Energy Supplier Failures - more costs coming our way

Qyburn

[Deleted User] said:

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. 

It actually sounds from what you say that the cost was mainly due to trading at a loss for an extended period, rather than customer credit balances/

MattMattMattUK

mmmmikey said:

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.

The percentage makes little sense, high users to not always hold higher credits, many people pay variable Direct Debit and so do not carry a balance, claiming that it as a percentage of the annual bill makes no sense, it is just part of the cost of being connected to the network.

mmmmikey said:

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.

And if it happens at the point you are two months behind then you would loose nothing.

mmmmikey said:

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.

It is not insurance though, it is a cost after the fact on everyone, viewing it as insurance is the wrong way to look at it.

mmmmikey said:

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.

Proportionality though is not the point as it is proportional to a connection, you pay it for having a connection, not for what balance you carry with a supplier, someone with a debt to the supplier pays the same as someone with a £10k balance because it is part of the network operating costs, not an insurance product.

mmmmikey said:

If you think of this as an insurance, surely you would expect to pay a lower premium if the sum insured is less?

I do not think of it as an insurance product though, because it is not an insurance product. If it was an insurance product is is not one I would take out.

mmmmikey said:
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?

In general low users of electricity are those with solar and gas, followed by those with solar and other fuels for heat, with the highest users being all-electric properties which range from new builds with heat pumps, to older properties with storage heaters, the latter which are often occupied by those on low incomes. Low bills does not equate to low income, I know it is a much loved fallacy by some on here, but low bills generally equates to solar. 

MattMattMattUK

Qyburn said:

Deleted_User said:

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. 

It actually sounds from what you say that the cost was mainly due to trading at a loss for an extended period, rather than customer credit balances/

Bulb traded at a loss for a long time due to the price cap forcing them to sell energy for less than they had to pay for it, that position was made worse because the government did not allow them to hedge, so they had to pay the spot price, which at that period of time was significantly higher than could be had by hedging. The government's actions caused the total cost of Bulb's administration to rise from around the £1.28 billion cost of customer balances to the £6.6 billion total cost.

In normal times energy providers use customers credit balance to hedge, they use the balances to buy future energy at a cheaper price than it would be on spot markets. If customer funds were ring-fenced then those funds have to sit in an account unused, that means that energy providers either cannot hedge due to lack of funds, or they have to borrow on the capital markets at 3-5% to be able to hedge. That increase in costs would be passed onto consumers in higher bills for everyone. 

superkoopauk

More shoddy BBC reporting (still suggesting the tax payer is picking up the tab)

https://www.bbc.co.uk/news/business-63805028

[Deleted User]

According to the CEO of BG, there may be more supplier failures to come:

https://www.energylivenews.com/2022/12/01/british-gas-boss-more-suppliers-will-go-bust-this-winter/