15m British Gas customers pay more to boost Centrica profits

Wednesday, 27 February 2013 12:36

By Ben Salisbury

Centrica, the owner of the UKs biggest energy firm, British Gas, has announced a 14 per cent increase in operating profits in 2012.

The results come as millions of UK households have had to limit the amount of gas they use to keep warm in the winter momths because of the high cost of energy.

The average dual fuel bill has now risen to £1,350, more than double the level it was at in 2004 at a time when average salaries are rising by 1.3 per cent a year.

British Gas raised gas prices by 14 per cent in 2011 and by a further six per cent in 2012. In common with the other members of the "big six", the prices were raised just in time for the heavy winter energy usage.

The controversy over the UK residential energy industry has led to the government supporting the regulator Ofgem in passing new laws that mean energy firms can only operate a maximum of four tariffs and being forced to tell customers if they could get a better deal with their supplier.

However, critics say it does not go far enough as customers will not be automatically moved onto a better deal and will not, unless they are classified as a vulnerable customer, be told about cheaper deals from other suppliers.

Centrica made profits of £2.74 billion in 2012 as the cold weather led to customers increasing their energy usage and the firm saw strong results in its oil, gas and power generation businesses.

British Gas itself contributed over 20 per cent to the groups profits, £606 million, up 11 per cent on 2011. The firm made a further £487 million from residential services and business energy supply and services.

The high level of profits have drawn criticism from consumer groups as more households suffer from fuel poverty as energy prices continue to rise much faster than inflation.

Ann Robinson, Director of Consumer Policy at uSwitch.com, says: “Asking customers to swallow a 6% winter price hike and then unveiling a 11% increase in profits is tantamount to waving a red rag at a bull.” 

Ahead of its profit announcement British Gas has played up the billions of investment it puts into the UK energy industry and its level of job creation. In his notes accompanying the results, Centrica chairman Sir Roger Carr states that the firm has invested £2 billion “in helping secure gas supplies for the UK” and employs 40,000 people in the UK as well as paying dividends to 700,000 shareholders.

Ms Robinson said: “While British Gas makes a strong case about future investment, jobs and security, I suspect there will be little sympathy, especially amongst those who have shivered at home this winter.”

Ian Peters, managing director of residential energy for British Gas, said: "If I look into the future we have no plans to put prices up even higher, the gas prices are relatively calm."

Asked on ITV's Daytime programme about the possibility of further price increases this year and whether he could give an undertaking that prices will not go up, he said: I can't do that because the gas market is volatile.

"But right now, as I say, it is very early in the year, we work in a very competitive market and it is not in our interest or our customers' to put prices up. So we will do everything we can not to do that.

"What I want to say is that we will move heaven and earth to keep our customers' bills down. We have the lowest bills in the industry." 

British Gas boss Phil Bentley is stepping down from his post after six years as managing director and there are other changes in Centrica’s management team.

Other changes include Chris Weston taking over a new business division of British Gas and the rest of the international energy supply business and Mark Hanafin will lead the international ‘upstream’ oil and gas and power generation business.

Centrica’s accounts show that its effective tax rate went up from 40 per cent in 2011 to 44 per cent. 

Shareholders will also be happy to see a six per cent rise in the dividend per share, up from 15.4p to 16.4p.

British Gas raised the cost of its gas and electricity prices by six per cent in November. This price rise was slightly lower than the average price rise introduced by the other major energy firms.

Centrica chief executive Sam Laidlaw told BBC Radio 4’s Today programme that the increase in profits was due to a 12 per cent increase in average gas usage, though he added that “our margins actually went down.”

He acknowledged that times were hard for UK households but denied there was any more that Centrica could do to shield customers from price rises. He said that it is important that the firm is successful so that it can continue investing in green energy and energy infrastructure to “continue to keep the lights on.”

Nick Luff, Centrica Finance Director, said that government reforms  to make power generation in the UK greener is likely to continue to place “upward pressure” on electricity bills and he warned that British Gas faced “increased costs in supplying energy.”

Shadow energy and climate change secretary Caroline Flint said: "People will not understand why, just a few months ago, British Gas claimed they had no option but to put up their prices when now it looks like they're making huge profits on the back of spiralling bills for hard-pressed consumers."

Overall Centrica saw growth in profits of 20 per cent, mostly as a result of business activities in its oil and gas exploration and production business, up to £919 million and a 22 per cent rise in profits from power generation, up to £311 million.

Centrica has recently pulled out of a joint business venture with EDF of building a new nuclear plant and it plans to use the spare capital for a £500 million share buyback scheme. Mr Laidlaw defended Centrica’s decision to pull out of the project, saying there are “cheaper ways of keeping the lights on.”

Clare Francis, Editor-in-chief at MoneySupermarket.com said: “With energy bills already making up a large proportion of monthly outgoings for UK households, today’s announcement by Centrica will be difficult for many to stomach. However, this news should be a wakeup call for anyone who hasn’t switched energy supplier recently.

Read more: A step-by-step guide on how to find the cheapest energy deals


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