Something's not right

[Deleted User]

Jominjam126 said:

Debit Card, not sure whether you're suggesting my theory is off whack or not (or possibly hijacked from elsewhere)? Really it is very simple but I am not the best at succinct prose!

CSI, I'll try and clarify:

in 2021 my 12,500 kWh of gas usage would have brought in £405.00 to my supplier, this paid the wholesale cost, operating cost, Network cost etc. Theoretically the leftover profit for the energy company should have been circa £8.00 as set by Ofgem.

Using the average wholsale cost at the time of 1.75p I know that the cash margin to cover everything bar the cost of gas was £185.00.

Let's say that Network Cost, Operating Cost etc have all gone up by 25% in the last two years. So, they were £177.00 back in 2021 (being the £185.00 cash margin less the £8.00 operating profit Ofgem allow). that means they are now £177.00 + 25% = £221.25.

The 12.61p per kWh now quoted brings in my supplier £1,567.25 in sales. Using the same wholesale cost reference the cost of this gas is now £749.05, leaving a cash margin of £827.20. Subtract the increased operating costs, network costs etc that would leave an operating profit of £606.00 to my supplier.

I don't mind suppliers making up for losses over rthe last two years but I would love the whole pricing structure to be less murky, ot feels somewhat covert right now.

At the moment, the majority of consumers are on the Ofgem Cap which is calculated using transparent cost criteria. It is so transparent that contributors to this forum produce their own future Cap estimates. The cost criteria includes a profit % margin.

If, as you suggest, suppliers are able to make c.£606 profit per average consumer then why is Shell Energy Retail in the process of looking for a buyer, and why have we not seen a flurry of ‘get rich quick’ new entrants coming to the market? 

Jominjam126

Hmm, strange, I just feel like everyone's trying to shout me down here. Just spent half an hour on the Ofgem site and cannot find any meaningful, detailed explanations. I am just using simple maths and yes, some perhaps slightly risky assumptions as to whether operating costs etc are likely to increase in line with inflation (again couldn't find this on the Ofgem site but I'm no expert).

Rather than just shouting at me, perhaps someone can give me some detail on how operating costs have increased in the last 24 months?

matt_drummer

Jominjam126 said:

Hmm, strange, I just feel like everyone's trying to shout me down here. Just spent half an hour on the Ofgem site and cannot find any meaningful, detailed explanations. I am just using simple maths and yes, some perhaps slightly risky assumptions as to whether operating costs etc are likely to increase in line with inflation (again couldn't find this on the Ofgem site but I'm no expert).

Rather than just shouting at me, perhaps someone can give me some detail on how operating costs have increased in the last 24 months?

I think your error might be in what you think the suppliers actually paid for gas, I feel it is more than you are quoting, and because of this you are assuming that other costs have increased by an amount to balance your sums.

I'm an accountant.

I haven't looked at how OFGEM set the prices but my logic tells me that it must be done retrospectively when they know what the actual energy costs were for each three month periods.


You are using a wholesale price to come to the conclusion that they are making more than the 2% they are limited to by OFGEM.


The energy suppliers accounts prove otherwise, lots of them have made losses and none of them have made the profits your calculations arrive at.

It's a complicated business.


But just think about it, if there was as much money in it as you seem to think, somebody would be offering cheaper supply to attract more customers.

They are not.


I assume that you think we are all being lied to?

Spoonie_Turtle

Are your calculations on the current prices allowing for the fact that the actual price of energy is much higher, and the government are paying a subsidy to artificially reduce the unit rates?

I find the Ofgem website very tricky to navigate to find the right documents, I have to either get fortunate with googling the right phrase or use relevant links posted here, but once you find the documents via any method it is all there.  Publicly available doesn't necessarily mean easily accessible (and if you use a screen reader, you can completely forget about being an informed citizen because everything's in PDF format which don't work with them!).

Would somebody mind explaining how to find the relevant documents on the Ofgem site, please?  Or exact phrases to Google that sifts out all the media reporting?  Then the OP will be able to find all the figures they need.

Jominjam126

Thanks for the helpful posts Matt and Spoonie. I'm just taking the end of day price per therm each day from the BBC. I average out over the period, same as the energy companies / Ofgem have done for the period 17.11 to 17.02 and I came up with a price of 6p per kWh. I used the same methodology to work out a price for May 2021 (using Jan to Apr '21 figures)

Perhaps there are other costs /  levies  now, that did not exist in May '21 that have pushed up wholesale costs above these "spot rates" and perhaps energy companies now purchase more forward and so have not had the benefit of falling rates? Also, maybe fixed costs, wages, rent, network costs etc have climbed by more than inflation?

Does anyone know how the cap works? My quote of 12.61p per kWh is above the Government cap of 10.3p per kWh. Do the government make the difference up to the energy supplier?

matt_drummer

Yes, the EPG will reduce the price you pay to the capped amount.

I doubt that the majority of gas was bought on the spot markets by the currently operating suppliers.

They will have bought forward, the risk would have been too great.

Looking at spot rates is not going to lead you to the correct answer.

OFGEM can only limit the suppliers profits by looking back at what the supplier paid and making adjustments going forward.

Simplifying it, if the supplier has made too much in one period it will be taken back from them in the future. I have vastly over simplified it but I'm sure that is the only way they can restrict profits.

CSI_Yorkshire

Spoonie_Turtle said:

Would somebody mind explaining how to find the relevant documents on the Ofgem site, please?  

Go to any one of the official tariff announcements - they're called things like "Default tariff cap level: 1 April 2023 to 30 June 2023" if that helps with a google.

Look down at the bottom for Model - Default Tariff Cap (v1.15 is the most recent).

The yellow tabs are the ones you might find most useful - if I take one example (I'll use gas wholesale as its the one that was being queried):

Tab 3a DF - row 39 is gas - this is the amount that wholesale prices contributed to the price cap (and therefore to the unit cost). 

In the October 2020 to March 2021 period (six month periods were used then), the wholesale contribution was £145.13
In the April 2023 to June 2023 period (the most recent), the wholesale contribution is £1053.61

A much more significant change than the £185 to £750 change that your simplified method suggested. 

Spoonie_Turtle

CSI_Yorkshire said:

Spoonie_Turtle said:

Would somebody mind explaining how to find the relevant documents on the Ofgem site, please?  

Go to any one of the official tariff announcements - they're called things like "Default tariff cap level: 1 April 2023 to 30 June 2023" if that helps with a google. 

Thank you, I substituted other months into that search term and it works brilliantly!  Excellent, very useful indeed.

Jominjam126

Great, thanks CSI. It's important to understand what's going on. We are reliant on Gas & Electric (probably overly so) and it is important we feel everything is being handled as fairly and honextly as possible and my simple maths told me something was wrong. I'll spend a few hours on teh Ofgem site educating myself as to how things are calculated nowadays. Also good now to see how things were done slightly differently two years ago as this also helps explain what appeared to be an anomaly in my fag packet, lack of knowledge, calculations.

CSI_Yorkshire

It's always got to be a balance between simple, soundbite, sort-of-understood-by-everyone statements and the actual detailed information.

All the detail is there (except when commercially confidential then it's anonymised or grouped) just not easy to find unless you know what to look for.