• Ofgem's Pure Planet directions for alternative compliance assessment for price cap

    Hi everyone

    A few Members have asked us about Ofgem's decision to issue Pure Planet directions for alternative compliance assessment for the default tariff price cap.

    Here's some info which I hope explains it:

    Background to Ofgem’s price cap

    Ofgem’s price cap has been introduced at the request of the Government in an effort to limit the potential for over-charging of energy consumers who are on a default or standard variable tariff.

    A lot of consumers have ended up on these tariffs as a result of a lack of engagement with the energy market. This includes any variable tariffs offered by energy suppliers which their customers are moved onto following the expiry of a fixed term tariff, or which they default onto as a result of not being on another tariff.

    However, the definition of 'default' or 'standard variable' tariffs does not take into account those suppliers, such as Pure Planet, who have only one variable tariff which our Members have specifically chosen.

    As a result, the price cap applies to Pure Planet and other suppliers who are trying to do the right thing by their customers and offer one, simple, good-value tariff.

    What does the “Direction” mean?

    The price cap has been introduced to protect consumers who have not engaged in the energy market and to ensure that consumers on variable tariffs are not over-charged for their energy. In order to do this, Ofgem has had to determine what the maximum cost should be at any usage level, including zero usage.

    There are two ways to check that energy suppliers are adhering to the overall cap.

    Method One: is to check that both their standing charges (the daily charge) and their unit rates (cost per kWh of electricity or gas) are equal to or below the price cap rates.

    Method Two: is to check that at each consumers’ usage level, the total cost that they have incurred is less than or equal to the total cost which would have been incurred on the price cap tariff.

    Most tariffs will be assessed using Method One. Because virtually all of Pure Planet’s Members have actively chosen to switch to us (the only Members who haven’t are those who move into a property where the previous owner/tenant chose to switch to us), very few of our Members pay more than they would on the price cap tariff.

    By way of illustration, the chart below shows the situation (we consider the average cost across all geographic regions) for electricity-only customers with usage levels between 0 kWh pa and 5,000 kWh pa (source: Ofgem website, Pure Planet). We have chosen electricity only as this has the largest disparity between the “price cap tariff” and Pure Planet’s tariff.

    Name:  Ofgem price cap tariff vs Pure Planet tariff.JPG
Views: 270
Size:  35.6 KB


    As the chart illustrates, the difference in cost between the “price cap tariff” and Pure Planet’s tariff falls from £23 a year at no electricity usage to nothing around 1,200 kWh electricity usage. So only those Members whose usage is less than 1,200 kWh pa would be charged less on the “price cap tariff” than on Pure Planet’s tariff.

    Are Pure Planet’s Members covered by the price cap?

    Yes. We do not want to disadvantage any of our Members as a result of this direction. For any very-low usage Members, who have made the choice to switch to Pure Planet, we will credit them with any amount by which they have overpaid relative to the price cap at the end of each price cap period.

    Why did Pure Planet apply for the Alternative Direction from Ofgem?

    Since Pure Planet is committed to providing its Members with a transparent service and has a model which looks to provide no mark-up on the underlying energy prices, our Membership fee (the standing charge) is above the rate implied by the price cap.

    When we read the legislation it became apparent that it had been written with the assumption that all suppliers make profit on both the standing charge (Membership fee) and the unit rate. There is an implicit cap on the standing charge as well as the unit rate as a result of having to account for all usage levels. On average, the standing charge for dual fuel users will be no more than £177 a year; electricity-only users should pay no more than £83 a year; and gas users no more than £94 a year.

    Complying with the cap using Method One would jeopardise our transparency model of offering no mark-up on the underlying energy prices. Since we have very few Members who have chosen our tariff with low usage (there are more competitive tariffs available at lower usage levels) we asked, and Ofgem agreed, to assess our compliance with the price cap under Method Two.

    Is this just a derogation under a different name?

    The Direction for alternative compliance is not the same as a derogation. A derogation means you are able to have a tariff that does not comply with the cap. The only way to get a derogation from the cap is to supply renewable energy (plus meet a few other requirements), as the suppliers that have been granted this derogation argued that it would cost them more to supply renewables.

