Energy cap to go up again in October

[Andrew]

Just heard on the BBC radio news that the cap is going up to £2,800 in October.

Ouch.

[Jeff Gaines]

The real issue is that energy companies see it as a target not a cap, couldn't possibly have been foreseen could it?

[R D S]

What, per KWh? :)

Seriously though, I always assumed the cap was per unit?

In theory can I spend £1000 per month on energy (probably not that difficult ATM) and pay £466...

[Theo]

The cap is at two levels, 0 kWh and 'average' consumption (3100kWh for non-E7 elec, 12000kWh for gas). The energy company can pick any tariff as long as it's below the cap at those two points.

So the current cap for London has a max £953.73 for 12000kWh of gas and £986.60 for 3100kWh of electric, making the 'average' bill £1940.33.

Assuming they remain making a loss as they current are, the energy company will probably pick a straight line through those points and that gives you the standing charge and unit rate.

Sadly not...

Theo

[Max Demian]

And energy company CEOs have the cheek to suggest that the Government pay (some) people money so they can afford to pay for their expensive energy.

[Fredxx]

I don't get the 'cheek'? It's a marketplace, where the wholesale price has had unprecedented increases. Feel free to start your own company to supply energy. Apart from the hoops you'll have to jump through I wager you'd still make a loss.

I never saw the point of a price cap. All it does is create a target price.

[SteveW]

The electricity and gas companies are having to buy their supplies at market rates, driven by world prices. It is the companies that actually run the fields that are making big profits at the moment - and they are not the companies that domestic users are buying from.

[Theo]

+1. Everyone's pricing at the cap because it makes them the least losses, not because they're trying their luck.

The cap was never designed for this - it was to prevent legacy energy companies from stinging loyal customers on 'standard' tariffs, while at the same time offering competitive tariffs to switchers. The cap was to prevent those 'standard' tariffs getting out of hand. Many suppliers' prices were nowhere near the cap, which was only really a backstop to prevent gouging.

Nowadays everybody has ended up on a 'standard' tariff, because all the previous tariffs were pulled since they lost even more money for the supplier. If you switch to a non 'standard' market-priced one, you'll pay a lot more.

The cap always looks backwards in time for pricing so, as the cap goes up, at some point the future price of energy will become less than the cap and competitive non-capped tariffs will arise again. Although it seems Ofgem want those to pay money ('Market Stabilisation Charge') to the old suppliers, which will probably erode the benefit:

Theo

[Robin]

That was patently not true in the past when many of us enjoyed tariffs below the cap. Things changed with the massive increases in wholesale prices it has not been true. But if you reckon you could supply customers for less than the cap then set a company, get your licence and see people flock to you. But I hope Ofgem would now insist you put a decent wedge of capital at risk and show how you can manage to beat the market.

[Andrew]

And 2 years ago Oil prices went negative for a brief point and all the oil majors lost billions. How many people crowing about paying under £1/litre in mid 2020 were in the slightest way sympathetic to the oil companies 'profits' ?

I suspect when the new tariffs are announced the suppliers will find a way of loading more of the gas increases onto electricity users so that they can then make it 'easier' for gas users.

Rishi could of course cut VAT from 5% to 2% and get the same total amount of VAT on the inflated 'world' prices.

[NY]

If oil prices went negative, it's a shame that pump prices didn't follow suit. :-)

It's a shame that there isn't more scope for fuel companies (and maybe electricity/gas companies) to buy from a cheaper source, rather than there being a global price for the raw oil/gas.

It's now got to the stage that my more efficient diesel-engined car is probably more expensive to run than a petrol-engined one, because the savings on volume of fuel used are outweighed by the very large difference in price per litre of diesel over petrol.

[Andy Burns]

Or he could change VAT on gas/electricity into a duty per kWh, so he doesn't have to keep juggling the VAT rate to raise the same total amount as the price changes.

Heh, he could even take the same approach on petrol/diesel, so there isn't VAT and duty on vehicle fuels, or move towards equalising this energy duty regardless of whether it's for home use or vehicle use ... ok pipe dream.

[Max Demian]

It's a cheek to suggest taxpayers should foot the bill. Are they socialists? One definition of socialism is doing good with other people's money. If they don't have a way to cut their prices they should keep their traps shut.

[Theo]

The issue is that the retail suppliers (who send us the bills) are not the people who dig the gas out of the ground.

The diggers (Shell, BP, etc) get the gas for 'free' after paying their extraction costs and tax. Those extraction costs haven't changed, but they can sell what they extract on the wholesale market for 3x what they could before the crisis. That's the 'excess profits' everyone is talking about.

The retailers buy energy on the wholesale market and resell it on to us. Through completely unintended consequences (the price cap) the government is forcing down the prices *retailers* can charge, but they aren't forcing down the costs those retailers pay for their energy. This is why retailers are getting squeezed and going bust, and this is why the CEOs of retailers are complaining the government should help. The government is forcing them to make a loss, but giving them no help with their input costs. Short of making themselves go bust even faster, there's nothing a retailer can do.

This is the point of a windfall tax: it would tax the diggers (which is where the gravy is being made) and redistribute it to consumers. (and by implication it would reduce the return to the diggers' shareholders

- they would presumably still make a good profit, just not as much)

Theo

[Fredxx]

There is already a windfall tax when the value of their stored oil reserves go up. Oil companies are required to store 90 days supply.

When this 90 days worth of oil go up in value they pay corporation tax on the increased value.

What is shameful is they haven't made gas importers retain a 90 day or so reserve of natural gas.

If we taxed those businesses you mention, it would drive their HQs and therefore future corporation taxes offshore. I'm sure the ROI would look even more attractive to shareholders. Is that what you are trying to achieve?

I'm not sure if you have truly thought this through. Were you intending to tax the Saudi Royal family too, or just companies currently located in the UK?

[Fredxx]

Reducing VAT on energy is hardly taxpayers footing the bill?

Many things we consume or use are subsidised, that's not just a socialist ideal.

[Andrew]

Actually, because many of the green companies make money out of RPI linked subsidies, they are making a windfall profit with RPI now

9%. Hence the big falls in green energy companies yesterday while the share price of Shell and BP didn't flinch. Neither of these two companies got any financial support in April 2020, so why should they have to pay windfall taxes now.

How about windfall taxes on house prices, or on families with more than 2 kids ?.

[Andrew]

In summer, diesel and petrol are much closer in price because the refineries are not refining heating oil (which is similar), leading to a glut of diesel on the 'spot' market. In winter the rverse is true.

This year we are reminded that Russia supplies(d) a lot of the European refined diesel market. This might also be because Russian oil has a lower sulphur content, which (I believe) is why Saudi Crude did not end up in UK refineries.

[Max Demian]

That's not what the CEO I read was suggesting. He wanted "poor people" to receive extra money from the Government.

[Max Demian]

[snip]

I don't care what the issues that lead to the high prices are. I just want CEOs to shut their traps.

Shows that the free market isn't working, as there isn't a real shortage of gas apart from in countries who have decided they don't want Russian oil. It's a defect of globalisation.