Utility bills - price gap

[Fandangoes]

Can anybody explain this price gap issue to me? I don't understand what it is. How can we be paying too little for gas / electricity if the energy companies are all making huge profits. Surely these companies can't be allowed to make such huge profits and put millions of people into fuel poverty?

The key is to understand there are energy producers and energy retailers. Some have the same name (e.g. Shell) but the producing and retailing arms are are being run as different businesses.

Energy producers (Shell, BP, Centrica) produce energy and sell it to retailers. They use an auction type sheme in which energy is sold to whoever will pay the most for it on a global scale. When there is less energy being produced across the world (because Russia ain't pumping gas) then prices get high.

The retailers (Octopus, Bulb, Gritish Gas) buy that energy and resell it to us.

Ofgem review the cost if buying that energy and set a cap for how much it can be resold for. This is to prevent retailers being able to buy at low prices and make £££ by selling it to us at high prices. However, as we're seeing, it's useless when the wholesale cost of buying that energy gets very high.

So the producers are making billions of pounds of profit. But they are not selling to us, they are selling to retailers. The retailers are having to pay those very high prices and then resell to us no higher than the cap. So they are making very little profit or, as is happening now, a loss.

As wholesale prices keep rising, the cap keeps rising.

Thank you - why can't the government / Ofgem put a cap on how much the producers can charge the retailers? Its scandalous that they are being allowed to make billions of profit in this way

I think because they are global companies (or, some of them are) and a single country government is limited as to what influence they have over a company based in another country.

If they just limited what they could charge UK retailers then why wouldn't those companies stop selling to UK retailers altogether and just sell to other countries that don't put limits on it?

It is a scandal and one that could have been avoided if all recently-previous governments had placed better focus on energy security (UK-based generation and storage). They didn't and just appear to have trusted that Putin would carry on placing nicely for ever. No doubt the Russian money pouring into the party and personal bank accounts helped grease the way there.