If fuel companies are making billions extra in profits...

[dolphinsarentcommon]

I'm sorry this is probably a really stupid question but why, if they're making such huge profits are they putting our bills up so much? Even the standing charge.

I'm sure there's a going to be someone with an obvious answer, but please enlighten me

Their costs have gone up and they don't want to shrink their profit margins.

I'm as confused as you are. Even if they don't want to shrink their profit margins, what excuse is there for making record breaking profits. What was wrong with maintaining their already healthy margins.

I want to scream at every one of them that pops up on BBC breakfast to claim their costs have gone up and that's why prices are going up so much.

The key is to undertand there are energy producers and energy retailers.

Some companies do both functions, though they split them into seperate businesses.

Shell, British Gas, BP are energy producers. They are making energy and selling it at the market rate to the retailers. The market rate is very high because demand is high vs supply - so they are currently charging 5x what they used to for the same product.

The retailers are buying the energy at that price and then reselling it to us, ideally with about a 5% mark up for profit. When you talk about an energy supplier, you are really talking about an energy retailer. In the case of the energy cap, this is currently set below the current market rate so those retailers are selling to us at a loss.

It's confusing because the like of Shell, and British Gas are not just producers; they also have a retailer business so you end up thinking they are the same entities. I suspect they run them seperately, so the retailer arm is likely to be losing money right now (or breaking even). It's the producer arm that' raking it in.

None of which makes it right that we are having to pay so much for a utility.

ThNk you @DevilsVineBlues that makes it a bit clearer, if not more acceptable.

I think also they are corporations they would actually be breaking the law if they fail to maximize shareholder profits. I’m not trying to make excuses for them, I think corporations should be illegal, as they used to be.

*because they are corporations

This exactly. For companies that operate like this their downstream (us) and upstream (wholesale) arms have to operate entirely independently under massive scrutiny from the regulators...with eye watering fines if any conditions of trading breaches are identified.

Using British Gas, owned by Centrica as an example who are surprisingly open with their financial reporting, much better than most in their position, their downstream (us) profit this year to date equates to £6 per customer. Overall operating profit was £98 million. Still a healthy profit - but from that substantial investment is expected because of net zero targets set by government...plus they need to hedge on future energy prices so they can remain in business. The vast majority of their profits are from other revenue streams including upstream activities like energy trading on the open market...and yes they need to make enormous profits to keep investing into new energy production. Who else do you think pays for power stations, wind farms, hydro plants etc to be built and maintained?

The argument about shareholders is shortsighted too...how do you think pension schemes are funded? Pretty much every pension portfolio that isn't "net zero friendly" will have one of the big energy companies as a major investment because they've been reliable and seen as safe long term options. Who do you think will make up the deficit if these pension schemes aren't getting a return on their investment because dividends cease to be paid?

As with everything you need to read behind the headlines. There's a bigger picture beyond what we have to deal with in energy pricing...including why so many energy companies went bust last year and why not one energy supplier is interested in taking on the Bulb customers. I'm incredibly worried about what the increases mean for my family - but I'm intelligent enough to know there's a picture picture at play that isn't easily solved.

So we should be thanking them for giving some of us an increase on pension value..

No, but acknowledging that it's not just about what's happening when the bill lands in your inbox/on your doorstep doesn't hurt. Reducing these things to the simplest headlines helps no one.

Take a closer look at other "essential" companies like food retailers and see how their profit margins compare with energy companies (specifically Net profit margin). Many of them are far larger than energy companies but they're not being vilified in the press - that's all because of big bad Putin and Brexit (it is, but they're also large reasons behind the energy issues too).

Oil prices are determined by global markets and are not set by individual companies, therefore, if the global price of oil rises, oil producers such as Shell, BP etc will make more profit.

...and before anyone starts complaining, they will be paying a windfall tax on the extra profits to pay for the extra help being given to households !

Oh they made sure to announce they were paying tax on their massive profit when they announced it.

Doesn't get rid of the bad taste in my mouth or the hole in my bank account where my money used to be.

Although I understand things a little more it still really irks that British Gas are making huge profits from one side and still taking more money off me from the other.

Thanks for the explanations! Makes much more sense even if it doesn't change anything.

But they aren't. That's the point! Centrica are the ones posting high figure profits, not British Gas. Centrica could and might sell off British Gas because it's not as profitable as the rest of it's businesses.

EDF on the other hand are absolutely laughing because they operate upstream/downstream in the same way (upstream is much larger than Centrica) but their profits subsidise their operations in France. Eon is a German entity. Scottish Power is Spanish.

At least British Gas/SSE/Octopus are British based and owned companies (not counting Bulb, they're on the ropes).

Like I said, the bigger picture is important. It doesn't help reduce my bills knowing this, but it does mean I don't take it out on the poor buggers that work for these places and have to deal with customers. They get a huge amount of abuse...and they're not paid much for it.

BTW I'm not claiming anyone here is abusive but I have friends in the industry kind of shows and the sheer viritol they get from the general public is heartbreaking. Call after call, contact after contact...they're in the same boat as the people hurling abuse at them and tied by legal and company procedures. They have no power to really help you, they can only try and navigate through the channels they have.

Their hands are tied by the international commodity market and OFGEM.

But the profits will boost the pensions of most of us.

Any corporation needs to maximise shareholder return.

I think the simple answer is because they can.

There is no meaningful competition in utilities.