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

born_again

Mstty said:

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?

So that means that they got rid of a lot of staff then? As the only way a software system can save money, is by doing people jobs. But I guess taking over Bulb will mean that they have not actually got rid of staff due to the increased user base & the servicing of these extra customers.

Mstty

born_again said:

Mstty said:

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?

So that means that they got rid of a lot of staff then? As the only way a software system can save money, is by doing people jobs. But I guess taking over Bulb will mean that they have not actually got rid of staff due to the increased user base & the servicing of these extra customers.

I would suggest as they grew quickly they didn't get rid of any staff just efficiencies of the Kraken software leading to not add the factor of staff per customer that other suppliers required as they grew.

The story of Octopus is rapid growth.

Other companies taking on the Kraken software with stagnant customer numbers they will shed CS staff.

Chrysalis

I bet its going on the good old SC instead of unit rates as well.

Ofgem is like an addict at this point with the SC.

The SC already has a margin built into it for inefficiencies.  Not sure why that cannot absorb these costs.

Chrysalis

Alnat1 said:

born_again said:

So we are going to see some that are not "Can't" pay & more "Won't" pay....

End of the day, this is like everything else. We all pay for shoplifting etc, as it's just built in to retailer costs.

While I do not agree with forced entry to fit pre paid meters, something needs to be done. But it should not be protecting the companies. It should be helping the people in need, & punishing the ones that are simply playing the system & not paying as they know  they can get away with it.

How are companies supposed to know who is in need and who is playing the system?

If you read my proposal in another thread (which I expect most people havent) then my idea would weed those people out.

Chrysalis

Alnat1 said:

From July PP meter customers will be charged the same rates as DD customers.  

Will those that think PP meters are unfair then accept that it's the best option for people who have debts with their energy company?

The issue as I raised in the other thread is in how aggressive the energy companies want to be paid back without an affordability assessment taking place.

Lets compare banks to the energy companies.

Banks are much more heavily regulated.

Banks will work with their customer on an affordability plan, even allowing a buffer for recreational activities.  This can lead to very low payments that might just be a few pounds a month.

Energy companies enforce a high payback rate on prepay meters, without doing an affordability assessment.

It would seem the energy companies have some kind of entitlement complexity where they feel they should be fully paid back within a short time span, whilst other consumer creditors such as banks get their money back over a much longer period of time.

Banks will of course have unrecoverable debts, those who completely default, bankruptcy etc.  These tend to be recovered in the form of higher interest on their other customers, so in effect the same as increasing unit rates on energy, they dont recover it via enforced monthly fees across their customer base, we still have free banking services.

Spot the difference?

At this point they been treated like a preferred creditor, I wouldnt be surprised if other sectors start complaining about the special treatment.  Questions also to be asked Ofgem, are they an actual consumer protection regulator or they there just to massage the backs of the suppliers?  They seem to be constantly coordinating with them now in everything they do, which to be frank is a bit weird.

born_again

Banks have very efficient regulation & will work to minimise losses. 

Ofcom is a joke is comparison to FCA.

Chrysalis

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.

The problem is, its not a 1% surcharge added to the bill, it will be lumped on the SC, so the zero usage costs just keep going up and up with seemingly no end in sight.

I wouldnt be surprised if within 3 years we at £50 month for zil usage costs.

I just dont understand how there is people here on a money saving community with the founder recognising the problem, yet seemingly see no fundamental issue with this.

At this point it feels like supplier X runs to Ofgem about some cost they need to recover or they threaten to leave the market, then we get a new announcement SC is going up again.

The margins are also a red herring, many of the suppliers left are subsidiaries of larger companies, including Octopus.  How are Octopus managing to reduce standing charges?  Funded from the inefficiency buffer in the existing SC allowance?  What are other suppliers spending this buffer on?

Shame this petition isnt on the gov.uk petition site.

https://www.change.org/p/petition-to-reduce-profit-headroom-and-tax-percentages-from-ofgem-price-cap-formula-jacob-rees-mogg-ofgem-jeremy-hunt-adjustpricecap-ofgem

Chrysalis

born_again said:

Banks have very efficient regulation & will work to minimise losses. 

Ofcom is a joke is comparison to FCA.

It really is bad isnt it.

Joe Bloggs consumer, probably has to contact their MP, who if they agree to take it on, then raises it in parliament, then if a government minister accepts it, then the message might make it to someone with power at Ofgem.

Meanwhile a energy supplier CEO probably has at least one contact at Ofgem, who they can email/call on a whim.  How many public consultations has there been on these SC adjustments?

MattMattMattUK

Chrysalis said:

I just dont understand how there is people here on a money saving community with the founder recognising the problem, yet seemingly see no fundamental issue with this.

Martin freely admits that he only thinks about one side of the equation, the "consumer" and often only the one in the immediate case rather than the wider demographic of consumers. Solutions to claimed problems are very easy if you ignore the cons and only view the positives. Energy companies have spent much of the last two years losing money, because of that some went bust and others lost billions, the former is part of business, the latter is unsustainable. It was decided when SoLR was create that consumers as a whole would carry the burden of protecting credit balances rather than them falling on the individual consumer, personally I disagreed with that choice, but it was the choice made, that pushed up costs for all consumers, to the benefit of a few. The other options considered were that balances could be ringfenced, it was estimated that would push up prices for all consumers for the benefit of a few, or to put the entire amount onto general taxation, which would penalise taxpayers disproportionately to the benefit that they may gain (per taxpayer rather than per residence).

