Why are Energy Prices not falling?

Chrysalis

MattMattMattUK said:

Chrysalis said:

Note, some of the current cap is to allow suppliers to have faster recoveries, its not purely based on buy ahead wholesale costs? is an article here where a board member resigned in protest.  Ofgem is molly coddling the suppliers currently (frit of more closing down), press and consumers have slowly started to get wind of it.

I hardly see it as molly cuddling, Ofgem forced them to sell below cost for more than a year and even now limits them to a maximum of 2% profit.

Chrysalis said:

The board member who quit quoted it as multiple 100s of pounds of the typical annual cost.  So seemingly a fair chunk of the October increase.

https://www.theguardian.com/business/2022/aug/17/ofgem-director-christine-farnish-quits-over-energy-price-cap

Ofgem told her that all but two UK energy suppliers would collapse this winter if the £400 charge was not brought in, according to a government source.

A sector that was forced to sell below cost for more than a year, that has a maximum cap of 2% profit and was potentially going to be forced to sell below cost for another two years is hardly unfairly supported because prices are allowed to rise to a level where it can make 2% profit and not a loss.

Chrysalis said:

Also remember the consequences of Ofgem's refusal to isolate credit balances.

Some people had suppliers that went bust, some costs went onto standing charges, investors lost their money, energy costs were kept down overall. With hindsight ringfencing consumer balances would have stopped new entries to the market and meant that the SoLR cost would not go on the standing charge, however it would also have pushed costs up overall as all businesses would have to borrow to cover hedging so there would be a cost of finance which overall would have exceeded the cost of the SoLR process.

I know financing can be expensive at times, but  Icant think how it would be more expensive than recovering lost credit monies.  Also if ringfencing credit balances prevents a new entrant that doesnt have the means to fund day to day without it, thats probably a good thing.

One of the bust suppliers was found to be siphoning off millions to a jointly owned consultation company, plus multiple suppliers have wealthy parent companies, so the company group as a whole would not be making a loss.  This nonsense of talking about suppliers as if they are some kind of poor independent outfit is part of the problem, its misleading people, british gas owned by centrica, uk edf owned by its parent company, octopus has its own wealthy parent company as well, same with shell.

So you think Ofgem been protective of the companies is not molly coddling, they even stated to the lady who resigned their reasoning, they was fearful of more firms going bust.  That to me fits the definition of molly coddling, Even the Centrica boss said he felt Ofgem are getting it wrong on it.  It might well be justified though.

MattMattMattUK

Chrysalis said:

MattMattMattUK said:

Chrysalis said:

Note, some of the current cap is to allow suppliers to have faster recoveries, its not purely based on buy ahead wholesale costs? is an article here where a board member resigned in protest.  Ofgem is molly coddling the suppliers currently (frit of more closing down), press and consumers have slowly started to get wind of it.

I hardly see it as molly cuddling, Ofgem forced them to sell below cost for more than a year and even now limits them to a maximum of 2% profit.

Chrysalis said:

The board member who quit quoted it as multiple 100s of pounds of the typical annual cost.  So seemingly a fair chunk of the October increase.

https://www.theguardian.com/business/2022/aug/17/ofgem-director-christine-farnish-quits-over-energy-price-cap

Ofgem told her that all but two UK energy suppliers would collapse this winter if the £400 charge was not brought in, according to a government source.

A sector that was forced to sell below cost for more than a year, that has a maximum cap of 2% profit and was potentially going to be forced to sell below cost for another two years is hardly unfairly supported because prices are allowed to rise to a level where it can make 2% profit and not a loss.

Chrysalis said:

Also remember the consequences of Ofgem's refusal to isolate credit balances.

Some people had suppliers that went bust, some costs went onto standing charges, investors lost their money, energy costs were kept down overall. With hindsight ringfencing consumer balances would have stopped new entries to the market and meant that the SoLR cost would not go on the standing charge, however it would also have pushed costs up overall as all businesses would have to borrow to cover hedging so there would be a cost of finance which overall would have exceeded the cost of the SoLR process.

I know financing can be expensive at times, but no it absolutely would not have been more expensive than recovering lost credit balances.  Also if ringfencing credit balances prevents a new entrant that doesnt have the means to fund day to day without it, thats probably a good thing.

Stopping the new entries to the market may or may not have been a good thing, however it is nothing to do with funding "day to day costs" and evrrything to do with needing to hedge energy. The cost of finance would exceed the SoLR costs on the standing charge. The SoLR component of the standing charge equates to around 2.2% of the bill for the two years it has applied, if there were a cost of finance for hedging the estimate was that would add 3-4%% to the cost of bills. 

