MSE News: Energy price cap to rise in January – your energy rates could change slightly

[Deleted User]

No, I know you're not trying to be argumentative, it's certainly worth working this out - it could be important.

A tariff right now (take EdF Yorks - 40.88p/kWh day and 15.82p/kWh night) meets the "price cap".  From these numbers, the equivalent of the £2500 could be calculated if we were really interested - then we could actually see how much that might have to change to match the slight variance in the single rate cap levels.

Whether this price has been arrived at by taking a higher rate and applying a fixed discount, by taking the single rate cap and pushing one part up and one part down, or by using a bingo machine, the tariff exists and meets requirements.

My single rate tariff is described as a higher rate with a fixed p per kWh discount, but that's just for presentation on the bill, everyone knows that the single rate is capped, and what it is capped at.

If the price cap isn't really changing, and they already have a working tariff, why would the suppliers need to put their tariff up and then take an increasingly large fixed discount off it to arrive at a new set of rates.  Why can't they just continue to charge their customers at the rates that they are already using? 

Why do they need to have new rates in January just because an arbitrary piece of background mathematics is changing?  Very very few people have a cap-linked tracker tariff that is forced to follow the cap.  Every other tariff that has followed the cap has done so through supplier choice - they don't need to make the choice this time around because the EPG is overriding things.

mmmmikey

Deleted_User said:

If the price cap isn't really changing, and they already have a working tariff, why would the suppliers need to put their tariff up and then take an increasingly large fixed discount off it to arrive at a new set of rates.  Why can't they just continue to charge their customers at the rates that they are already using? 

I think the nuance here that complicates this is that there isn't actually an EPG price cap for E7 in the same way there is for single rate. i.e. for single rate there is an Ofgem cap and the govt's EPG cap of £2500, but for E7 although there's an Ofgem cap there isn't an EPG cap. The E7 EPG rates aren't calculated by the supplier to meet a cap - they're just worked out by taking a fixed amount off the Ofgem cap.

If you take off the existing gov't discount of 17p and add back in the new discount of 31.8p you can arrive at the pre-EPG rates the suppliers would have to use to keep rates the same - and in some cases such as the one above this is actually shown on the bills as a rate and discount. But if you then work forwards from this at 2436kWh per annum (day) and 1764kWh per annum (night) (i.e. to get the total of 4200kWh per annum the Ofgem price cap is published for) you end up with an amount that is less than the suppliers are allowed to charge as per the Ofgem rates.

So the suppliers can either choose a combination of day/night rates to keep the prices the same for the customer, or they can choose a combination that charges the most they are allowed to. So one possible outcome is that E7 rates will on average go up.

I guess the bottom line is we simply don't know how the suppliers will set their E7 rates. This has always been the case, but this time round is complicated by the fact that the suppliers know of the EPG in advance of setting their E7 rates (unlike in October) so may choose to factor the impact of the EPG into their thinking.

[Deleted User]

You are still assuming that suppliers are all going to set new rates on January 1.  Nothing says they are going to do that.  I'll ask again, why are suppliers going to all suddenly change rates again?

Would you like to be the supplier who, despite everyone being told that "the price cap is not changing", decides to increase their E7 tariffs based on an unusual calculation method in the background?

They would be vilified even more in public opinion and shredded by a government trying to be popular.

Of course, as you say, we are both speculating and anything could actually happen - there isn't the same details of the scheme as there was for the previous caps.

mmmmikey

Deleted_User said:

You are still assuming that suppliers are all going to set new rates on January 1.  Nothing says they are going to do that.  I'll ask again, why are suppliers going to all suddenly change rates again?

I thought the whole point of this thread (before we sarted discussing the impact for E7) is that we now know that suppliers are going to set rates based on the latest Ofgem price cap, but not to worry because it will make very little difference for most customers because although the supplier rates will go up the government subsidy will go up by the same amount. The only difference for most customers will arise due to regional differences. Or have I misunderstood?

The observations that arise from this are:

1. If the suppliers change E7 rates in line with the Ofgem prices for January and then apply a flat rate discount, this will have a different effect depending on your mix of day and night usage. It will average out the same but some people will pay more and others less.

