Energy price cap - cap the profits

susansue

But I still see this kind of article.  Are they wrong?  https://www.proactiveinvestors.co.uk/companies/news/1043089/e-on-sees-retail-profits-double-after-hiking-consumer-bills-1043089.html

Hoenir

wrf12345 said:

There is declared profit, which is always low to avoid tax, 

I'd be interested to know how this is achieved. I'm sure that the HMRC will be interested too. 

Hoenir

susansue said:

Folks here still seem to be denying that energy company profits have increased during the energy crisis. 

The energy crisis is over though. Time moves on. 

Hoenir

EssexHebridean said:

Martin recently did a Radio 5 show with the boss of Ofgem - and it's available as one of his podcast releases. It does a good job of explaining a lot of the confusion that is apparent here, including the difference between energy suppliers and energy producers, and also the profit levels. 

People dismiss and deny what doesn't fit their own agenda these days. 

QrizB

the_lunatic_is_in_my_head said:

Scot_39 said:

One of the reasons the cap was changed to 3m was to track price rises.

Because suppliers with too low a percentage price hedging were driven into debt almost as soon as wholesale prices started to rise - which gathered pace summer into late 2021 early 22  - summer 22 cap was c60% higher,  Oct 22 80% higher, Jan 23 20% higher in lagged Ofgem timing.  The suppliers were paying higher rates in the earlier averaging periods.

From what I can see the price of gas was 3.35 USD in Oct 2019 and started to fall, bottoming out at 2.01 USD in April 2020 then climbing back up to 3.67 USD by Oct 2020 but the price cap only fell 7%.

I think (from the USD prices) you've quoted the wrong continent's gas prices. You might even be quoting gasoline rather than natural gas.

You'll find example UK wholesale natural gas prices here. on the Trading Economics site:

https://tradingeconomics.com/commodity/uk-natural-gas

The chart for the last decade looks like this. Prior to the recent crisis, the price per therm was typically around 40p (1.4p/kWh) and peaked in 2017 at ~75p (2.6p/kWh). It's barely been below that 75p value since mid-2021, with the peak being ~640p/therm (22p/kWh).

the_lunatic_is_in_my_head

QrizB said:

the_lunatic_is_in_my_head said:

Scot_39 said:

One of the reasons the cap was changed to 3m was to track price rises.

Because suppliers with too low a percentage price hedging were driven into debt almost as soon as wholesale prices started to rise - which gathered pace summer into late 2021 early 22  - summer 22 cap was c60% higher,  Oct 22 80% higher, Jan 23 20% higher in lagged Ofgem timing.  The suppliers were paying higher rates in the earlier averaging periods.

From what I can see the price of gas was 3.35 USD in Oct 2019 and started to fall, bottoming out at 2.01 USD in April 2020 then climbing back up to 3.67 USD by Oct 2020 but the price cap only fell 7%.

I think (from the USD prices) you've quoted the wrong continent's gas prices. You might even be quoting gasoline rather than natural gas.

You'll find example UK wholesale natural gas prices here. on the Trading Economics site:

https://tradingeconomics.com/commodity/uk-natural-gas

The chart for the last decade looks like this. Prior to the recent crisis, the price per therm was typically around 40p (1.4p/kWh) and peaked in 2017 at ~75p (2.6p/kWh). It's barely been below that 75p value since mid-2021, with the peak being ~640p/therm (22p/kWh).

Thanks, yes presumably looking at the price of some other type of gas!  

Scot_39 said:

And as above figures - even some of those that survived were making big losses.

And obviuosly the c29 failures making unsustainable losses.

I couldn't find the source right now but it was on the commons library website, stating the government made about £1 billion profit selling energy due to lower prices and the higher cap, did Bulb just fold too early? If they had had the money to weather the storm would they have picked up?

Yes I understand around 29 smaller companies went bust, again due to not having the money to weather the storm, but translating that forward to today, as I've said before, the remaining companies got around 2.4 million customers handed to them and we paid the costs of that process through our energy bills.