Chrysalis said:

One of the bust suppliers was found to be siphoning off millions to a jointly owned consultation company, plus multiple suppliers have wealthy parent companies, so the company group as a whole would not be making a loss.  This nonsense of talking about suppliers as if they are some kind of poor independent outfit is part of the problem, its misleading people, british gas owned by centrica, uk edf owned by its parent company, octopus has its own wealthy parent company as well, same with shell.

One of the badly run ones, not the majority of them who were forced to sell below cost. Having a wealthy parent company means nothing, if the British Gas retail arm consistently looses money it will shut down, no company will continue to operate indefinitely if forced to operate at a loss. It is not misleading to point out that no company will keep operating at a loss forever now matter how many times you claim it is.

Chrysalis said:

So you think Ofgem been protective of the companies is not molly coddling, they even stated to the lady who resigned their reasoning, they was fearful of more firms going bust.  Yes they are well and truly absolutely molly coddling them right now, Even the Centrica boss said so.  

I do not think Ofgem have been protective 

of the energy providers. The lady who resigned did so because she thought that consumers should not have to face increased prices, she very conveniently dodged the issue that to not raise the cap would have meant suppliers being forced to make a loss.

Now you are deliberately conflating different sectors of the market, Centrica are not British Gas the energy supplier, neither did he say that they were molly coddled but that they were benefitting from global energy price rises (they being Centrica, not BG). 

Chrysalis said:

Yes they are well and truly absolutely molly coddling them right now, Even the Centrica boss said so.  

He did not day that he thought Ofgem were molly cuddling suppliers, making things up does not help your position. What he said was that he thought in certain conditions a proportion of comsumer balances could be ring fenced, a position which would stop new entries to the market and also benefit British Gas which as the largest player in the market would be able to borrow the cheapest, so ringfencing would disadvantage their competitors. Very different from the statement and position you are attempting to portray.

Mstty

MattMattMattUK said:

Mstty said:

I suspect the issue some will have is with customer service and IT systems taking up 20% of the cost of energy. With what appears to be worsening customer service 

There was something in a news article that showd that calls and emails to customer service departments of energy companies had increased to twelve times the volume of previous years. Even worse almost all the increase of those calls were not actual customer services enquiries but people complaining that energy costs had gone up and demanding their bills be cut.

Mstty said:

the suppliers skimming this area to make up for the losses in previous year(s).

Just something that crossed my mind this morning.

They are not "skimming", they are regulated, they are financially audited and their profit is capped. If they cut costs in customer service any saving would count towards their 2% profit cap.

They are poorly regulated so will get away with what they can. Ofgem neither has the power or appetite to put the big 6 to task 

Someone somewhere says calls are up 12 times? Not really good enough evidence there and potentially smoke and mirrors used as an excuse by energy companies so that their running costs 20% margin is not targeted.

What has happened in the last yeah is the customer service/running and IT budget will have gone up as well (edited now I have been corrected and below)

I don't think people are getting £200 worth of customer service in operating costs.

Qyburn

Mstty said:

I suspect the issue some will have is with customer service and IT systems taking up 20% of the cost of energy. .

Would be interesting to split the customer service side vs operational costs. Administering their part in the Balancing and Settlement mechanism must be pretty complex and expensive.

Mstty

Qyburn said:

Mstty said:

I suspect the issue some will have is with customer service and IT systems taking up 20% of the cost of energy. .

Would be interesting to split the customer service side vs operational costs. Administering their part in the Balancing and Settlement mechanism must be pretty complex and expensive.

It would but let's tak British Gas as an example 7.26 million customers so if we propose 3/4 are dual fuel that gives them £3.5billion a year very roughly  for customer services, running costs such as IT and what the last year has thrown at them.

ariarnia

Mstty said:

Someone somewhere says calls are up 12 times? Not really good enough evidence there and potentially smoke and mirrors used as an excuse by energy companies so that their running costs 20% margin is not targeted.

if you want 'independent' evidence then its not perfect but you can look at the number of complaints accepted by the ombudsman. each extra complaint means more admin work to respond by the supplier. 

every quarter this year is markedly above the previous year. 

https://www.ombudsman-services.org/about-us/annual-reports/complaints-data/energy-complaints-data

Mstty

ariarnia said:

Mstty said:

Someone somewhere says calls are up 12 times? Not really good enough evidence there and potentially smoke and mirrors used as an excuse by energy companies so that their running costs 20% margin is not targeted.

if you want 'independent' evidence then its not perfect but you can look at the number of complaints accepted by the ombudsman. each extra complaint means more admin work to respond by the supplier. 

every quarter this year is markedly above the previous year. 

https://www.ombudsman-services.org/about-us/annual-reports/complaints-data/energy-complaints-data

Thanks for the link I shall have a review later

I would suggest that is a sign of the times and people (like we get here) not understanding what energy they use, how to calculate it and (like we get here) my energy company is ripping me off. The £67/£66 won't have helped either.

