Price cap increases- To fix or not to fix?

Am curious on others thoughts.

1. Would you prefer if standing charges on the price cap are smoothed out so everyone pays the same irrespective of where you live?

2. Would you prefer if unit rates were smoothed out so everyone on the price cap pays the same irrespective of where you live?

The result of this survey might be predictable, although the fact that standing charges follow a different regional variation than unit rates complicates it considerably. I’m sure my Liverpudlian exemplar would like to see standing charges standardized across the country, but I doubt the Londoner would. It’s not an unreasonable concept, though; it costs just the same to send a Christmas card from Penzance to Falmouth and from Penzance to Lerwick (I think), so why should it cost more to send electrons further? 

It’s not quite the same with unit rates, though, and the absence of market forces doesn’t make it easy to find an equitable system. Is there a big difference in the price of a pint of milk in Inverness and Cardiff? Or a litre of petrol in Ullapool and Dover? I don’t know, but I shouldn’t be surprised either way. 

Wholesale gas prices have been falling. This impacts both gas and electricity prices.

So it will be interesting to watch.

It has been falling because of lower demand in the northern hemisphere, large stockpiles and forward protections of relatively warm temperatures. Also a switch to using coal rather than gas in some other parts of the world. 

Hence why some of the fixed rates are priced competitively as suppliers can lock in reasonable costs. 

It is hard to predict what will happen to wholesale prices and any government/ofgem policy changes.

Yes, it’s difficult to make predictions, especially about the future.

If there was less of penality for leaving fixed i’d proably go for the loyalty one, I just can’t decide either, it will be slightly cheper for hte first 3 months of the year htats for sure, but for the rest not sure, I can’t see it goign down a lot but you never know, I feel increase is more likely

I don’t really consider the leaving penalty, if you are fixing then you fix for the full term.

One other thing that is now swinging me towards fixing at the offered loyalty rates is actually nothing to do with the rates themselves.

By fixing I wouldn’t have to put up with them wanting to increase my DDs to inflated levels every 3 months and then having to get on the phone and argue them back to a reasonable level.
(When you fix the only variable becomes your estimated usage for the period of the fix).

I do have a debit balance to pay off from the transfer from SSE, my balance will be about -£150 after Decembers DD is paid, but as I am currently paying around £50 a month more than my usage it’s on track to clear that completely by the end of March.
If I fix now then what remains of that (ie, the -£150) will get spread over the next 12 months instead, but I don’t see that as an issue.

Timing can be important when fixing, especially if you have a debit balance like me then you want to fix when your existing balance is at it’s lowest. which will be the day or day after your DD has been paid in.

Is this what happens currently? OK, there was a policy change that took effect on 1 October last, the one that aims (quite sensibly, to my mind) for a zero balance at 31 March. Those in debt at the beginning of winter would naturally see a higher DD recommendation, because there were now fewer months in which to whittle the debt down. So I suppose if you were to fix now, you’d have 12 months to do it in. If that is the case, then I suppose it makes sense for you, if not for OVO. 

My own reasoning depends on the Cornwall forecast increase in standing charges, which I still don’t know what causes. If I can head that off by fixing, I would still be in the black even though their predictions of increased unit prices proved to be a bit pessimistic. I’m not sure where the extra £16 a year fits into the picture (did Cornwall expect it to be loaded on to the standing charge, even though Jeff suggests that this wouldn’t be the case?). Either way, fixing now would avoid it for a few months at any rate. 

"Looking ahead to the second 2024 cap period (April-June), Cornwall Insight anticipates an 8p per day increase in electricity standing charges, influenced by the ongoing reform of network charges."

https://www.energylivenews.com/2023/11/16/energy-price-cap-to-rise-5-in-january/#:~:text=Energy%20consultancy%20Cornwall%20Insight%20has,a%20typical%20dual%20fuel%20household.

I haven’t seen anything that Cornwall Insight incorrectly assumed the consumer debt charge was going on the standing charge, all the ofgem documents mention the debt costs going on the unit rates for the very reason that the standing charge is already high... but of course i can't be certain. This is an ofgem document for example.

As Cornwall Insight say there is nothing clever in their estimates, they use data and calculations that are in the public domain. These get more accurate as they approach each ofgem calculation point.

The shifting of network charges from unit rates to standing charges will continue unless ofgem and the government decide otherwise. This is both the Transmission costs ie National Grid ESO or Distribution costs ie your local DNO.

Not only are the costs shifting from unit rates to standing charges, there is an awful lot of upgrades needed for net zero to connect and distribute all the renewable power and increase the capacity in the infrastructure for all those heat pumps, EVs etc.

Also in the past the costs for connecting a new generator was bourne by the generator so appeared in their costs and fed through in their unit rate. This shifted so some costs are bourne by the network operators and will appear on the standing charge.

You can see the start of all these changes in the graph I posted. TNUoS for Transmission costs and DUoS for Distribution costs.

One alternative of course is to reverse this decision and put these costs back onto unit rates.... I can't see any government shifting the costs to general taxation 

That is where cost and price comes in for want of better words.

We have a universal service for post so customers pay the same price, but it costs Royal Mail more to send a Christmas card longer distances or to deliver in sparse rural areas.

We don't have the same setup for electricity standing charges or unit rates.

In fact the regional price for electricity unit rates may well change from regional to zonal and nodal as we move towards more time of use tariff as more customers have  EVs and heat pumps. So one part of a village may have different prices to another part in any 30min slot. The differences in local substations could be dramatic in a few cases.

Yes, it’s been happening since I was moved from SSE to OVO.

As an example the last time they wanted £164 a month, (dual fuel), I argued it down to £150 and as I say that is currently on target for zero balance at the end of March.
So it isn’t difficult to see which one of us had the more correct calculation.
(OK I accept that the new January 2024 rates would alter that, but at the time of the calculations both of us had to calculate using the rates announced at that time).

I believe it happens because they tend to calculate the new DD’s just days before my DD is paid, and so the previous months usage is added to the calculation as ‘debt’.
(It’s also my belief that that is the cause of the phantom 13-months DD calculations we sometimes hear about, the 13th is the current, not yet paid, months balance added as a debt to the coming 12 months).

I have now decided to fix for the next 12 months at the Fixed Loyalty rates.
So a U-turn from my first post in this thread.
I’m now weighing up whether to do that on my next DD date or next monthly bill end date, there’s currently a couple of days diference. I’ll probably do it on DD day when the outstanding debt will be at a minimum.

As you note that does mean that the remainder of my outstanding balance gets spread for another 12 months.
I calculate that my new DD on the fix should be around £130 a month. (Dual Fuel), It will be interesting to see what OVO calculate.

PS. I have read the Ofgem review discussion paper, interesting if you have the stamina to read it.