British Gas profits soar sixfold!

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Energy giant Centrica is set to come under renewed attack today after it reported record pre-tax profits up 50 per cent to £1.8 billion, just weeks after raising gas and electricity prices for 16 million British Gas customers by 15 per cent.

More than half of Centrica’s profits came from its British Gas residential business, where operating profits leapt more than sixfold from £95m to £571 million.

The company said that most of its profits were made in the first half of 2007, when wholesale energy prices dropped sharply, allowing the company to make significant margins and temporarily lower prices for its customers.

Since last summer, however, wholesale prices have climbed sharply, tracking the oil price, prompting the company to impose double-digit price increases last month.

Energywatch, the consumer body, has already called for a Competition Commission investigation into energy supply, claiming that energy suppliers did not pass on the full decline in wholesale prices to customers.

Adam Scorer, Energywatch director of campaigns said today: "It is perfectly true that there is volatility in wholesale energy markets. But it seems equally true that such volatility hits consumers not shareholders."

"Consumers will feel justified in claiming that they are being taken for a very rough ride by energy companies," he added.

Centrica has increased its full-year dividend to shareholders by 17 per cent to 13 pence per share.

The Business, Enterprise and Regulatory Reform select committee of MPs is currently looking at the competitiveness of UK’s energy markets and has quizzed energy companies about their steep price increases.

Sam Laidlaw, chief executive of Centrica, today defended the price increases saying that they were necessary if the company was to sustain investment in wind farms and upstream gas assets, so that it was less exposed to the volatility of wholesale gas markets.

“We understand that these prices rises have been difficult for many customers but our prices are very competitive and still lower than they were a year ago, “ Mr Laidlaw said.

However Mr Laidlaw insisted that the UK market was not rigged or ripping off customers. “This is a market that has some of the cheapest energy prices in Europe. Five million people switch supplier every year, which is the highest level of switching in the world – clearly it is a very competitive market,” he said.

British Gas’s price cuts last spring attracted 200,000 customers back to the company, taking its total number of customer accounts back to 16 million, from an all-time low of 15.8 million.

Mr Laidlaw said it was too soon to see whether the recent price increases would drive customers away again. It is thought that many customers are waiting to see if there are any further increases from other companies before switching.

Overall the number of gas customers fell in 2007 by 2.4 per cent to just over 10 million, while the number of electricity customers rose by 4.5 per cent to just over six million.

Mr Laidlaw said that British Gas residential margins fell to just 1 per cent in the second half of 2007, compared with an average of 8.3 per cent for the full year. By the end of the year the residential business was loss making after a 50 per cent rise in forward wholesale prices for 2008, he said.

He also gave warning that the dramatic improvement in profits achieved in 2007 would not continue into 2008 if wholesale energy prices remain high.

“The favourable commodity picture we experienced in the first half of the year, which drove higher profits in the residential supply business and which was behind the stronger 2007 earnings, is unlikely to be repeated in 2008. While the current forward market gas price provides a more positive outlook for our gas production business it would make the legacy industrial and commercial contracts loss making.”

Operating profit at Centrica climbed 40 per cent in the year to 31 December to £1.9 billion, on the back of flat revenues of £16.3 billion.

Centrica has said that one of its priorities is to increase the proportion of gas it can supply from its own resources and the power it can generate itself through building new power stations and wind farms.

It invested £1billion last year in upstream assets, up from £684 million in 2006. It will continue to invest at that level for the foreseeable future and is trying to strike deals with state-owned oil and gas companies in Africa and the Middle East to help it develop new sources of gas.

In terms of wind farms, Centrica has 370 mega watts in operation and has plans to build a further 1.5 giga watts of capacity, almost entirely off shore, at a cost of £3 billion. However, Mr Laidlaw said that the planning system had to change if such an ambitious target was to be met.


British Gas profits soar sixfold - Times Online

People are spending on average £1000 on heating/electric bills in a year, I know we are. Luckily our gas hasn't gone up as we are on a fixed price plan ( @ British gas), but some people are barely coping, the elderly especially.