If I see Sid..

[fozy tornip]

.. what should I tell him about running essential utilities on a 'trading futures' model?

 

[Milkfloat]

This reminds me of the mobile phone boom where there were tens of small shops in every town selling them, the market soon consolidated and only the strongest, smartest and richest survived. Money was made, money was lost, but the consumer got where they wanted. The deregulation of the energy suppliers meant an explosion of companies starting up, some with very few customers indeed, the market was always going to consolidate, it is a shame that it has happened in such a catastrophic way rather than a slow gradual eking out of the weakest. I am sure some people got rich in dividends and inflated salaries whilst the going was good but the majority will not have and the customer will suffer.

 

[BoldonLad]

Unless I am very much mistaken, the Companies which have gone bust, and, no doubt, those that will go bust in the next few weeks/months are not "Energy Companies", they are Marketing and Billing Companies. None of them generate a single kilowatt of Electricity, or Therm of Gas. Other than a degree of concern and inconvenience, I struggle to see how any consumer will suffer as a result of their demise?

No doubt, we will all be subject to increased Energy costs in the future, but, I do not see how this is connected to the collapse of a few opportunist start-ups.

 

[mjr]

Unless I am very much mistaken, the Companies which have gone bust, and, no doubt, those that will go bust in the next few weeks/months are not "Energy Companies", they are Marketing and Billing Companies. None of them generate a single kilowatt of Electricity, or Therm of Gas. Other than a degree of concern and inconvenience, I struggle to see how any consumer will suffer as a result of their demise?

No doubt, we will all be subject to increased Energy costs in the future, but, I do not see how this is connected to the collapse of a few opportunist start-ups.

1. how do you "generate" a "Therm of Gas"?

2. customers will suffer because they'll be shoved to other marketing and billing companies that charge more, often far more than cost over time, which means they have "spare" capacity to serve new customers.

3. the basic problem is that the energy "market" is dysfunctional and tends to oligopoly rather than competition. The rules were botched by Thatcher-Lawson and not fixed by meddling of Major, Brown or Cameron (so far... I expect Johnson and Kwarteng will fiddle too).

 

[stowie]

I don't think it needed Nostradamus to work out the fragility of the gas supply chain.

Some bloke from the Grunaid in 2017 wrote an article about the closure of the Rough storage facility back in 2017 which seems rather prescient...

Many supply chains have been found wanting under the strain of COVID, but there are some supply chains more important than others. The ability to provide energy to its citizens is one of the core functions of government along with food supply, security etc.

 

[steve292]

You can lay the blame for this square at Thatcher's door. The old CEGB was set up in such a way that there was plenty of slack in the system and had a diverse range of supply, as shown during the Miners strike when it ran for a year on existing coal stockpiles, and oil fired stations with no disruption of supply. Likewise British gas was beholden to keep an adequate reserve. We also had a massive reserve of oil and gas in the north sea.
Until it was all broken up and sold off. The gas storage facilities were sold off/ decommissioned because they were expensive to maintain, the CEGB was broken up and all its assets run to destruction basically, and we all know what happened to the oil and gas reserves. New Power stations since then have mostly been gas powered.

 

[BoldonLad]

1. how do you "generate" a "Therm of Gas"?

2. customers will suffer because they'll be shoved to other marketing and billing companies that charge more, often far more than cost over time, which means they have "spare" capacity to serve new customers.

3. the basic problem is that the energy "market" is dysfunctional and tends to oligopoly rather than competition. The rules were botched by Thatcher-Lawson and not fixed by meddling of Major, Brown or Cameron (so far... I expect Johnson and Kwarteng will fiddle too).

1. OK, whatever term which should be used to mean "extract gas from the North Sea (or wherever it comes from) and pump it to the customer". I am sure you are intelligent enough to know what I meant.

2. Customers do not have to stay with whichever billing company they are switched to (at least, not beyond their contractual period), they can switch to another provider, but, clearly, if Energy Costs are increasing, then, bills will rise, or, Energy Consumption will be subsidised (very green). This is true even if the Energy Suppliers are Nationalised and the Billing Companies allowed to go bust.

3. Don't particularly disagree, just not sure who (politician wise) I would trust to correct this.

 

[stowie]

Unless I am very much mistaken, the Companies which have gone bust, and, no doubt, those that will go bust in the next few weeks/months are not "Energy Companies", they are Marketing and Billing Companies. None of them generate a single kilowatt of Electricity, or Therm of Gas. Other than a degree of concern and inconvenience, I struggle to see how any consumer will suffer as a result of their demise?

No doubt, we will all be subject to increased Energy costs in the future, but, I do not see how this is connected to the collapse of a few opportunist start-ups.

They may not be energy companies in that they are not drilling / digging up the stuff, but they are more than admin. I view them as energy distribution although they aren't actually turning up with barrels of "energy"! But they are buying from wholesalers and distributing to a broad market of consumers. So seem to be taking on long term contracts on the sell side serviced by short term pricing contracts on the buy side. All hunky-dory if the market pricing fluctuates as per historical data, not quite so cosy if not.

My understanding is that the issue is at least in part due to the energy pricing caps imposed on these consumer contracts by the OFGEM / government. Because politicians are all hardcore Hayek until their voting core start to complain.

So, one of the problems seems to be that the customers of those now insolvent energy suppliers are finding it rather difficult to move supplier. Since no-one wants more customers operating at a loss and certainly not to honour the existing tariff deals of the defunct companies. So the government look like they will have to step in and bung a bunch of cash to the big retail energy suppliers for them to take on the extra customers. Or the government removes / raises the energy price cap and I don't think it takes much imagination to work out how popular that will be.