2. A point that has been made in another thread is that the Ofgem price cap for multi rate tarriffs (i.e. at the 4200kWh per annum level, they don't set actual unit rates) has gone up proportionally more than the Ofgem price cap for single rate tarriffs. So if the suppliers set their underlying pre-EPG discount rates to charge the most they can, it would take a bigger p/kWh discount to maintain E7 rates than it would for single rates. Or if the same flat rate discount applies E7 rates will go up.

So this seems to hinge on whether the suppliers will change the underlying pre-discount rates in line with the Ofgem price cap, or whether they will change the underlying rates so that the price to the customer stays the same after the discount is applied (i.e suppliers will set underlying prices at a level lower than the Ofgem price capallows)? I guess it depends on what the deal is between the suppliers and the government.

On reflection, it does seem unlikely that this won't have been catered for somehow, so although there's no certainty I'm now guessing that the E7 prices will remain the same with the deal between the government and suppliers having been structured so that the suppliers are in the same position they would have been if they were charging Ofgem rates.

[Deleted User]

mmmmikey said:

Deleted_User said:

You are still assuming that suppliers are all going to set new rates on January 1.  Nothing says they are going to do that.  I'll ask again, why are suppliers going to all suddenly change rates again?

I thought the whole point of this thread (before we sarted discussing the impact for E7) is that we now know that suppliers are going to set rates based on the latest Ofgem price cap, but not to worry because it will make very little difference for most customers because although the supplier rates will go up the government subsidy will go up by the same amount. The only difference for most customers will arise due to regional differences. Or have I misunderstood?

This could be the crux of the matter - my reading of everything so far says that the OFGEM cap calculation has been done and this has changed the balance between regions and payment methods slightly.  There have been a new list of single rate EPG caps produced which standard variable tariffs must abide by.  For single rates (which I expect constitute "most customers"), therefore, it is a trivial concern.  And notice - they've done this by producing official government EPG numbers, not by publishing the OFGEM numbers and a discount rate.

So for all the single rate customers, it's not supplier rate goes up then discount goes up - although I expect that's how many companies will show it on their bills because it's simpler.

There's hasn't actually been anything published for E7 tariffs under the EPG in any great detail, and nothing about how it will change in January - so we are all just speculating.  Beyond that, I pretty much agree with your following observations.  I just can't see suppliers (who already seem to have massive problems explaining things to customers) making significant changes to E7 rates, although I've been wrong before and could well be wrong again.

superkoopauk

My simple maths on the E7 piece (using averages)

Single rate Jan 23 cap went up by £450 @2900 kWh annual consumption
E7 Jan 23 cap went up by £759 @4200 kWh annual consumption

EPG Discount rate will go up by 14.8ppkWh for all electricity customers = £450 for single rate, £653 for E7 over a year

Therefore

Single rate customers average £ cost is unchanged
E7 customers see a £759-653 = £106 increase in the annual bill

This assumes the day / night weighting suppliers used is unchanged

And don't suppliers always price to the cap (and then apply the relevant EPG discount).  They are going to have to make the increase for certain single rate customers anyway and they have to recover their costs (which the Ofgem price cap supposedly tracks)

mmmmikey

@superkoopauk that's essentially the point I was trying to make but you've made it rather more succintly.

You've also made the point that suppliers always price to the Ofgem cap and then apply the relevant EPG discount. But they've only applied an EPG discount once, and in that case they had priced to the Ofgem cap before they new there was going to be an EPG discount. When they set their pre EPG discount prices this time they already know about the EPG discount so may factor that into their thinking. And as @[Deleted User] points out they're in for a whole heap of grief if they change the E7 rates - which is not to say they won't of cpurse but is a powerful incentive not to.

[Deleted User]

superkoopauk said:

And don't suppliers always price to the cap (and then apply the relevant EPG discount).  

Nope.  For a long long time, suppliers have mostly priced below the cap.

The situation we are looking at has, as mmmmikey points out, only occurred once.

Although I can't fault your maths as a possibility - but I would suggest that a 2.5p/kWh rise would be difficult to defend when the corresponding largest change in single rate tariffs appears to be about 0.5p/kWh.

superkoopauk

Thanks both.  Looks like we will just have to wait for suppliers to release their January rates

superkoopauk

Read this in the article.  Doesn't sound good for E7 customers

Ovo, for example, has told us it will not pass on the January increases for those paying by monthly direct debit (provided you're not on Economy 7 or similar) and prepayment