None of the solutions are perfect, they all have pros and cons depending one's position and none of them are free, they are not even zero sum, some of them are actually lose, lose. 

Chrysalis said:

At this point it feels like supplier X runs to Ofgem about some cost they need to recover or they threaten to leave the market, then we get a new announcement SC is going up again.

Then that feeling would be out of step with reality. Ofgem is stopping energy providers recovering energy costs in a timely manner, if they are blocked from recovering debts then they need to be allowed to account for that cost by increasing revenue elsewhere otherwise they will go bust. That is the balance between allowing full debt recovery and passing the cost onto other consumers, the alternative would be allowing debts to be recovered according to normal measures, disconnections, CCJs within a few months, aggressive enforcement etc. but it was decided that was not the route to be taken.

Chrysalis said:

The margins are also a red herring, many of the suppliers left are subsidiaries of larger companies, including Octopus.  How are Octopus managing to reduce standing charges?  Funded from the inefficiency buffer in the existing SC allowance?  What are other suppliers spending this buffer on?

How is being a subsidiary of a larger company relevant? If a subsidiary is loss making and has no prospect of returning to profit then it will be cut adrift and liquidated, they are a business, not a charity. At the moment they are not able to reduce standing charges and any appreciable amount, because they are still in a very narrow window due to being hemmed in by on the one side wholesale and network costs and on the other side the SVT and Ofgem blocking debt recovery. The very small amount that Octopus reduce the standing charge from is generally covered by the fact that their automated customer service system are very efficient, meaning that they can offer a higher level of customer service at a lower cost to the business, others are catching up, but very slowly. At the moment the standing charge is inadequate to account for the amount unpaid bills, both in terms of cost of credit whilst Ofgem delays debt recovery and for final costs of bad debts. 

Chrysalis

Per taxpayer vs per residence is always going to be a fairer system.   The problem with per residence is packed households pay very little per person, and singleton households have the highest burden per individual, it also takes no account of ability to pay.  I think even the most hardened people including JRM would acknowledge this, but politically adding it to tax hurts, so government would naturally favour something like the SC.

Where I do agree with you is that perhaps those who lost their credit balances should have been the one's to lose out, I expect the reason they didnt do this as its probable there was people with credit balances in excess of a £1000, given at the time I had over a £1000 credit balance with Octopus, I dont think I would be the only person in the entire UK to be in that position.  Then stories in the press of people losing that much money would have hurt the government too much.

Would like source of information for these considerations please.  As far as I know from public reports, general taxation has never been considered by ofgem, not even sure they have the power to do that as that would be a government decision.  Unless you meant it was considered by ministers rather than Ofgem themselves.

If you were to ask me what I would do?

It would be something like this.

1 - restrict maximum deviation from a £0 balance in both directions, even if it means a overhaul of the fixed DD system.

2 - suppliers to recalculate predicted usage monthly instead of (in some cases) once a year.   A minister mentioned this last year.

3 - credit balances stored in a holding account isolated from suppliers.  They take payments from it when bill issued. Might also potentially be allowed to take money from credit balances to cover unpaid bills lost cashflow, although this adds a risk to the system.

4 - proper system setup to deal with consumer energy debt, welfare visits to home, affordability assessed, ability to restrict energy usage if needed, so e.g. like in europe cannot use more than 2-3KwH at once, to try and minimise usage. or to restrict energy use to specific hours, there is ways to take mitigating action without cutting people off.  Take action early, dont allow debt to reach silly levels.

5 - an acceptance by suppliers that debt will be paid back much slower, with some write offs, cant be bailed out by the regulator via SC.  At worst its incorporated either into unit costs or % of bill.

6 - start of a process to move some SC costs either to the tax payer or to the unit rate.

7 - introduce a SC free SVR tariff for the poorest people, it then is tapered off up to the income cap when eligibility is cut off to prevent a sudden on/off situation for qualification marker.  this replaces one of the CoL payments, so already funded.

8 - for everyone else, regulator must enforce a rule where SC can never make up more than 10% of a bill.  So for light users, its forced downwards via a rebate from supplier. funded 50% from shareholders, 50% from higher unit costs

9 - all changes to increase SC can only happen via public consultation and HoP vote..
10 - All increases to SC are by default temporary and have to be renewed with further votes.

12 - Increase the profit cap by 1-2% to compensate for the SC changes.

13 - If EPG is extended make it tiered based on usage, X amounts of units discounted instead of all usage discounted.

14 - remove low energy use criteria from the new WHD, fund the extra costs of it from general taxation.

15 - Any notable change in Ofgem policy requires a public consultation.

The extra taxation can be covered quite easily by closing loopholes in the existing tax system, non doms being the first obvious target.

Finally reference Martin, well it is a consumer money saving website, its not here for corporates.

The problem is if you put business first, and stop caring about your average guys and girls, then everyone loses spending power, and the economy collapses anyway.  there is consequences to every action.  I think one reason we have this disconnect, is there is people on here who are quite clearly more financially comfortable than others, there is I expect people affiliated to the energy companies as well as perhaps even shareholders.  So its a mesh of different priorities debating the direction things should go, I will confess I am a little below the average UK salary, but having in the past been right at the bottom of the income pile, I have a lot of empathy for anyone in that position.  There will never be a solution that keeps everyone happy, we all know that, its just I think on the SC we are heading in the wrong direction.  Someone in the other thread rightly said, "when does it stop, at what level do you think its too much?"