Peoples Energy: any experiences and/or knowledge of this supplier please?

[felstedrider]

This from a contact of mine on Linkedin :-

When hedging is in the news then things are bad. Hedging should be boring 🤓There is a lot of nonsense going about at the moment, so an explainer*

Hedging is hard. It involves making balanced trade-offs between competing risks and there is no one-size-fits-all solution.

At its most basic level, hedging for energy supply is straightforward - you buy energy for fixed priced customers at the point of sale and for capped customers during the pricing-in window.

But how much do you buy? Do you buy for customers who leave you and customers you will acquire? How many customers will take your standard variable tariff compared to a new fixed tariff? You have to estimate that about a year in advance to get the cap hedge right.

In a world where fixed prices are *double* the commodity cost allowed under the cap, any estimates you made are now wrong.

How much energy are your customers going to use and when? Do you hedge to seasonal normal demand - and face the normal warm-weather risk of having to sell back loss making hedges?

It turns out that when *summer* gas prices are 180p/th all your assumptions were wrong.

The products to hedge evening peak power are not normally available until the day before supply - when they hit £4,000/MWh any premium you included in pricing was wrong.

Hedging costs money. If you were to insure yourself against unthinkable price movements you would spend more than the regulator allows you to recover in profit.

Hedging also benefits players with scale - the balance sheet to hedge forwards more than a year in advance and cover any MtM margin calls. The basis risk inherent in the price cap requires you to be able to see through periods of losses even if you hedge effectively.

When volatility increases you tend to find that liquidity decreases, further limiting your options. This is especially so for small suppliers whose counterparties will all be tightening credit terms.

So anyone who blithely tells you that companies who hedged ‘correctly’ will be fine is talking rubbish. These are unprecedented market movements where previously manageable risks are now a threat to survival.

*these are all generic points so please don’t try to make any inferences about the positions of my current or former employers

Yep, hedging is difficult.  My employer does it against interest rates*.  It takes a lot of predictive modelling and, as you say, customer behaviour is the hardest one to call.  Unlike the energy firms, however, the regulator requires us to be hedged - we can't just take the risk.

*before you say "but they haven't changed much for a decade", we're talking about interbank rates here, not the Bank of England MLR.

Ofgem added some new reporting requirements last year and a hedging report was part of that.   What it doesn't say is what they do with the information other than go 'oh crap'.

The Power sector in particular is illiquid and the only way to hedge at the moment using OTC physical trades which are pretty credit intensive.   There have been several attempts to create a futures market and a proper index which would help, but they have all failed.

[felstedrider]

Am I right in thinking that direct debits may not be the way to pay, if an energy supplier is going to be setting very high monthly payment, based on projections, and one has a fair latitude to cut down on energy use in the home...

The best deals have always been DD only.   There's less credit risk and less customer interaction.

A lot of industry charges are based on your EAC which is maintained by the industry.   If you, for example, move into a house where there used to be a big family it's quite hard to persuade a supplier to set the DD lower.  It can take up to 18 months for changes in consumption to filter through.

If your supplier goes bust and you're in credit it is protected, though.

The big issue is seasonality as Winter spend is so much higher than Summer.  Customer deposits essentially fund these businesses* so most of them now try to get into the Winter season with a decent credit by customer.   There is a lot of competition for customer contracts that start March April time as the supplier gets the cashflow benefit.


* Loss making, negative equity, positive cash.   Taking on new customers at zero margin to fund the old customers.   Ponzi scheme anyone ?

[robgul]

Am I right in thinking that direct debits may not be the way to pay, if an energy supplier is going to be setting a very high monthly payment, based on projections, and one has a fair latitude to cut down on energy use in the home...

Without question - when we inherited AVRO as a supplier I refused to give them bank details for DD without confirmation of the price plan . . . that wasn't forthcoming with the lack of communication for 7 months, when they finally did get round to any sort of billing (totally incorrect and wildly high) I just calculated the bill we were liable from the meter reads and price list and paid by credit card.   Thank the Lord I didn't let them loose on my bank account.

