27 Feb 2013

British Gas defends massive profits following price hike

Centrica, the parent company of British Gas, is forced to defend the huge profits made by its residential division in 2012, and insists it was forced to hike gas and electricity prices.

Profits at British Gas's residential supply division rise £606m in 2012

In its full year results announced on Wednesday, the company revealed that British Gas’s residential energy supply division had made profits of £606m, an increase of 11 per cent on the year before.

In October last year the company announced it would be hiking gas and electricity prices by 6 per cent, something it blamed on rising costs, but added that it would not apply the increases to 300,000 of its most vulnerable customers.

Centrica said that the 11 per cent increase in profits came after last year’s colder-than-normal weather, which saw gas use increase 12 per cent. In total Centrica made a total profit, before tax, of £2.7bn.

Chris Jansen, managing director of service and commercial at Centrica, told Daybreak “I completely understand our profits announced today will create a reaction with customers.

People will not understand why, just a few months ago, British Gas claimed they had no option but to put up their prices – Caroline Flint

“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 per cent down on 2010.”

In the heat of the moment, David Cameron surprised Number 10 and the Department for Energy when he suddenly announced during prime minister's questions in October that energy suppliers would be forced by law to provide the cheapest tariffs.
The following 24 hours saw Downing Street scramble to clarify, after the energy secretary sought to distance himself from the pledge. Number 10 said that what the prime minister had said was an option being considered.
The Energy Minister Greg Barker then appeared to row back in further, suggesting that the coalition would legislate for the cheapest deal "if that is required".
Ofgem, the industry regulator, said in October that energy companies would have to make clear their cheapest tariff on energy bills.
Last week, it announced the latest stage of its planned reforms: for electricity and gas four "core" tariffs per fuel type; suppliers will be required to give personalised information on the cheapest tariff they offer; new standards of conduct which will enable Ofgem to take action against suppliers where they failed to treat customers fairly. They hope some of the measures will be in place by summer, but a consultation process is ongoing.
The changes are to be enshrined in the government's new Energy Bill, announced earlier this month. "The Bill will support this package, and make sure that all energy customers are put on their supplier's lowest variable rate unless they choose otherwise," Mr Cameron said.

‘Complete overhaul’

However Caroline Flint, shadow energy and climate change secretary, said the results show it is time for a “complete overhaul of our energy market”.

She added: “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.”

Consumer Focus called for greater transparency between profits and prices earlier this month after utility giant EDF revealed a £1.7bn earnings haul just two months after raising bills for 3.7 million British households.

However, the results were not totally positive for British Gas. The fuel price increase saw the number of the company’s customers fall by 1.5 per cent in the second half of the year, and profits at British Gas Business fell by 9 per cent to £175m.

The group also said that the tough economic climate had made it difficult to attract new customers, with boiler installations down 10 per cent on the previous year.

Price rises?

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”.

Mr Jansen was also asked if customers could expect further price increases in 2012, but said predicting such a thing was “like looking a crystal ball”.

“The general trend for energy prices are prices are increasing,” he said. “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.”