Ofgem to increase Winter Price Cap to cover cost of people not paying their bills.

Mstty

I disagree the profit margins are small circa 1.9% (however I do believe new IT platforms such as Kraken may well be reducing customer service costs and therefore the profit margin is a lot higher for those companies) that aside.....

On a price cap of £3000  and the notional average consumer what is that £60 profit per dual fuel customer.

The energy suppliers would walk away if they had to fund bad debt themselves from profits.

Should the government (Ofgem) make up for their big mistakes.....well they probably have with all the handouts in the last year and those to come.

I am not thrilled to pay for bad debt but at 1% for DD customers happy to put in our £20 a year.

MattMattMattUK

Bigphil1474 said:

Time will tell if they end up actually paying the same or not - paying the same unit rates is not the same as saying PP meter customers will pay the same amount for like for like consumption compared to credit meter customers. Perhaps they'll increase the standing charge on PP meters, or add a transaction fee for topping up etc. Call me a cynic but can't see the energy companies actually doing the right thing on this issue.

What they can charge is regulated, the energy suppliers cannot introduce top up charges without Ofgem first approving, which would take well over a year with all the assessments needed and the tantrum in the media would insure it never happened. 

Incidentally it is not the default position that "the right thing" is that pre-payment meters are made the same cost, they have additional costs and those costs need to be covered. There is a discussion to be had about whether one group should be forced to subsidise another, at the moment that has been bypassed with the media very keen to ignore that one group getting their energy subsidised means that the rest of us have to pay more to cover that. 

BUFF

Mstty said:

I disagree the profit margins are small circa 1.9% (however I do believe new IT platforms such as Kraken may well be reducing customer service costs and therefore the profit margin is a lot higher for those companies) that aside.....

on domestic energy supply  their profit margin is capped. This why e.g. Shell Energy is considering exiting the market.
"The price cap, as set out in law in 2018, reflects what it costs to supply energy to our homes by setting a maximum suppliers can charge per unit of energy, and caps the level of profits an energy supplier can make to 1.9%,"
https://www.ofgem.gov.uk/publications/ofgem-confirms-changes-price-cap-methodology-and-frequency-ahead-new-rate-be-announced-later-month

[Deleted User]

Mstty said:

I disagree the profit margins are small circa 1.9% (however I do believe new IT platforms such as Kraken may well be reducing customer service costs and therefore the profit margin is a lot higher for those companies) that aside.....

On a price cap of £3000  and the notional average consumer what is that £60 profit per dual fuel customer.

The energy suppliers would walk away if they had to fund bad debt themselves from profits.

Should the government (Ofgem) make up for their big mistakes.....well they probably have with all the handouts in the last year and those to come.

I am not thrilled to pay for bad debt but at 1% for DD customers happy to put in our £20 a year.

Ofgem’s ineptitude has cost us all a lot of money. 

The Government has no money of its own. EBG and EBSS were paid for out of taxation: that is, our money. It was a Government choice to give handouts in this way. It could, for example, have chosen just to help out those who genuinely needed help with their energy bills with the money saved going to such things as the NHS; Education or Defence or a reduction in personal income tax.

Mstty

BUFF said:

Mstty said:

I disagree the profit margins are small circa 1.9% (however I do believe new IT platforms such as Kraken may well be reducing customer service costs and therefore the profit margin is a lot higher for those companies) that aside.....

on domestic energy supply  their profit margin is capped. This why e.g. Shell Energy is considering exiting the market.
"The price cap, as set out in law in 2018, reflects what it costs to supply energy to our homes by setting a maximum suppliers can charge per unit of energy, and caps the level of profits an energy supplier can make to 1.9%,"
https://www.ofgem.gov.uk/publications/ofgem-confirms-changes-price-cap-methodology-and-frequency-ahead-new-rate-be-announced-later-month

I have agreed with that but Octopus have officially announced the Kraken software has saved them 50% of customer services costs so I presume they get to keep those savings out of the earmarked CS costs per customer in the price cap? They don't hand it back do they?