Now they are back to paying out £100 to get new customers to sign up... 

Scot_39

Yes and you might in fact note that 2/3rds pre tax profit isn't doubling profit.

And that corporation tax on large firms has been increase from 19% to 25% in the 2023 tax year period.

And that ebit operating profit pre tax and interest - that is capped Sat 2.4% - so £43 in current cap 

And as the article itself says - Ofgem allowance was increased in part to compensate for past losses due to cap.

And that 2.4 % ebit was increased in part to cover increased debt costs from 1.9%.

As was the initial £11 "temporary" hardship allowance, increased to £28 in April.  

Bad debt so high post crisis all on dd / sc paid that increased £28 to offset less than 1/6th of bad debt after financing costs even at base rate on £3.7bn let alone eliminate it (last figure I saw - and thats few months old - up from £3bn at end of last year).

Losses the cap doesn't allow suppliers freedom to recoup themselves.

Losses made worse by govt policy on preventing cut offs and even prepay metering on those amassing significant debt was stopped for yr plus and now more difficult. 

Few other businesses are expected to provide services that cost them to so many customers for essentially free  or on at best interest free credit over years in some cases for those in debt plans.  Energy retailers all too regularly are.

QrizB

susansue said:

But I still see this kind of article.  Are they wrong?  https://www.proactiveinvestors.co.uk/companies/news/1043089/e-on-sees-retail-profits-double-after-hiking-consumer-bills-1043089.html

Are who wrong, specifically, and about what?

That report is quite lazy and misrepresents the E.ON press release it links to. The actual report says:

Customer Solutions’ adjusted EBITDA rose by €1.1 billion year-over-year to €2.8 billion. The market environment had a positive impact here as well. For example, the further stabilization of price levels on wholesale markets contributed to this segment’s good earnings performance relative to the prior year, which had been strongly affected by very high prices on energy markets. Furthermore, an additional procurement optimization and one-off effects like non-recurring effects relating to the regulation in the United Kingdom led to a significant earnings increase. The negative effects on earnings included in the forecast for the end of the year did not materialize, because energy markets did not experience another winter crisis. By contrast, the passthrough of lower wholesale prices to customers was, as announced, among the negative effects in the fourth quarter.

As I linked to earlier, their UK retail energy business only made £20 million. The rest of the 2.8B Euros must have come from somewhere else.

To be honest you seem to be sealioning in this thread:

https://en.wikipedia.org/wiki/Sealioning
If you're not going to engage in good faith, I'm out.

EssexHebridean

susansue said:

But I still see this kind of article.  Are they wrong?  https://www.proactiveinvestors.co.uk/companies/news/1043089/e-on-sees-retail-profits-double-after-hiking-consumer-bills-1043089.html

That appears to be suggesting that Eon have benefited in profit from the allowance for suppliers relating to bad debt - which I would guess is as a result of them applying the allowance against previously written off debts. Had they applied it purely against current bad debt, then that would not appear in their profits. Whether that is the spirit of how it as intended to be treated I cannot answer although someone else might well know. 

matt_drummer

EssexHebridean said:

susansue said:

But I still see this kind of article.  Are they wrong?  https://www.proactiveinvestors.co.uk/companies/news/1043089/e-on-sees-retail-profits-double-after-hiking-consumer-bills-1043089.html

That appears to be suggesting that Eon have benefited in profit from the allowance for suppliers relating to bad debt - which I would guess is as a result of them applying the allowance against previously written off debts. Had they applied it purely against current bad debt, then that would not appear in their profits. Whether that is the spirit of how it as intended to be treated I cannot answer although someone else might well know. 

It might be more accurate to say that they have benefitted from reduced losses relating to bad debts as a result of the allowance.

Applying the allowance (income) against bad debts previously written off is the correct thing to do if that is what the allowance relates to, and means that corporation tax is paid at the earliest opportunity on the benefit derived from the allowance.

Carrying forward the allowance to offset future bad debts would be against accounting standards if that is not what the allowance relates to.