Price cap increases- To fix or not to fix?

Morning, ​@Ben_OVO 👋 and thanks! 

Quick question regarding the Price Cap (As set by OFCOM).
OVO state that the price rises are ‘Industry Wide’, which is fair enough, but, my question is, when OFCOM set the price caps, do energy companies HAVE to increase their unit prices and standing charges, or are they just doing it to make the most money from customers?

I mean, okay, OFCOM have allowed energy companies to raise their prices in July, but do they all HAVE to.
For instance, could OVO KEEP their current prices as they are now, to reward existing customers and attract new ones by having the cheapest fuel prices?

If so, it just seems like pure greed for every energy supplier to raise their prices, just because they can!

  OFCOM do communications - TV, radio, telephone and broadband, for example. The energy market regulator is Ofgem: GEM is ‘gas and electricity markets’.  
  

Ofgem don’t just set the price-cap, they determine pretty much just how much ‘profit’ the energy suppliers can make from the majority of their customers - those on Standard Variable Tariffs, the ones governed by the price cap. Before any interest or taxes have been paid, a supplier is allowed £43 per customer per year over and above costs. That doesn’t strike me as greedy.

Sorry, yes, OFGEM.

It might not seem ‘greedy’ to those who can comfortably afford it, but even a small rise in the standing charges and unit rates has a big effect on the monthly bills for those on low income, or unemployed for whatever reasons.

And, like I mentioned, Energy Companies make more money the more customers they supply and have signed up to them. Cheaper rates makes them more attractive and means more people will switch.

In addition Cornwall Insight are in the game of forecasting future CAPs here:

https://www.cornwall-insight.com/press-releases/cornwall-insight-release-final-july-price-cap-forecast-2/

Ofgem look a prices on the Futures market to determine what the level of the CAP should be to give the suppliers a readonable working margin. Suppliers can then play around with a combination of the Unit Rates and the Standing Charge to make themselves look attractive to different sections of the community. But, in total, their prices must not exceed the CAP for the user who is defined as average. Being careful not to use the term average user which might draw the wrath of ​@Firedog who would rightfully tick me off for saying no customer is average. It's too hot for being ticked off.

Suppliers can offer prices below the CAP. Bulb did that and went bust because they didn't buy enough contracts for their customers on the Futures market so when the prices went up in the post Covid energy crisis they couldn't afford to buy the energy. Tomato did that for EV users more recently and went bust possibly because they didn't ask enough to run an effective administration process and Ofgem shut them down when they failed their customers. You're damned (by comment) if you run at the CAP or dammed (by collapse) if you undercut it by too much.

Peter 

Ofgem don’t use the term ‘average’ about household consumption for a good reason. Almost every household uses some energy, but a few very high users push the average up to unhelpful levels. They use the median instead - the level that 50% of households use less than. This they call ‘typical’ consumption. Their thinking is clearly laid out in §2.9 and 2.10 here: Review of typical domestic consumption values: decision

I don’t do wrath, but clarification is always good, regardless of the weather 😉

Energy companies only obligation as regards the Ofgem “Price cap” is that they are told, for each of the regions, the MAXIMUM that they can charge for unit rates for each fuel and the MAXIMUM that they can charge for standing charges for each fuel. Those of us who have been OVO customers for some time may remember, some years back, when OVO did not raise their standing charges for a considerable length of time (I think it was, at least, 6 months). I do have the data on one of my machines, but could not put my mouse on it immediately. However, the costs of keeping us all supplied do go up - by this I mean the running costs of companies. Increasing wages (and there is nothing wrong with doing this), increased National Insurance costs for employers (I can wax lyrical about this for hours), increased costs of basic things like meters and In Home Devices and the cost of getting them to where they need to be, network charges that allow energy companies to distribute the energy they buy, the cost of the government mandated Warm Home Discount, etc. all need to be paid for. 

Companies have to strike a balance between charges and viability. When companies fail, the knock on effects are felt by us all.