British Gas owner Centrica warns of rising costs

Households were facing the prospect of more price hikes today after British Gas owner Centrica warned its costs continued to mount.

The UK's biggest energy supplier dropped its standard electricity tariff by 5 per cent in January after big rises in both gas and electricity bills over the summer.

But it warned that the trend for retail energy costs "remains upwards", with wholesale gas prices 15 per cent higher for next winter and other costs set to add £50 to the cost of supplying the average household this year.

A round of price reductions by the UK's major suppliers earlier this year were not enough to offset price hikes over previous months, and utility bills have been a driver of the rising cost of living that has squeezed households.

British Gas, which has 15.9 million residential customers, increased gas bills by 18 per cent and electricity by 16 per cent in August.

As well as the rise in wholesale gas prices, Centrica said it was battling with higher costs for transport and distribution, metering, green levies and social costs.

Centrica's warning came as it said its own trading this year was in line with expectations, as higher wholesale gas and power prices benefited its "upstream" operations.

This helped offset the effect of mild weather and energy-saving initiatives on its "downstream" business in the first quarter.

Cold and wet weather boosted demand in April, leaving average domestic gas consumption in the first four months of the year 1 per cent higher than a year ago, although electricity was down 3 per cent.

Residential customer numbers were broadly unchanged from the start of the year, helped by January's tariff cut, which it said re-established it as the cheapest major electricity supplier in Britain.

Its business customers' average gas and electricity consumption was down by 1 per cent and 4 per cent respectively, and its profit margins were under pressure amid the recession.

Audrey Gallacher, director of energy at Consumer Focus, said: "Consumers will need clear evidence that price rises are warranted if they are to stomach further increases to their bills.

"People simply don't know whether what they are asked to pay is fair - the perception is that suppliers are quick to pass on high price rises and slow to pass on small price cuts.

"Much greater transparency on costs, pricing and profits is needed for customers to know whether they're getting a fair deal."

She called for the extra revenue the Government receives from carbon taxes to be used to help the millions of people who are being hit hardest by rising costs.

Tom Pering, an energy analyst at Inenco, said cost hikes were caused by a combination of issues, including supply security and the increasing cost of Government legislation.

He added: "This increased cost will inevitably be passed on to residential and business customers in the form of higher bills.

"However, the big six energy companies are still not doing enough to inform UK households of their cheapest tariffs and helping them reduce bills."

Centrica's shares were up 1 per cent after it said it was trading in line with expectations.

The City expects underlying operating profits to rise 20 per cent to £2.9 billion in 2012, driven by a 37 per cent rise in its upstream operations. Its UK residential energy supply business is expected to see profits rise 13 per cent to £592 million.

PA