Energy Supplier Failures - more costs coming our way

[Deleted User]

In response to a BEIS Select Committee Report, the Government has responded as follows to the £6.5Bn costs (as at 17 Nov 22) of supporting the ‘failed’ supplier Bulb Energy. The costs are significant as the BEIS Department/Treasury refused to allow the Special Administrator to ‘hedge’ its future energy purchases. Industry experts suggest upwards of £230 per household will be added to our energy bills:

‘ We recommend that, given the size of Bulb, the costs of the Special Administration Regime are paid through general taxation, as opposed to recouping the costs from already stretched energy bills. The Government should undertake a review of the Special Administration Regime to consider how to reduce the cost exposure to the taxpayer in future, and report to this Committee within the next six months on the lessons learned and any required reforms. We suggest, as a minimum, that the Treasury guidance is amended to make it clear that energy suppliers in the Special Administration Regime are presumed to be permitted to hedge. (Paragraph 96)

Government Response: The Special Administration Regime for energy supply, like similar regimes in other sectors, is set out in statute. Those regimes have worked well in ensuring that vital services are maintained and, like any insolvency process, administration costs are kept to a minimum. On that basis the Government does not intend to review the Special Administrative Regime, but we are of course taking on board the lessons learned from the administration of Bulb to inform policy and practice going forward.

Our top priority is always to ensure customers do not experience any interruption to their supply and that their credit balances are protected. The Special Administration legislation enables the Government to recover any shortfall to the exchequer via the shortfall mechanism placed on suppliers. It is the Government’s intention that any shortfall will be recovered in this way, but the timing of when that recovery begins, and the period over which the shortfall is recovered, are decisions that will be taken in due course, and in light of all relevant factors at that time.’

Source: UK Parliament website

This issue got some air time on Sky Business News earlier today. It is a Government-failing of epic proportions with no one being held accountable.

[Deleted User]

How long would it take at the current standing charge uplift to cover this cost?

It would seem like the "least noticeable" way of addressing it would just be to not put the SC back down in April after the SoLR is covered.

MattMattMattUK

[Deleted User] said:

How long would it take at the current standing charge uplift to cover this cost?

It would seem like the "least noticeable" way of addressing it would just be to not put the SC back down in April after the SoLR is covered.

Approximately 11p of the electricity standing charge is currently SoLR costs, on the basis and not accounting for inflation it would take a little under six years to fully recover the cost of Bulb's administration, if inflation and interest are factored in seven to eight years. 

[Deleted User]

MattMattMattUK said:

[Deleted User] said:

How long would it take at the current standing charge uplift to cover this cost?

It would seem like the "least noticeable" way of addressing it would just be to not put the SC back down in April after the SoLR is covered.

Approximately 11p of the electricity standing charge is currently SoLR costs, on the basis and not accounting for inflation it would take a little under six years to fully recover the cost of Bulb's administration, if inflation and interest are factored in seven to eight years. 

Sounds too slow then - perhaps an increase is to be expected.

MattMattMattUK

The issue might be that even at 30p, so another 20p on the standing charge which is already going to go up 2-4p due to inflation it would still take two years just to recover the non-inflation adjusted, interest excluded cost. 

[Deleted User]

Given that people already (very regularly as we see here) misunderstand the standing charge and think it is far too high, does that suggest rolling it into the unit price would be more realistic?

There are a lot more units to play with than days, so the perceived increase might be smaller - but then it’s being funded more by all-electric households (perhaps not desirable) as well as high users (perhaps desirable).

MattMattMattUK

Deleted_User said:

Given that people already (very regularly as we see here) misunderstand the standing charge and think it is far too high, does that suggest rolling it into the unit price would be more realistic?

There are a lot more units to play with than days, so the perceived increase might be smaller - but then it’s being funded more by all-electric households (perhaps not desirable) as well as high users (perhaps desirable).

I would say undesirable to put it on the unit rate based on the disproportionate impact you suggest. The standing charge is the most sensible way, but it would likely trigger a lot of whinging. 

Chrysalis

[Deleted User] said:

How long would it take at the current standing charge uplift to cover this cost?

It would seem like the "least noticeable" way of addressing it would just be to not put the SC back down in April after the SoLR is covered.

Least noticeable way is to follow the advice that was given and stick it on general taxation.

This news is absolutely horrific, as the SC so badly needs to come down.

I agree though if the government is adamant they wont put it on general taxation then better to extend the current SC instead of increasing it further.

Chrysalis

MattMattMattUK said:

Deleted_User said:

Given that people already (very regularly as we see here) misunderstand the standing charge and think it is far too high, does that suggest rolling it into the unit price would be more realistic?

There are a lot more units to play with than days, so the perceived increase might be smaller - but then it’s being funded more by all-electric households (perhaps not desirable) as well as high users (perhaps desirable).

I would say undesirable to put it on the unit rate based on the disproportionate impact you suggest. The standing charge is the most sensible way, but it would likely trigger a lot of whinging. 

SC is disproportionate though. 

We need to discourage high usage as well.

MattMattMattUK

Chrysalis said:

MattMattMattUK said:

Deleted_User said:

Given that people already (very regularly as we see here) misunderstand the standing charge and think it is far too high, does that suggest rolling it into the unit price would be more realistic?

There are a lot more units to play with than days, so the perceived increase might be smaller - but then it’s being funded more by all-electric households (perhaps not desirable) as well as high users (perhaps desirable).

I would say undesirable to put it on the unit rate based on the disproportionate impact you suggest. The standing charge is the most sensible way, but it would likely trigger a lot of whinging. 

SC is disproportionate though. 

The SC is not disproportionate though, it is flat, everyone who has a connection to the grid pays it. 

Chrysalis said:

We need to discourage high usage as well.

High energy costs already do to an extent, but when proposals to further increase energy costs, particularly the green component which was to invest in carbon neutral generation, or the past suggestion of an investment component which could be used to fund investment in energy production both were complained about and the investment component was blocked entirely. 

QrizB

Chrysalis said:

We need to discourage high usage as well.

The goal is to recover £230 per household; over two years, that would be about 4p per kWh if added solely to electricity (2900 x 4p x 2 = £232 ).

If 34p/kWh for electricity isn't discouragement enough, I'm not sure increasing it to 38p/kWh will make much of a change.