MattMattMattUK

Mstty said:

BUFF said:

Mstty said:

I disagree the profit margins are small circa 1.9% (however I do believe new IT platforms such as Kraken may well be reducing customer service costs and therefore the profit margin is a lot higher for those companies) that aside.....

on domestic energy supply  their profit margin is capped. This why e.g. Shell Energy is considering exiting the market.
"The price cap, as set out in law in 2018, reflects what it costs to supply energy to our homes by setting a maximum suppliers can charge per unit of energy, and caps the level of profits an energy supplier can make to 1.9%,"
https://www.ofgem.gov.uk/publications/ofgem-confirms-changes-price-cap-methodology-and-frequency-ahead-new-rate-be-announced-later-month

I have agreed with that but Octopus have officially announced the Kraken software has saved them 50% of customer services costs so I presume they get to keep those savings out of the earmarked CS costs per customer in the price cap? They don't hand it back do they?

They get to keep it in the short term as the different cost components are effectively allowances, but in the medium term Ofgem is looking to revise the allowance for customer service downwards to reflect lower costs, those suppliers who do not keep up with reduced costs will find that it eats into their already meagre profit margin. 

BUFF

Many other companies actually lose money on their domestic energy supply business after costs (customer service etc.) hence Shell looking at exiting.
I presume that Kraken may make the difference between Octopus retail making any profit or at least minimising losses (the retail arm lost £160 million in 2022)?

MattMattMattUK

[Deleted User] said:

Mstty said:

I disagree the profit margins are small circa 1.9% (however I do believe new IT platforms such as Kraken may well be reducing customer service costs and therefore the profit margin is a lot higher for those companies) that aside.....

On a price cap of £3000  and the notional average consumer what is that £60 profit per dual fuel customer.

The energy suppliers would walk away if they had to fund bad debt themselves from profits.

Should the government (Ofgem) make up for their big mistakes.....well they probably have with all the handouts in the last year and those to come.

I am not thrilled to pay for bad debt but at 1% for DD customers happy to put in our £20 a year.

Ofgem’s ineptitude has cost us all a lot of money. 

The Government has no money of its own. EBG and EBSS were paid for out of taxation: that is, our money. It was a Government choice to give handouts in this way. It could, for example, have chosen just to help out those who genuinely needed help with their energy bills with the money saved going to such things as the NHS; Education or Defence or a reduction in personal income tax.

This is what people seem to fail to understand, the government was not giving me it's money over winter, all it was effectively doing was reducing my tax bill slightly. I paid my tax bill for FY22-23 last week and it dwarfs any handouts/bribes the government threw my way. Personally I would rather they had spent that money on fixing the potholes in the roads, recruiting more police, doctors or nurses or properly funding schools. Unfortunately too many of the electorate decided that they would rather be bribed. 

superkoopauk

BUFF said:

Many other companies actually lose money on their domestic energy supply business after costs (customer service etc.) hence Shell looking at exiting.
I presume that Kraken may make the difference between Octopus retail making any profit or at least minimising losses (the retail arm lost £160 million in 2022)?

Well they really make the money on it by selling Kraken for other companies to use

BUFF

superkoopauk said:

BUFF said:

Many other companies actually lose money on their domestic energy supply business after costs (customer service etc.) hence Shell looking at exiting.
I presume that Kraken may make the difference between Octopus retail making any profit or at least minimising losses (the retail arm lost £160 million in 2022)?

Well they really make the money on it by selling Kraken for other companies to use

Yes, but that is a different company within the overall group so does not show up on the retail company accounts.
Kraken Technologies had an operating profit in 2022 of £49 million against a turnover of £115 million (up 66%).
Octopus Energy Ltd. had a revenue of £3.9 billion.
The whole group made an operating loss of £141 million.