However I base that on the microcosm that is this energy forum.

michaels

An update from Cornwall Insights:

Drop in wholesale energy prices sees price cap predictions fall below the EPG for second half of 2023 - Cornwall Insight (cornwall-insight.com)

Price Lock from April is £3000 so govt subsidy currently forecast to only be needed in Q2

Figure 1: Cornwall Insight’s Default tariff cap forecasts

QUARTERLY	Q2 2023 (Apr – Jun)  Forecast	Q3 2023 (Jul-Sept) Forecast	Q4 2023 (Oct – Dec) Forecast
Electricity	£1,725.51	£1,243.91	£1,308.02
Gas	£1,819.80	£1,556.26	£1,527.14
TOTAL	£3,545.31	£2,800.16	£2,835.16

peter3hg

Mstty said:

MattMattMattUK said:

Mstty said:

I suspect the issue some will have is with customer service and IT systems taking up 20% of the cost of energy. With what appears to be worsening customer service 

There was something in a news article that showd that calls and emails to customer service departments of energy companies had increased to twelve times the volume of previous years. Even worse almost all the increase of those calls were not actual customer services enquiries but people complaining that energy costs had gone up and demanding their bills be cut.

Mstty said:

the suppliers skimming this area to make up for the losses in previous year(s).

Just something that crossed my mind this morning.

They are not "skimming", they are regulated, they are financially audited and their profit is capped. If they cut costs in customer service any saving would count towards their 2% profit cap.

They are poorly regulated so will get away with what they can. Ofgem neither has the power or appetite to put the big 6 to task 

Someone somewhere says calls are up 12 times? Not really good enough evidence there and potentially smoke and mirrors used as an excuse by energy companies so that their running costs 20% margin is not targeted.

What has happened in the last yeah is the customer service/running and IT budget will have gone in line with prices at the allowed margin of 20% so this has gone up nearly 300% to £639 per customer per year using the notional 12000/2900 split.

I don't think people are getting £639 worth of customer service and associated costs for that and this will go up further per quarter at the moment.

That isn't how the price cap works.
The operating costs element is based on actual costs, not a percentage of the wholesale costs.
For October 2022 (and January 2023) the element of the price cap given for operating costs for the typical user is £197.45 (plus VAT).
This is up from £178.28 in the October 2020 cap.

The cost breakdown of the October 20 compared to October 22 and January 23 cap for dual fuel direct debit customers is as follows:

Mstty

peter3hg said:

Mstty said:

MattMattMattUK said:

Mstty said:

I suspect the issue some will have is with customer service and IT systems taking up 20% of the cost of energy. With what appears to be worsening customer service 

There was something in a news article that showd that calls and emails to customer service departments of energy companies had increased to twelve times the volume of previous years. Even worse almost all the increase of those calls were not actual customer services enquiries but people complaining that energy costs had gone up and demanding their bills be cut.

Mstty said:

the suppliers skimming this area to make up for the losses in previous year(s).

Just something that crossed my mind this morning.

They are not "skimming", they are regulated, they are financially audited and their profit is capped. If they cut costs in customer service any saving would count towards their 2% profit cap.

They are poorly regulated so will get away with what they can. Ofgem neither has the power or appetite to put the big 6 to task 

Someone somewhere says calls are up 12 times? Not really good enough evidence there and potentially smoke and mirrors used as an excuse by energy companies so that their running costs 20% margin is not targeted.

What has happened in the last yeah is the customer service/running and IT budget will have gone in line with prices at the allowed margin of 20% so this has gone up nearly 300% to £639 per customer per year using the notional 12000/2900 split.

I don't think people are getting £639 worth of customer service and associated costs for that and this will go up further per quarter at the moment.

That isn't how the price cap works.
The operating costs element is based on actual costs, not a percentage of the wholesale costs.
For October 2022 (and January 2023) the element of the price cap given for operating costs for the typical user is £197.45 (plus VAT).
This is up from £178.28 in the October 2020 cap.

The cost breakdown of the October 20 compared to October 22 and January 23 cap for dual fuel direct debit customers is as follows:

Thanks for this, as I said in another post this crossed my mind and 2+2=5 lol

Out of interest what is the source for that table 

That makes more sense that what my brain was digesting this morning.