Energy Supplier Failures - more costs coming our way

Qyburn

Deleted_User said:

Because the creditors (at least the ones that OFGEM cover with this charge) are customers who had credit balances with the supplier.  Do you thing we should just say "tough" about that?cause the government cap on what they could charge did not cover their costs.

I have mixed feeling about customer credit balances. Before all these days of subsidies customers of failed suppliers like Iresa and Symbio had benefited from maybe a couple of years of cheaper prices. For example I had around £160 credit when Irisa went bust. If I'd lost that I would still be ahead overall compared to being with Octopus over that time.
Protecting their balances sent the message that there's no risk signing up with a shady outfit.
In Bulb's case, how much of that £6.5B was customer credit balances? They can't have averaged £4K per customer.

bristolleedsfan

Chrysa

I really dont like this recent "oh lets just stick everything thats a result of bad decisions and risks on standing charges and is no problems".

Some of the SoLR costs have been put on gas kWh rate which suggests no apparent reason why at least some SoLR costs cannot be put on electricity kWh rate.

[Deleted User]

Qyburn said:

Deleted_User said:

Because the creditors (at least the ones that OFGEM cover with this charge) are customers who had credit balances with the supplier.  Do you thing we should just say "tough" about that?cause the government cap on what they could charge did not cover their costs.

I have mixed feeling about customer credit balances. Before all these days of subsidies customers of failed suppliers like Iresa and Symbio had benefited from maybe a couple of years of cheaper prices. For example I had around £160 credit when Irisa went bust. If I'd lost that I would still be ahead overall compared to being with Octopus over that time.
Protecting their balances sent the message that there's no risk signing up with a shady outfit.
In Bulb's case, how much of that £6.5B was customer credit balances? They can't have averaged £4K per customer.

Bulb is a different case - and a great example of what could be forced to happen if credit balances were ring-fenced.

The process of special administration meant that Bulb were not allowed to hedge to buy the energy they needed to supply customers. It was considered gambling and not the sort of thing to be doing with government money.  This meant that they had to stock to the price cap, but had to buy all of their energy on the spot market.  In the past few days, this has been relatively cheap (and under the price they are allowed to sell for) but earlier in the process the prices were much much higher and Bulb were forced to make a loss on every unit they sold.

I think energy supply is too much of an essential service to run without consumer protection, but I think a flat cost per connection is a better way to go than either adding to the unit rate or ring-fencing funds.  Others, as you have seen, think differently.

superkoopauk

MattMattMattUK

"If you ring fence balances then bills will rise around 3-4% over where they would otherwise be"

Why is this true?  Wouldn't the price cap stop suppliers increasing their bills by 3-4% extra (or would an element be added to the cap model to account for this?)

MattMattMattUK

superkoopauk said:

MattMattMattUK

"If you ring fence balances then bills will rise around 3-4% over where they would otherwise be"

Why is this true?  Wouldn't the price cap stop suppliers increasing their bills by 3-4% extra (or would an element be added to the cap model to account for this?)

The price cap would have to rise or every energy provider would go bust. The price cap was an bad idea awfully implemented, it is and was never fit for purpose and it probably will not last more than a few more years. However even based on the current calculations if additional costs were added to the operating costs of the energy providers then at the next cap revision that would be taken account of, meaning prices would rise. 

[Deleted User]

superkoopauk said:

MattMattMattUK

"If you ring fence balances then bills will rise around 3-4% over where they would otherwise be"

Why is this true?  Wouldn't the price cap stop suppliers increasing their bills by 3-4% extra (or would an element be added to the cap model to account for this?)

There wouldn't need to be any element added.  A major part of the cost cap is "how much do OFGEM think it will cost suppliers to buy the energy" - which would go up if they weren't allowed to hedge.

inspectorperez

Just wondering how the industry was controlled before privatisation?

I don't ever recall and "get rich quick" officials of the regional electricity or gas boards running their respective organisations into the ground. How did they deal with hedging for example?

Not by any means suggesting that nationalisation is the answer, but surely there must be some lessons that can be learned from the way the industry was run previously?

MattMattMattUK

inspectorperez said:

Just wondering how the industry was controlled before privatisation?

Fairly badly. Hugely bloated numbers of employees, very inefficient, especially compared to Germany, Dutch or Scandinavian operations.

inspectorperez said:

I don't ever recall and "get rich quick" officials of the regional electricity or gas boards running their respective organisations into the ground. How did they deal with hedging for example?

It depends how you define run into the ground, they did not have to make a profit, any loss was covered by the government and the consumer paid either via the energy bill or via taxation. There were plenty of very highly paid union bosses who did almost nothing. We did not buy most of our energy on the open market back then though, the state owned almost all of the generation and production capacity and we were at that point a net exporter, it was peak production in the North Sea oil and gas fields, energy was incredibly cheap and Russia was not conducting an economic war on the West, even at the height of the Cold War, Russia never restricted the flow of gas.

inspectorperez said:

Not by any means suggesting that nationalisation is the answer, but surely there must be some lessons that can be learned from the way the industry was run previously?

Very little due to it being an incredibly different time economically and in terms of resources. The best thing now would be for large amounts of state owned energy production based in the UK, but not via nationalisation. The government could and should fund large scale nuclear building and large scale on and off shore wind building and it should be owned by a state co with the profits used for ongoing investment, especially as gas will ultimately be phased out. Buying up existing generation and gas production capacity would be idiotic and hugely costly. 

However people want low bills and lower taxes, so the ability to raise revenue for investment is highly constrained, realistically too constrained for there to be any reasonable amount of progress. 

mmmmikey

MattMattMattUK said:

It is not disproportionate though, every household with a connection pays for the protection every household gains under SoLR.

If your energy bill is £1000 per year and £100 is added to cover the cost, that is a 10% increase.

If your energy bill is £2500 per year and £100 is added to cover the cost, that is a 4% increase.

In a similar vein, if you pay £100 per month direct debit and your supplier goes bust at a point in the billing cycle where you're 2 months ahead, you would stand to lose £200.

If you pay £250 per month direct debit and your supplier goes bust at a point in the billing cycle where you're 2 months ahead, you would stand to lose £500.

If you take the (say) £100 flat fee as the cost of providing you protection against that loss, thats 50% of the potential loss if you're a low user or just 20% of the loss if you're a high user.

So proportionally it seems to me to be very clearly the case that you pay a higher proportion if you are a low user.

Whether you think that is fair or not is another question, but I don't think you can really argue that it isn't disproportianate.

If you think of this as an insurance, surely you would expect to pay a lower premium if the sum insured is less? IMO a flat fee paid by all for SOLR protection through standing charges is unfair and in many (but not all) cases disadvantages thos who are least able to afford it - i.e. those who have low bills because they are going cold in order to live within their means. Surely that can't be right?

Qyburn

MattMattMattUK said:

The price cap would have to rise or every energy provider would go bust. The price cap was an bad idea awfully implemented, it is and was never fit for purpose and it probably will not last more than a few more years.

If I remember correctly the price cap was originally intended to stop suppliers ripping people off on their standard tariff. At that time the cap was above the prices offered to people who shopped around, and presumably was expected to still be profitable.