As @steve292 says, the UK is in a poor position compared with our neighbours because we have removed our storage capability and appear to be running lean compared with other similar countries. As with many other supply chains, the efficiencies of no redundancy are highly attractive especially for PLCs and their shareholder meetings so that the risks inherent in such a strategy are easily ignored. As I understand, the government needed to sign off on decommissioning and they should have been taking a wider view than simply the bottom line.

 

[Dolorous Edd]

My understanding is that the issue is at least in part due to the energy pricing caps imposed on these consumer contracts by the OFGEM / government. Because politicians are all hardcore Hayek until their voting core start to complain.

You think Hayek would have advocated regulated price caps? Or are you saying price caps are a result of voters starting to complain?

 

[BoldonLad]

They may not be energy companies in that they are not drilling / digging up the stuff, but they are more than admin. I view them as energy distribution although they aren't actually turning up with barrels of "energy"! But they are buying from wholesalers and distributing to a broad market of consumers. So seem to be taking on long term contracts on the sell side serviced by short term pricing contracts on the buy side. All hunky-dory if the market pricing fluctuates as per historical data, not quite so cosy if not.

My understanding is that the issue is at least in part due to the energy pricing caps imposed on these consumer contracts by the OFGEM / government. Because politicians are all hardcore Hayek until their voting core start to complain.

So, one of the problems seems to be that the customers of those now insolvent energy suppliers are finding it rather difficult to move supplier. Since no-one wants more customers operating at a loss and certainly not to honour the existing tariff deals of the defunct companies. So the government look like they will have to step in and bung a bunch of cash to the big retail energy suppliers for them to take on the extra customers. Or the government removes / raises the energy price cap and I don't think it takes much imagination to work out how popular that will be.

As @steve292 says, the UK is in a poor position compared with our neighbours because we have removed our storage capability and appear to be running lean compared with other similar countries. As with many other supply chains, the efficiencies of no redundancy are highly attractive especially for PLCs and their shareholder meetings so that the risks inherent in such a strategy are easily ignored. As I understand, the government needed to sign off on decommissioning and they should have been taking a wider view than simply the bottom line.

I don't see how they can be regarded as "distributors" they do not own/operate the grid, or the gas pipelines, they are more akin to the Mobile Phone operators who piggy back off the main Networks (eg Virgin, Tesco, Smarty, ASDA, etc etc) IMHO.

Price controls seldom work for long, Price Caps were doomed from day 1, it was just a question of when, not if.

I would agree that UK Energy Policy has been shambolic, for many years.

 

[Milkfloat]

I struggle to see how any consumer will suffer as a result of their demise?

Customers suffer because they fixed their energy cost for a period of time, when the company goes bust they no longer have a fixed energy cost, we get massive price rises because companies will only take us on at a significantly higher price (the energy cap). This rise can easily be £400 or more per year whichever is a huge some for many families at a time when everything else is going to shoot.

 

[stowie]

You think Hayek would have advocated regulated price caps? Or are you saying price caps are a result of voters starting to complain?

It was a bit of a soundbite - just call me Boris...

I think that politicians are all-in on free markets and reduction of government "meddling". Until they are not. Usually because they see votes being lost from their core base.

 

[BoldonLad]

Customers suffer because they fixed their energy cost for a period of time, when the company goes bust they no longer have a fixed energy cost, we get massive price rises because companies will only take us on at a significantly higher price (the energy cap). This rise can easily be £400 or more per year whichever is a huge some for many families at a time when everything else is going to shoot.

I thought the deal was, Customers of failed companies get switched to another Company, on the same terms, for their Contract duration?

This is why I said, "in the short term", in my original post.

As I understand it, this is why ""other" companies are reluctant to "pick up" the customers of those who have gone bust, without a sweetener from Government, of course.

I could be wrong.....

 

[Milkfloat]

I thought the deal was, Customers of failed companies get switched to another Company, on the same terms, for their Contract duration?

This is why I said, "in the short term", in my original post.

As I understand it, this is why ""other" companies are reluctant to "pick up" the customers of those who have gone bust, without a sweetener from Government, of course.

I could be wrong.....

It used to be that they could keep their current deal, but that all went out the window when no right minded company would take them on. The companies generally don’t want any new customers at the moment unless they are on a fixed deal as each one is a potential liability due to the price cap. Fixed deals are not subject to the cap.

 

[stowie]

It used to be that they could keep their current deal, but that all went out the window when no right minded company would take them on. The companies generally don’t want any new customers at the moment unless they are on a fixed deal as each one is a potential liability due to the price cap. Fixed deals are not subject to the cap.

I suppose there is no obligation for other suppliers to take on customers at the old contract, or indeed at all.

In the normal scheme of things, companies would like new customers so it isn't a problem until now. I expect also financially struggling energy companies would typically get bought (or at least their existing customer contracts bought) by another to boost their customer base. This of course assumes anyone wants them....

I am guessing the new fixed rate tariffs - which would seem to be the only ones available to customers of bankrupt suppliers - are considerably more money and currently on pretty poor rates which locks these customers into a poor deal for a significant period of time.

I wonder what would happen if the customer of the defunct company simply did nothing. No-one can force them onto a fixed contract but neither will suppliers take them on the standard variable tariff. I worked with someone who - by a million to one co-incidence - got all the suppliers telling him that he had no contract with them but he was still receiving gas and electricity. He got a solicitor to write them all letters saying they had 28 days to respond to clarify and resolve or all future consumption would be treated as gratis. He never got a response. I worked with him 15 years ago and at that time he had had free energy for over 2 years! For all I know he still is getting free energy...

This debacle might make it into text books about the law of unintended consequences with energy caps etc.