OFGEM Announcement - Is That Even Legal?

QrizB

Scot_39 said:

Allowing poorly funded players into such a risky sector was fool hardy - allowing them to gamble without fully hedging fixed contracts - even more so.  That then also arguably spread to variable tariffs with the Ofgem imposed cap.

However it was what consumer groups campaigned for (including the founder of this site) and what Government directed.

Ofgem only does as their political masters direct.

Scot_39 said:

But Ofgem isn't there directly to protect consumers over all else - it is also there - arguably primarily there - to ensure there is a viable supplier base to serve consumers with the energy we need. (Edit)

Yes, Ofgem shouldn't be seen as some sort of consumer advocate. It's there to ensure the smooth functioning of the UK energy market.

JSHarris

From the Ofgem website, first paragraph on their "About us" section:

"Ofgem is Great Britain’s independent energy regulator.

We work to protect energy consumers, especially vulnerable people, by ensuring they are treated fairly and benefit from a cleaner, greener environment.

We are responsible for:

• working with government, industry and consumer groups to deliver a net-zero economy, at the lowest cost to consumers
• stamping out sharp and bad practice, ensuring fair treatment for all consumers, especially the vulnerable
• enabling competition and innovation, which drives down prices and results in new products and services for consumers"

Someone could be fooled by that into believing that Ofgem had a key role in looking after consumer interests (my highlighted text in the above quote).

wrf12345

Using the cap to recover debt treats all the energy retailers as being equally useless at running their business and assume all have the same levels of debt but it is a cap and in a "competitive" market it will give the "good" companies an edge on pricing. If we were still in the EU I am sure their regulators would have had a fit at the terrible treatment of customers but as we are not we are at the mercy of hapless or hopeless regulators in the UK who can't get their head around the idea that they are supposed to protect consumers rather than bend them over for a good going over. 

I think the market now needs to split into (smart) prepayment meters with no standing charges and a higher unit charge, and the DD market as per now, that would give people a real choice and stop them being done over by Ofgem There is a new energy minister so that would at least give them something meaningful to eventuate and any change is only going to come from that department.

Swipe

Will people on fixes escape this charge if it's levied on the OFGEM cap?

dealyboy

@Swipe said:

Will people on fixes escape this charge if it's levied on the OFGEM cap?

I would expect them to, however if it goes ahead expect new tariffs and SCs to include the debtor tax.

TheElectricCow

Swipe said:

Will people on fixes escape this charge if it's levied on the OFGEM cap?

Yes, but only until the fix runs out. The added cost will likely be factored in to the prices on any future fixes.

The charge is currently intended to be in effect until March 2025, so you’d need to be on one up to that point to avoid the charge entirely (but there’s no guarantee the other elements that make up energy bills won’t also change in that time, so a fix may not necessarily end up cheaper anyway).

Alnat1

Some newer fixes, like the SP one my dad is on, have clauses that allow the standing charge to be changed if the regulator makes amendments. It is only the kWh part that is truly fixed.

MattMattMattUK

wrf12345 said:

Using the cap to recover debt treats all the energy retailers as being equally useless at running their business

It treats them as they are, largely blocked from taking effective recovery action against debtors. 

wrf12345 said:

and assume all have the same levels of debt

Not it does not, the amount is levied on everyone, but it will be managed centrally by Ofgem based on bad debts at each supplier. 

wrf12345 said:

but it is a cap and in a "competitive" market it will give the "good" companies an edge on pricing.

It could, but the level the cap is set at and the current wholesale market means we do not have a properly competitive energy market. 

wrf12345 said:

If we were still in the EU I am sure their regulators would have had a fit at the terrible treatment of customers 

I doubt it, the EU do not often get involved in domestic energy supplies and the reality is that UK energy consumers are not being treated "terrible", it is just your lack of understanding.

wrf12345 said:

but as we are not we are at the mercy of hapless or hopeless regulators in the UK who can't get their head around the idea that they are supposed to protect consumers rather than bend them over for a good going over. 

That depends what you define as protecting consumers, they already pushed many suppliers into insolvency due to the price cap and forcing suppliers to sell below cost. You also seem to think that "protect consumers", means short term price cuts, rather than long term investments in a sustainable and carbon neutral energy network, the latter is far more important than the former. 

wrf12345 said:

I think the market now needs to split into (smart) prepayment meters with no standing charges and a higher unit charge, and the DD market as per now, that would give people a real choice and stop them being done over by Ofgem There is a new energy minister so that would at least give them something meaningful to eventuate and any change is only going to come from that department.

It has already been pointed out that dropping the standing charge would not make sense, even those on pre-payment are still connected to the grid, still have to contribute to the majority of it's costs, it could be argued that they should be excluded from the bad debt levy, but then many pre-payment customers have debts on their meters which will ultimately have to be written off as bad, so it would be an irrational move.

You constantly rail against Ofgem, you constantly whinge about the standing charge, but you fail to present any rational, workable and vaguely fair alternatives to their policies. What you propose either will not work, or means that you want your energy subsidised by another group of people, which is a selfish position.

JSHarris

Just had a look at the historic data for the day-ahead auction wholesale prices over the past few years.  This tends to be the maximum that suppliers pay, most will also effectively have some fixed deals most probably at lower prices.  These prices are the average per month for each year, in £/MWh.  Divide them by 1000 to get £/kWh:

These data illustrate just what a massive hike there has been in wholesale prices, and hence why the impact on retail prices has been so great.  taking November as the latest month for which there is up-to-date figures, in November 2020 the average wholesale day-ahead auction price was 5.498/kWh.  This November just past the average wholesale day-ahead auction price was 28.834p/kWh.  That's an increase of 524%.

Domestic electricity bills haven't increase by anywhere near that much, thanks to the cap, but profits have been massively squeezed as a part of the mechanism to keep retail prices down.  Not surprising that a lot of smaller suppliers weren't able to stay in business, as the chancers that viewed the energy supplier sector as a get rich quick scheme didn't bother to hedge for this scale of risk.

Archerychick

This is a proposed change, and is out for consultation until 17th January

https://www.ofgem.gov.uk/publications/energy-price-cap-additional-debt-costs-review-consultation