Warning over British Gas bills
Updated on 12 May 2008
British Gas owner Centrica has warned of further possible bill hikes for customers as wholesale gas prices continue to climb.
In January, the firm upped gas and electricity bills by an average of 15 per cent to help cope with rising wholesale prices but these have continued to rise and have led to profit margins being squeezed.
As a result, first-half group operating profit will be materially below that of last year due to lower profitability at the firm's British Gas retail arm.
Wholesale prices are being driven by record oil prices, rising demand in Asia for the available liquefied natural gas (LNG) and insufficient supply from continental Europe, Centrica said.
On average, month-ahead prices for gas and power are up 92 per cent and 100 per cent respectively from the same period last year.
Looking to the full year, Centrica said forward wholesale gas and power prices in the UK remain stubbornly high, and those for the second half of this year are double those seen in the same period of 2007.
It added that sales of British Gas energy accounts had slowed since January's bill hikes, with the number of customer accounts down from around 16 million to 15.9 million in the past four months.
"While the current outlook for gas prices does create a challenging environment for energy suppliers, we will take the necessary action to deliver reasonable margins in the retail business," Centrica said.
Centrica said sales of energy accounts had slowed since the January price increases, and British Gas ended April with 15.9 million customers, against more than 16 million at the end of 2007. It lost nearly a million customers in 2006 when it lifted prices.
The gas production business has been particularly strong this year, although losses from legacy industrial and commercial gas sales contracts are expected to be materially higher than previous guidance, Centrica added.
Centrica's group operating profits for the first half last year were £1.25 billion, with £1.95 billion achieved for the full year.
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