So - my recommendation would be to stop the DD you have NOW - they can't cut off your supply (although if you have Smart meters that may be possible???) - and one would expect the stopping of payments to galvanise the into action to communicate on billing.  Any risk to your credit rating is minimal.


EDIT Added:   Our supplier now, BG, bills us monthly for the energy consumed during the month and we pay that figure by DD (that's part of the deal)  - BUT the amount is per month and not spread over the year to balance payments etc.  We're in the perhaps fortunate position to be able to do that with lower bills in the summer and higher in the winter (our house only uses gas for CH/HW)

[andyoxon]

We're fixed until next Spring - so DD is fine atm - assuming(!) AVRO don't go bust.   They currently have the 'traditional'  DD end of Summer surplus balance.  If they go to the wall, I guess we'll be put on a default capped tariff with EnergyMegaCorp, and have move to n+1 jumpers during the winter.  'parently there are currently calls to axe the price caps...

[nicknack]

Who do all these 'suppliers' buy their gas from? Do they buy direct from the producers or are there middlemen?

[felstedrider]

Who do all these 'suppliers' buy their gas from? Do they buy direct from the producers or are there middlemen?

There is a wholesale market.   You can buy from producers, prop players, banks or other suppliers.

[robgul]

We're fixed until next Spring - so DD is fine atm - assuming(!) AVRO don't go bust.   They currently have the 'traditional'  DD end of Summer surplus balance.  If they go to the wall, I guess we'll be put on a default capped tariff with EnergyMegaCorp, and have move to n+1 jumpers during the winter.  'parently there are currently calls to axe the price caps...

I assume you mean the price is fixed . . .  what appears to be happening is that AVRO (and others) are stepping up the amounts they take on variable DD  . . . with the potential for you to have much more than necessary (or reasonable) in their bank account - it's secure but again they seem reticent about making refunds.

[rogerzilla]

Who do all these 'suppliers' buy their gas from? Do they buy direct from the producers or are there middlemen?

There is a wholesale market.   You can buy from producers, prop players, banks or other suppliers.

And the landlord of Matt Hancock's local 

[rogerzilla]

We're fixed until next Spring - so DD is fine atm - assuming(!) AVRO don't go bust.   They currently have the 'traditional'  DD end of Summer surplus balance.  If they go to the wall, I guess we'll be put on a default capped tariff with EnergyMegaCorp, and have move to n+1 jumpers during the winter.  'parently there are currently calls to axe the price caps...

I assume you mean the price is fixed . . .  what appears to be happening is that AVRO (and others) are stepping up the amounts they take on variable DD  . . . with the potential for you to have much more than necessary (or reasonable) in their bank account - it's secure but again they seem reticent about making refunds.

EON want to increase mine from £41 to £69 although I haven't used significantly more gas - the wood burner has been taking the strain.  Basically, they want a loan.

[andyoxon]

Had a look at the Octopus quote, currently £700 more p.a. than we're paying, & fixed for 2 yrs.   Wonder if the current rises in wholesale prices are a temporary spike...  $64 000 bn question?

edit. I guess there's a chance the govt may have to step in and support the bigger small energy suppliers...

[nicknack]

Who do all these 'suppliers' buy their gas from? Do they buy direct from the producers or are there middlemen?

There is a wholesale market.   You can buy from producers, prop players, banks or other suppliers.

Ta.

[andyoxon]

Any good regularly updated energy price graph websites to look at?

[felstedrider]

Any good regularly updated energy price graph websites to look at?

Draw a very steep line upwards starting in the bottom left hand corner......

I have seen price bubbles before and this is different.   What I can say is that high prices are weighted to this Winter, so using power, roughly :-

Winter 21 - 18p/kWh
Summer 22 - 9p/kWh
Winter 22 - 9.5p/kWh
Summer 23 - 7p/kWh

This is wholesale only, delivered to the meter is much higher.

A 2 year deal will take away the pain a bit as you get the benefit of averaging.   

My fix rolls off in Jan and I'm looking at circa £800pa increase.   This also depends how many supplier will be left quoting by then.

