UK: Call for overhaul of energy market as British Gas profits climb 11%
09:22 27 February 2013
BRITISH Gas parent group Centrica ran the gauntlet of public anger today as it revealed a £606million profit haul at its residential arm, just months after increasing customer tariffs.
Centrica said an 11% rise in profits at British Gas residential came after last year’s colder-than-normal weather saw gas use leap 12%, despite a 1% fall in customer accounts to 15.7m in 2012.
The results are likely to raise questions over the fairness of energy bill increases after British Gas raised tariffs by 6% for around 8.4m households at the end of last year.
Group adjusted operating profits rose 14% to £2.7billion, but Centrica said it paid more than £1bn in tax and invested £2.7bn in 2012.
Directors from the company appeared on television this morning to defend the results. Chris Jansen, managing director of services and commercial at Centrica, said a colder winter last year contributed to the rise in profits.
He told Daybreak: “I completely understand our profits announced today will create a reaction with customers. I think it’s important to remember that in 2011 it was a very, very mild winter ... so the country used a lot less gas, and actually our profits in 2011 were 20% down on 2010.”
Asked whether customers would face further price increases, Mr Jansen replied: “It’s impossible for me to say that, that’s like looking at a crystal ball.
“The general trend for energy prices are prices are increasing. All we say to customers is let’s do what we can to control energy bills. Prices might be going up but bills don’t need to if we control our energy use.”
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 BBC Breakfast how long into the future, and if the firm was committing to not putting prices 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.”
Centrica said it was too early to say if customers should be braced for further price hikes this year, but added that there were “upward pressures” in the market after a 13% jump in wholesale gas prices winter for 2012/13.
Chief executive Sam Laidlaw insisted the group needed to make a “fair and reasonable return so that we can continue to make our contribution to society and to invest”.
Centrica stressed that British Gas contributes a fifth of total group profits, with 2012 results also largely driven by a rise 20% in profits at its its upstream gas and oil exploration business to £1.2 billion.
The group said its move to raise prices saw customer numbers fall 1.5% in the second half of 2012 to 25 million, while it added that difficult economic conditions had made it hard to attract new customers and resulted in a 10% fall in boiler installations in 2012 as customers reined in spending.
Profits at British Gas Business fell 9% to £175 million as firms were also hit amid wider economic pressures.
As part of a strategic overhaul also announced today, Centrica revealed plans to expand further in North America and confirmed that British Gas boss Phil Bentley will step down after six years in the top job on June 30 as part of a management shake-up.
US retail boss Chris Weston will take on responsibility for all so-called downstream operations, including British Gas Residential in the UK, while Mark Hanafin will lead the international upstream business.
It said low gas prices “offer a good opportunity for growth” in America, adding that it was on track to double profitability in the US since 2009.
Shadow energy and climate change secretary Caroline Flint said it was time for a “complete overhaul of our energy market”.
“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,” she added.
Consumer Focus called for greater transparency between profits and prices earlier this month after utility giant EDF revealed a £1.7bn earnings haul in the UK just two months after raising bills for 3.7m British households.
However, the French-owned group, which has plans to build a new nuclear power station at Sizewell, said that its UK profits had been driven by its generation arm, with its residential electricity and gas retail business remaining loss-making.