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British Gas to see profits rise by 6%

Energy industry faces yet more criticism as the UK’s biggest supplier reports increased profits.

British GasBritish Gas expects to see a 6% rise in its profits as it prepares to release its half-year interim statement.

The announcement comes as British Gas customers start to feel the effects of the suppliers 6% price rise.

British Gas said that energy usage for the first ten months of 2012 was 9% higher because of colder weather in the year-to-date following an unusually warm 2011. However, electricity use was down by 1%.

Tom Lyon, energy expert for uSwitch, said: “Clearly, if British Gas does end up reporting a 6% rise in profits from supplying homes it will raise a big question mark for many of its customers.

“Price hikes are never popular, but with the average household energy bill hitting a record high of £1,334 this winter, consumers will be even less impressed if profits then soar.”

‘Out of our control’

However, the British Gas repeated its assertions that it was facing higher costs  to upgrade the UK’s gas electricity grids as well as meet carbon reduction targets:

“These costs, which are out of our control, have added around £50 to the cost of supplying the average household. We have also experienced rising wholesale gas prices, which are 13% higher this winter than last.”

Despite this, the supplier says that ‘remains on track to deliver double digit profit growth’ from its residential services division.

Addressing recent criticism from MPs, regulator Ofgem and the general public over a lack of transparency in the industry, it said:

“We have simplified our tariffs, launching a new standing charge and single unit rate structure in June as part of our commitment to phase out two-tier tariffs…. However it is important to ensure that the proposals on product range do not restrict customer choice and market innovation.”

Profits and falls

British Gas was not the only supplier to announce a profit rise – rival SSE announced a hefty 38pc jump in its half-year profits, leaving customers ‘bitterly disappointed’, said Ann Robinson, director of consumer policy at uSwitch. The average household bill for a SSE customer has risen £260 in the last two years.

However, SSE told the Telegraph that he was ‘fed up when people don’t objectively look at the facts’.

“Half-year profits this year are still below where they were in 2009. Last year [SSE’s] profits were abnormally low because we held retail prices down for longer than we probably in hindsight should have done. We got no credit for that.”

Consumer distrust

However, Adam Scorer, Director of Policy and External Affairs at Consumer Focus, said of the SSE profits announcement that: “The furore over wholesale costs, energy pricing and company profits has deepened consumer distrust in the energy industry.”

“Energy companies need to make profit so they can invest in our energy infrastructure. But if confidence is to be rebuilt in this market, the information that all energy firms are required to provide must be fully transparent, comparable, and include profit and trading information from across the whole of their business.”

Meanwhile E.ON, the only supplier not to raise their prices this winter because of a price freeze promise made earlier this year, announced that it had seen a profit fall in its interim statement and would be reviewing its profit forecasting for the next three years.

E.ON has scrapped its 2013 profit targets, leading to speculation in the tabloid press it will increase its gas and electricity prices by as much as 11% in January next year.

Whistle blowers and price manipulation

It is the latest in a series of damaging reports that have hit the energy industry. Aside from staunch criticism about price rises and profit increases, energy suppliers are also fighting damaging accusations of price manipulation of the wholesale gas market.

British Gas parent company, Centrica, has recently denied claims that it had been artificially inflating wholesale gas prices after a whistleblower at a trading company said the practice was commonplace.

Wholesale gas prices were repeatedly cited as one of the reasons for the price rises, which saw the average UK energy bill increase from £1,259 a year to £1,334 – a rise of 7%

The allegation that gas prices were being manipulated comes as a damaging blow to an industry already strained by criticism about pricing and transparency and led Ed Davey to insist that any company found guilty of the practice should be fined and the money passed on to consumers.

However, Mr Marchant of SSE said that he thought it ‘highly unlikely that any rigging had taken place’ and criticised the government’s lack of progress on energy market reform, which he said was stemming progress in the UK energy market.

Damaging

Responding to Centrica’s interim management statement announced today, Audrey Gallacher, Director of Energy at Consumer Focus, said: “Consumers will be sceptical over supplier profits given questions over how justified recent price rises have been.

“We need profitable companies for our economy and to invest in energy infrastructure. But customers need to know that the relationship between costs, pricing and profits is fair. This can only happen by making the market more transparent.

“It is essential that all energy firms are required to provide information that is fully clear and comparable, including profit and trading information from across the whole of their business, if customer distrust is to be tackled.’

Further to this, Ms Gallagher laid out a list of grievences that she said are making relations between customer and supplier difficult:

“Consumers do not know whether they can believe the relationship between energy prices, company profits and the wholesale price of energy. Greater transparency is vital to know whether there is scope for companies to avoid or limit price rises…The market must become less complex and less confusing otherwise consumers will not have the confidence to take action.”

She also stressed that energy efficiency was the best weapon in the fight against rising energy costs:

“Energy efficiency is the single most effective way to cut household bills, especially for those struggling to keep warm. From next year an average of £4 billion will be taken from consumer bills in the form of carbon taxes. Using a proportion of that revenue to fund a much more ambitious energy efficiency programme could start to tackle fuel poverty and a new report from Consumer Focus shows it would also be one of the best ways to boost the economy and create jobs.”

Learn more

Read the British Gas interim report.

E.ON profit shares fall as price rise seems imminent.

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