[ian]

I've always stayed off DD, and they really hate that, one of the reasons we're still with BG – they send a bill (it's random whether we get the bill notification by text, email, through the app, or in the post – I have no idea why sending a bill is so difficult, EDF can't do it either) and I pay it. Pretty much all new tariffs demand DD. I'm less keen to offer them a credit line.

Given the business model, I'd imagine many of these 'suppliers' will go bust if prices stay high. Which mean we pay if they do or don't.

I'm lucky enough to be able to afford it, but in many ways, we have become reliant on fuel being cheap. Still, I'm pretty sure the government claimed we were going to lead the world in a green revolution. I wonder how that's working out.

[Polar Bear]

Indeed.  The tories have been claiming since 2010 that they would be the greenest government ever whilst delaying low carbon house building for at least a decade, removing the incentives for renewable generation and concocting the most inaccessible green deal policy.  Electric cars have flourished in spite of a lack of investment in public charging infrastructure and until recently the most unambitious of targets for banning the sale of new fossil burners.

If the UK had forged ahead building onshore and offshore wind instead of closing UK-based turbine manufacturing facilities, allowed more solar farms and invested more in underwater turbine tech as well as pushing ahead with insulating old properties, all of which has been possible to do, then our consumption of fossils would have reduced and this crisis would be more of a blip.

But, a tory never puts investment before short term profit ...

[felstedrider]

I've always stayed off DD, and they really hate that, one of the reasons we're still with BG – they send a bill (it's random whether we get the bill notification by text, email, through the app, or in the post – I have no idea why sending a bill is so difficult, EDF can't do it either) and I pay it. Pretty much all new tariffs demand DD. I'm less keen to offer them a credit line.

Given the business model, I'd imagine many of these 'suppliers' will go bust if prices stay high. Which mean we pay if they do or don't.

I'm lucky enough to be able to afford it, but in many ways, we have become reliant on fuel being cheap. Still, I'm pretty sure the government claimed we were going to lead the world in a green revolution. I wonder how that's working out.

I have seen this attitude in a couple of discussions in the last few days with customers willing to pay a supplier standard variable rate for their energy.   No-one ever pays standard variable on their mortgage so why the different approach for energy ?   Do you shop around for insurance for example ?

Ignoring the current issues, you have voluntarily been paying more than you need for a vanilla service.   Clearly you have your reasons, but the market has been open for over 20 years and you have voluntarily decided to pay over the odds.   

This isn't a criticism, I'm just interested in the drivers.

[robgul]

I've always stayed off DD, and they really hate that, one of the reasons we're still with BG – they send a bill (it's random whether we get the bill notification by text, email, through the app, or in the post – I have no idea why sending a bill is so difficult, EDF can't do it either) and I pay it. Pretty much all new tariffs demand DD. I'm less keen to offer them a credit line.

Given the business model, I'd imagine many of these 'suppliers' will go bust if prices stay high. Which mean we pay if they do or don't.

I'm lucky enough to be able to afford it, but in many ways, we have become reliant on fuel being cheap. Still, I'm pretty sure the government claimed we were going to lead the world in a green revolution. I wonder how that's working out.

I have seen this attitude in a couple of discussions in the last few days with customers willing to pay a supplier standard variable rate for their energy.   No-one ever pays standard variable on their mortgage so why the different approach for energy ?   Do you shop around for insurance for example ?

Ignoring the current issues, you have voluntarily been paying more than you need for a vanilla service.   Clearly you have your reasons, but the market has been open for over 20 years and you have voluntarily decided to pay over the odds.   

This isn't a criticism, I'm just interested in the drivers.

Not quite sure you're looking at chalk and chalk with the BG billing - we have a fixed tariff but pay each month for consumption on that tariff . . .. I'm guessing that what Ian might mean?

[robgul]

We're fixed until next Spring - so DD is fine atm - assuming(!) AVRO don't go bust.   They currently have the 'traditional'  DD end of Summer surplus balance.  If they go to the wall, I guess we'll be put on a default capped tariff with EnergyMegaCorp, and have move to n+1 jumpers during the winter.  'parently there are currently calls to axe the price caps...

