I thought the reason they were increased is so we could get the same power with reduced supply?
However a fair few power companies are reaching ridiculously high record profits, which goes against the grain of that idea.
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Because capitalism. The oil companies will charge you as much as you will pay, and we have proven willing to pay a lot. They are not there to help you. They are exploiting the many crisis going on to pretend there is a reason for it, but in the end, it’s just capitalists doing what capitalists do.
Yes. The bills are going up so the power companies can make record profits. Also, ours is going up because Duke Power did a half-assed job building containment ponds for their coal ash waste and now this toxic pollutant is leaking into rivers and ground water. They cut corners, increased profits by doing so and we are paying for the clean up. It’s a classic example of privatizing profits and socializing losses.
All prices are going up. A company generally marks things up by a percent. So say they upcharge 50% on all goods they sell. If it took them 5$ to make a product they sell it for 7.50 and make 2.50 profit. Now it cost them $10 to make the same product do to inflation, supply chain issues, whatever. Now they add 50% and it cost $15. If they sell the exact same amount of product they would make double the profit
Oil has two features as a commodity: 1) demand is inelastic; 2) supply is limited.
Inelastic demand means that if prices go up, it’s hard for people to reduce the amount of oil they use. If you need a car to get your children to school or a van to deliver your goods it’s difficult to change that. The increase in natural gas prices only adds to this, since it’s now more expensive to switch from oil to gas, where that’s possible.
So if prices increase, companies make more money – prices might go up by 10% but demand only falls by 5%.
That means if companies put up prices then they can make more profits. What is meant to stop this happening is competition – if you push up your prices, another company will increase production, charge a lower price and undercut you.
With oil this is difficult. It takes a lot of time and investment to open up new wells and refineries to increase supply. OPEC operates as a cartel to limit supply – balancing out making profits, husbanding natural resources and not pissing off oil importers too much. And supplies from Russia have been disrupted by the war.
All that means is that when supply goes down for some reason or demand goes up, oil producers can make extra profits.
The oil and gas companies, are capital intensive and things take a long time to materialize. The two major components (excluding exploration) are oil production and oil refining. Both require multi billion dollar investments and are very fine tuned to the supply (kind of oil) and the market (how much the market demands). Both these factors cannot be adjusted quickly for capacity or to switch supply. Investment in these areas take years to get online and the capital is depreciated over decades and it is a global market.
In the US and probably in much of Europe, investment in new production and refining have dropped significantly in the last decade. Governments and consumers have been signaling the death of oil and gas with major legislative policies.
Normally, the available capacity matches demand fairly closely. Given recent problems, supplies of oil and gas have been disrupted. This has led to very unusual demand patterns especially when Russian supply and refining capacities are limited. With less supply and normal demand, buyers start to bid up prices. Oil is a global market so Europe having shortages means countries there are buying up oil and refined product wherever they can.
Unsurprisingly, companies are reaping high profits even as prices go up. In a more “normal” circumstance, new and existing players would start to bring more production online and invest in capacity thereby reducing their profits. But that is simply not happening because the major companies probably don’t see any long term recovery of capital given current policies to reduce oil/gas usage. So they’re simply taking the profits and returning it to investors rather than reinvestment.
Oil/gas producers are taking the market rate which is higher right now due to lack of supply and increased demand…they have a certain $ per unit to break even and we are substantially above that now. More profits at higher $ per unit.
Electric and gas companies are end users and highly regulated in terms of ability to raise prices. But infrastructure is expensive and speaking for Americans we don’t adjust the way we live so prices go up to keep the supply moving.
5 years ago you paid $100 a month for all you fossil fuel needs (using round numbers). The oil companies had $100 billion in profit, a record high.
Today you are paying $130 a month for all your oil needs and they are making $130 billion in profits, $30 billion more than their previous record high. It’s spin. They are not making record percentages of profit vs expenditures, just record high profits. Their cost are at record highs, too. They are paying more for wages/salaries, more for resources, more in material cost, etc. Not just that, but $130 billion now has the purchasing power of maybe $105 billion 5 years ago (again, fictitious numbers to illustrate a point) so the record profits of 5 years ago were actually better than the record profits of now.
Politicians like to say “Look at big oil, making record high profits” bc the rubes hear that and think nothing but “greedy assholes, I’m voting for politician X” The big oil companies don’t care bc, insofar as they are publicly traded, they like the news to be “record high profits” bc that makes share holders happy.
The fact is, they are making record profits, but their expenses are also at record highs. This is on the back of them making record low profits during the 2020 pandemic. Their 5 year avg right now is the lowest 5 year profit margin they have had in the last 100 years. Inflation is hitting everyone.
In order to truly get the answer for this you would need to review the company’s financial statements.
I know it’s very popular to say that they are evil and ripping everyone off, but sometimes there are actual reasons behind increased profitability.
The other thing to keep in mind that profit from an accounting standpoint isn’t necessarily what you think it is. For example businesses are able to take deductions on certain assets due to depreciation. So in that example even if a company showed a loss they didn’t necessarily lose money.
On the flip side if a business were to sell an asset like a building and record a profit on it, then they would show a profit despite the fact that regular operations haven’t changed all that much.
There “record profits” claim is a myth. What they don’t tell you is that there is also record corporate debt. That is because interest rates have been basically zero for over 10 years. So rather than take profits and pay down expenses, they pay those with debt. So the “profit” is not real.
PPI has been higher than CPI, so businesses really have been eating more of this inflation than consumers. They aren’t “evil” or “extra greedy” or any of that nonsense. The people who have been propagandizing falsehoods are.
Because a business is designed to make profits no matter what their raw materials costs are.
The alternative would be to only make profits when the cost of materials is low, then go out of business when the price of raw materials rises.
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