    A direction for alternative compliance is just that - we are complying with the cap, just under Method Two rather than Method One.

    Links to Ofgem’s price cap information

    About energy price caps

    Levels of the energy price caps

    Ofgem press release about Pure Planet Directions for alternative compliance assessment



    Community Manager - Pure Planet

    3
  • Hi everyone

    A few Members have asked us about Ofgem's decision to issue Pure Planet directions for alternative compliance assessment for the default tariff price cap.

    Here's some info which I hope explains it:

    Background to Ofgem’s price cap

    Ofgem’s price cap has been introduced at the request of the Government in an effort to limit the potential for over-charging of energy consumers who are on a default or standard variable tariff.

    A lot of consumers have ended up on these tariffs as a result of a lack of engagement with the energy market. This includes any variable tariffs offered by energy suppliers which their customers are moved onto following the expiry of a fixed term tariff, or which they default onto as a result of not being on another tariff.

    However, the definition of 'default' or 'standard variable' tariffs does not take into account those suppliers, such as Pure Planet, who have only one variable tariff which our Members have specifically chosen.

    As a result, the price cap applies to Pure Planet and other suppliers who are trying to do the right thing by their customers and offer one, simple, good-value tariff.

    What does the “Direction” mean?

    The price cap has been introduced to protect consumers who have not engaged in the energy market and to ensure that consumers on variable tariffs are not over-charged for their energy. In order to do this, Ofgem has had to determine what the maximum cost should be at any usage level, including zero usage.

    There are two ways to check that energy suppliers are adhering to the overall cap.

    Method One: is to check that both their standing charges (the daily charge) and their unit rates (cost per kWh of electricity or gas) are equal to or below the price cap rates.

    Method Two: is to check that at each consumers’ usage level, the total cost that they have incurred is less than or equal to the total cost which would have been incurred on the price cap tariff.

    Most tariffs will be assessed using Method One. Because virtually all of Pure Planet’s Members have actively chosen to switch to us (the only Members who haven’t are those who move into a property where the previous owner/tenant chose to switch to us), very few of our Members pay more than they would on the price cap tariff.

    By way of illustration, the chart below shows the situation (we consider the average cost across all geographic regions) for electricity-only customers with usage levels between 0 kWh pa and 5,000 kWh pa (source: Ofgem website, Pure Planet). We have chosen electricity only as this has the largest disparity between the “price cap tariff” and Pure Planet’s tariff.

    Name:  Ofgem price cap tariff vs Pure Planet tariff.JPG
Views: 270
Size:  35.6 KB


    As the chart illustrates, the difference in cost between the “price cap tariff” and Pure Planet’s tariff falls from £23 a year at no electricity usage to nothing around 1,200 kWh electricity usage. So only those Members whose usage is less than 1,200 kWh pa would be charged less on the “price cap tariff” than on Pure Planet’s tariff.

    Are Pure Planet’s Members covered by the price cap?

    Yes. We do not want to disadvantage any of our Members as a result of this direction. For any very-low usage Members, who have made the choice to switch to Pure Planet, we will credit them with any amount by which they have overpaid relative to the price cap at the end of each price cap period.

    Why did Pure Planet apply for the Alternative Direction from Ofgem?

    Since Pure Planet is committed to providing its Members with a transparent service and has a model which looks to provide no mark-up on the underlying energy prices, our Membership fee (the standing charge) is above the rate implied by the price cap.

    When we read the legislation it became apparent that it had been written with the assumption that all suppliers make profit on both the standing charge (Membership fee) and the unit rate. There is an implicit cap on the standing charge as well as the unit rate as a result of having to account for all usage levels. On average, the standing charge for dual fuel users will be no more than £177 a year; electricity-only users should pay no more than £83 a year; and gas users no more than £94 a year.

    Complying with the cap using Method One would jeopardise our transparency model of offering no mark-up on the underlying energy prices. Since we have very few Members who have chosen our tariff with low usage (there are more competitive tariffs available at lower usage levels) we asked, and Ofgem agreed, to assess our compliance with the price cap under Method Two.