I assume you mean the price is fixed . . .  what appears to be happening is that AVRO (and others) are stepping up the amounts they take on variable DD  . . . with the potential for you to have much more than necessary (or reasonable) in their bank account - it's secure but again they seem reticent about making refunds.

EON want to increase mine from £41 to £69 although I haven't used significantly more gas - the wood burner has been taking the strain.  Basically, they want a loan.

Pretty much how it looks with random DD increases for ostensibly the same consumption on a fixed tariff.

[ian]

When I did the calculations recently, thinking of a switch, honestly the savings didn't come out much different (leastways, based on our usage). The BG unit rates (then!) were fairly competitive (lower than many other suppliers, though they do have higher standing charges. Possibly I'm doing it wrong, but I didn't see several hundred pound savings (on a total spend of around £1300/year). Peak dual-fuel bills for winter last year were probably £500-600, drops to about £200-250 in summer. BG tend to screw things up in predictable ways, I'm never convinced switching isn't an avenue to problems, no matter what they claim. We spent an age when we moved here trying to convince BG that our meter was metric and not imperial and we really didn't owe them several thousand pounds. I don't want to do that again.

I'm sure plenty of people do pay variable mortgage rates, rates can – and have gone down below what many people are fixed at. You're just self-hedging, the same as the energy companies are with fixed rates.

I am a bit lazy though and not much motivated to spend my evenings comparing quotes to save relatively small amounts of money – though admitted telling L&G to bugger off recently on my house and contents insurance saved me £600+ (mostly because they pissed me off with epic premium hike and when we called them, basically gave us a wevs).

[Mr Larrington]

At risk of veering off into POBI territory, in May 2016 Bloody Stupid Johnson assured us that leaving the EU would mean our gas bills would be reduced.  On January 1st BRITAIN left the Energy Community, the EU's internal energy market.  Nine and a bit months later, a swift look at wholesale prices in the Energy Community versus those in the Land of UK reveal that to the great surprise of absolutely no-one, the Leave campaign in general and Bloody Stupid Johnson in particular were lying through their teeth.

[Polar Bear]

I expect that there will be an awful lot of piss poor customer service, gnashing of teeth and wailing at the demands that the likes of BG will be pushing at their transferred in customers.  I am expecting a few interesting conversations especially as we have been recording our energy usage for years so we know what we are likely to need.  We xon't have the official industry stats of course but we have years of meter reading and bills to put our case.  I expect their demands to be high in expectation of it being winter soon and the expectation that we will want to turn the central heating on.

MP's, especially those of the brexit-supporting variety might find themselves with many angry but also many desperate constituents.  This isn't going away any time soon.

[Polar Bear]

Just bought a dozen C500 gas cartridges for use with the converted trangia.  In the dark hours we might still get one hot meal a day. 

[MikeFromLFE]

Just bought a dozen C500 gas cartridges for use with the converted trangia.  In the dark hours we might still get one hot meal a day.

Is it actually and physically possible to turn off the gas supply to lots of domestic users in one go without massive problems turning it back on again?
Gas doesn't seem quite like electricity in that respect.

I understand that the meter can be turned off at each individual house (and possibly remotely if it's a smart meter) but can a street or an area be safely isolated?

[mrcharly-YHT]

Just bought a dozen C500 gas cartridges for use with the converted trangia.  In the dark hours we might still get one hot meal a day.

Is it actually and physically possible to turn off the gas supply to lots of domestic users in one go without massive problems turning it back on again?
Gas doesn't seem quite like electricity in that respect.

I understand that the meter can be turned off at each individual house (and possibly remotely if it's a smart meter) but can a street or an area be safely isolated?

I don't believe so.

AFAIK, the major gas pipelines are the 'storage' in the UK. They are under fairly high pressure and contain a lot of gas! 

It would probably be possible to turn off gas to areas or streets.

[Mr Larrington]

Crikey! Taury Kuenssberg is giving Bloody Stupid Johnson a hard time over the sordid business!  'tis the End Times, I tells 'ee!