include most if not all major pension funds) have not had a great ride over the last five years - take a look at their share price over the last 5 years (down 12%):




Today's headlines may well sell news, but as @jimjames so rightly says, "Perhaps worth digging deeper rather than reading a headline at face value"

wittynamegoeshere

I get the feeling that the PR departments of several energy suppliers may be hiding behind a few of the IDs on this forum.

Whatever the subject, the energy industry is always honest and decent without question.

All this while bills have trebled.

I'm not saying that I know the answer, just that the question of how and why our bills are so high doesn't seem to be getting asked, and many seem keen to silence any such debate.

Obviously there are major external influences.  But we should be semi-detached from the EU's issues.  Not unaffected, but not joined at the hip either.  We do import, but we also have our own resources, and many non-fossil fuel sources of power.  Our prices should be higher than they were, but there's no reason why they should directly mirror what's going on in Germany and elsewhere.  Our prices should be somewhat affected, a lot like in the USA.  Instead I get the impression that this has been seized upon by an industry that was waiting for an excuse to shut down competition and raise prices.

Mstty

We buy from the same shop as the rest of Europe for the energy we cannot produce ourselves.

Simple economics the price and future prices are what they are.

Sadly we are not a self sufficient Island but that would be the ultimate goal

Alnat1

The big oil and gas producing companies are selling fuel to thousands of consumer supply companies all over the world. They set their prices according to world demand.

The consumer supply companies here in the UK have to buy at these worldwide rates. Our government have no control over these prices and can't demand that BP, Shell etc. sell cheaper to the UK than the rest of the world. It makes no difference which country was initially drilled under to obtain the fuel.