    Is this just a derogation under a different name?

    The Direction for alternative compliance is not the same as a derogation. A derogation means you are able to have a tariff that does not comply with the cap. The only way to get a derogation from the cap is to supply renewable energy (plus meet a few other requirements), as the suppliers that have been granted this derogation argued that it would cost them more to supply renewables.

    A direction for alternative compliance is just that - we are complying with the cap, just under Method Two rather than Method One.

    Links to Ofgem’s price cap information

    About energy price caps

    Levels of the energy price caps

    Ofgem press release about Pure Planet Directions for alternative compliance assessment



    Community Manager - Pure Planet

  • With regards to Ofgem price cap does this mean Pure Planet will be increasing prices on the 1st.of April.With regards to daily charge cap for the year of £177 against your membership cost of £192 I.E.£16 x 12 which is method one in your illustration not sure about method two because your illustration only shows example of Electricity your comments please G.T.J.
    0
  • With regards to Ofgem price cap does this mean Pure Planet will be increasing prices on the 1st.of April.With regards to daily charge cap for the year of £177 against your membership cost of £192 I.E.£16 x 12 which is method one in your illustration not sure about method two because your illustration only shows example of Electricity your comments please G.T.J.
  • Hi GTJ.

    With regard to a price rise PP have already started they have no plans to increase their tariffs.with the duel fuel discount factored in then i think this brings PP under the price cap.a few members overall charge may be higher than the price cap but you would need to have virtually zero usage to be affected by this. If you are then you get refunded the differance.the new higher price cap will take this number of customers affected even lower if any at all.
    0
  • Hi GTJ.

    With regard to a price rise PP have already started they have no plans to increase their tariffs.with the duel fuel discount factored in then i think this brings PP under the price cap.a few members overall charge may be higher than the price cap but you would need to have virtually zero usage to be affected by this. If you are then you get refunded the differance.the new higher price cap will take this number of customers affected even lower if any at all.
  • Ofgem price cap

    Are Pure Planet going to increase prices on the 1st.of April because of Ofgem price cap increase? G.T.J
    0
  • Are Pure Planet going to increase prices on the 1st.of April because of Ofgem price cap increase? G.T.J
  • On the blog it says they are leaving the prices as they are. Wholesale prices are fairly stable at the moment and as PP work on a zero mark up then there is no need to alter the price we pay.
    3
  • On the blog it says they are leaving the prices as they are. Wholesale prices are fairly stable at the moment and as PP work on a zero mark up then there is no need to alter the price we pay.
  • Quote Originally Posted by GTJ View Post
    With regards to Ofgem price cap does this mean Pure Planet will be increasing prices on the 1st.of April.
    Hi @GTJ
    We've just posted our latest blog about the wholesale energy market. In short: We're keeping our prices as they are.
    Community Manager - Pure Planet

    1
  • Quote Originally Posted by GTJ View Post
    With regards to Ofgem price cap does this mean Pure Planet will be increasing prices on the 1st.of April.
    Hi @GTJ
    We've just posted our latest blog about the wholesale energy market. In short: We're keeping our prices as they are.
    Community Manager - Pure Planet

  • If wholesale energy costs are stable at the moment as you say why are Ofgem putting up the price cap due to wholesale prices on the up so giving energy suppliers the excuse to increase variable unit costs GTJ
    0
  • If wholesale energy costs are stable at the moment as you say why are Ofgem putting up the price cap due to wholesale prices on the up so giving energy suppliers the excuse to increase variable unit costs GTJ
  • I'm far from knowledgable on this topic but I guess Ofgem have to allow some tolerance, because(guessing again) that energy companies don't have the exact same procurement model. No point running a company if you don't have any leeway.
    0
  • I'm far from knowledgable on this topic but I guess Ofgem have to allow some tolerance, because(guessing again) that energy companies don't have the exact same procurement model. No point running a company if you don't have any leeway.
  • Quote Originally Posted by GTJ View Post
    If wholesale energy costs are stable at the moment as you say why are Ofgem putting up the price cap due to wholesale prices on the up so giving energy suppliers the excuse to increase variable unit costs GTJ
    Hi @GTJ
    Well you'd have to ask Ofgem. But what happened was Ofgem's price cap was lower, but the 'Big 6' energy companies complained it was too low. British Gas is reported to have considered a legal challenge.
    So Ofgem raised their cap. And hey presto, the Big 6 put their prices up.
    Community Manager - Pure Planet

