Energy accounts perpetually in credit

Scot_39

My credit ended up with a DD by July of under my summer monthly usage costs - not just my average - it had grown so large.

It was artificially low to support an overly high credit level due to EPG cap vs Oct Ofgem cap rise (*) - not just a normal winter cyclic.

Over 6 months my credit had grown to over 30% of my predicted annual bill - and actually grown a little higher at July lower rates - despite Aprils lower DD calc by EOn.

(* - Before EPG cap I regularly did a simple last years use vs revised tariff rates and any outstanding credit / debit to set a rate for next year to zero balance after 12 months - which I did last Sep as usual - pre EPG and EBSS details emerged. 
I was told not to adjust manually as my account had already been flagged for DD EBSS rebate reduction of £67 but not yet actioned to bank when talked to customer service - but would be safe to adjust once 1st payment taken at end of Oct. As the ebss £67 rebate meant paying less than pre Oct anyway just let it run in end - not like last years interests rates on a few £100 were meaningful anyway.)

The only reason I took the credit in end was in Apr and then July EOn dropped my DD level so low - as above below summer usage charges - but then with Oct price drop - nearly same % drop on electric - didn't lower it again. 
And I knew the DD an artificial low - and I like consistency on cash flow these days - didn't want to get used to paying c£35pm less than it would jump back to.
And I'll admit in part as the lump sum rebate helped on the annual car service mot  credit card bill hump.
But they did re-enable the on line refund pre authorised - do you want to request - button.  And system told me they were happy to refund c£200 of it via that button.  (EOn of old used to automatically iirc  fully refund even smaller credits at annual review).

At time CI were forecasting a Q1 24 increase - slightly higher than actual for SR electric - so didn't take the max EOn refund suggestion.

Chrysalis

According to Octopus they aim for April to be the break even point (balance close to £0.), They said they only updated their annual cost estimation once a year which the government wasnt happy about. (note other suppliers wont necessarily be doing same as Octopus).

Based on this I would expect the following.

Account in credit during the summer, peaking probably around September/October.

Account in debt towards end of winter by a small amount or a small credit balance.

There is a reason its called a credit account as by design customers would be in debt to the supplier for periods.  So its my view if an account is in credit all year around, the annual estimated costs are too high from the supplier, rectified by reduced direct debit or more accurate up to date estimations. (I mean a comfortable amount of credit).

Likewise if the account is in debt all year round, then the annual estimation is too low, and rectified either by increased direct debit or fixing the estimation.  Of course fixing the estimation automatically adjusts the direct debit as well.

Before I intervened my account was in credit by around £1000 at the end of December.  I now pay by variable direct debit.

£120 credit at end of November isnt particularly large and so I can forsee that hitting debt by end of February.

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Octopus seem to have designed it to be in their favour, instead of e.g. targeting a £0 balance at the mid point between winter seasons (probably around July) which would have it by design have the customer in debt to them during winter periods, and paid back by the following July.  Then credit built up from July to around October.

Scot_39

The whole system is arguably being biased towards average credit balance.

Partly because of Ofgem guidance on avoiding consumer debt build up.

But inevitably in part simply due to need to protect profitability - in face of increased interest rates - including on any debit outstanding.

Debts have reportedly according to some - grown over 30% at some major uk suppliers over last year.

Market interest rates on servicing that debt - have ballooned too. 

Remember the Cap profit allowance is on EBIT - earnings before interest and tax.  And even at the recntly increased level of 2.4% - that isn't seen by investors as a healthy investment return in most other sectors.

Chrysalis

Scot_39 said:

The whole system is arguably being biased towards average credit balance.

Partly because of Ofgem guidance on avoiding consumer debt build up.

But inevitably in part simply due to need to protect profitability - in face of increased interest rates - including on any debit outstanding.

Debts have reportedly according to some - grown over 30% at some major uk suppliers over last year.

Market interest rates on servicing that debt - have ballooned too. 

Remember the Cap profit allowance is on EBIT - earnings before interest and tax.  And even at the recntly increased level of 2.4% - that isn't seen by investors as a healthy investment return in most other sectors.

No doubt, whoever came up with this billing method I would think got a nice bonus as its a genius idea, new cashflow from a system which will likely have customers almost always in credit, and whilst advertising a system thats friendly to people who struggle to manage finances.  History has shown people will rather over pay if it means they dont have peaks and trough's in their monthly direct debits.  Of course the energy crisis has destabilised those direct debits, but its still a system many seem to prefer.  As recent as last week I read a BBC article calling direct debits a "bill".

(Similar to people preferring a more expensive but less risky SVR/fixed over tracker type tariffs).

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A note on the profit allowance as you brought it up, it only applies to SVR, and there is other allowances from Ofgem, meaning more efficient suppliers probably have a margin larger then that.

Spoonie_Turtle

Chrysalis said:

Scot_39 said:

The whole system is arguably being biased towards average credit balance.

Partly because of Ofgem guidance on avoiding consumer debt build up.

But inevitably in part simply due to need to protect profitability - in face of increased interest rates - including on any debit outstanding.

Debts have reportedly according to some - grown over 30% at some major uk suppliers over last year.

Market interest rates on servicing that debt - have ballooned too. 

Remember the Cap profit allowance is on EBIT - earnings before interest and tax.  And even at the recntly increased level of 2.4% - that isn't seen by investors as a healthy investment return in most other sectors.

A note on the profit allowance as you brought it up, it only applies to SVR, and there is other allowances from Ofgem, meaning more efficient suppliers probably have a margin larger then that.

As long as the efficiency doesn't come at the expense of customer service and working conditions or wages for employees, I'm fine with them having that reward for being more efficient.  Should act as a natural incentive!