    1
  • Quote Originally Posted by GTJ View Post
    If wholesale energy costs are stable at the moment as you say why are Ofgem putting up the price cap due to wholesale prices on the up so giving energy suppliers the excuse to increase variable unit costs GTJ
    Hi @GTJ
    Well you'd have to ask Ofgem. But what happened was Ofgem's price cap was lower, but the 'Big 6' energy companies complained it was too low. British Gas is reported to have considered a legal challenge.
    So Ofgem raised their cap. And hey presto, the Big 6 put their prices up.
    Community Manager - Pure Planet

  • That's interesting Marc because my first thought was 'cartel' lol I never really understand why people use 'the big 6' for their energy tbh. It's not even like they're outstanding at Customer service.
    0
  • That's interesting Marc because my first thought was 'cartel' lol I never really understand why people use 'the big 6' for their energy tbh. It's not even like they're outstanding at Customer service.
  • This is due to timing of Pure Planets price increase re the 15th.of Jan.which was announced in Dec 2018 have Ofgem since announced cap increase in other words were PP aware of a further increase or have they factored this in? GTJ
    0
  • This is due to timing of Pure Planets price increase re the 15th.of Jan.which was announced in Dec 2018 have Ofgem since announced cap increase in other words were PP aware of a further increase or have they factored this in? GTJ
  • PP's price increase for 15th Jan was announced on 27th Nov 18, I'm not sure whether that materially changes your question.

    The Ofgem price caps are updated twice a year in February and August, to reflect the price cap levels that will come into effect in April and October. I suppose here must be some sort of negotiation/consultation going on in the background between the energy co's and Ofgem before the increase and everyone including PP will have known there was going to be an increase.
    But, if you want a definite answer as to whether or when PP are next going to increase or decrease their prices, you aren't going to get one.
    What you haven't taken into account is that PP don't want to increase prices, what they want to do is make their business model sustainable so they don't go bust, and you don't see the behind the scenes negotiations where Ofgem are (perhaps unintentionally) proposing to destroy PP's business model and PP fighting to keep it afloat without pi**ing-off their customers with price increases.
    (Another ill-thought-out government screw up, as proven by the subsequent big 6 price increase and impacting the most vulnerable. Ofgem are only obeying government orders..)


    Quote Originally Posted by GTJ View Post
    This is due to timing of Pure Planets price increase re the 15th.of Jan.which was announced in Dec 2018 have Ofgem since announced cap increase in other words were PP aware of a further increase or have they factored this in? GTJ
    1
  • PP's price increase for 15th Jan was announced on 27th Nov 18, I'm not sure whether that materially changes your question.

    The Ofgem price caps are updated twice a year in February and August, to reflect the price cap levels that will come into effect in April and October. I suppose here must be some sort of negotiation/consultation going on in the background between the energy co's and Ofgem before the increase and everyone including PP will have known there was going to be an increase.
    But, if you want a definite answer as to whether or when PP are next going to increase or decrease their prices, you aren't going to get one.
    What you haven't taken into account is that PP don't want to increase prices, what they want to do is make their business model sustainable so they don't go bust, and you don't see the behind the scenes negotiations where Ofgem are (perhaps unintentionally) proposing to destroy PP's business model and PP fighting to keep it afloat without pi**ing-off their customers with price increases.
    (Another ill-thought-out government screw up, as proven by the subsequent big 6 price increase and impacting the most vulnerable. Ofgem are only obeying government orders..)


    Quote Originally Posted by GTJ View Post
    This is due to timing of Pure Planets price increase re the 15th.of Jan.which was announced in Dec 2018 have Ofgem since announced cap increase in other words were PP aware of a further increase or have they factored this in? GTJ