Centrica faced calls for further retail price cuts yesterday after the energy giant's British Gas business reported first-half profits up by 98 per cent to £585m.
The company denied that the huge rise in profits constituted cashing in on last winter's unusual cold snap, stressing that British Gas has the lowest average prices following a market-leading 7 per cent price cut in February. Profits only rose because it attracted 223,000 new customers, the group said.
With wholesale energy prices back on the rise in recent months, Centrica's margins are already feeling the squeeze as it buys in forward gas supplies. And depending on the wholesale market and the temperature of the coming winter, retail prices may even go back up.
Sam Laidlaw, the chief executive of Centrica, refused to speculate on future pricing. But he dismissed criticisms of the company's massive profits and said that retail prices are set by the energy sector's competitive market. "It is too early to call where prices will go," he said. "With taxes and VAT going up and public sector employment under threat, we will do what we can to either reduce prices or delay price rises as long as we can because it is in our interests to do so."
Centrica as a whole is on track to meet full-year forecasts, with the majority of growth loaded into the first half. The group reported first-half revenues flat at £11.7bn, with adjusted operating profits up by 65 per cent to £945m, boosted by last year's £4bn acquisition spree including British Energy and Venture Production.
Mr Laidlaw said the integration of Venture was progressing well, with production ahead of targets and good exploration and appraisal results. Centrica's US business is also flourishing, with profits more than doubling to £139m. The recent purchase of Clockwork, an energy services business, would position the group to take advantage of the growing energy efficiency agenda in the US, the company said. "This makes us the second biggest services business in the US," Mr Laidlaw said.
A current priority for the UK market is the Government review of the electricity market, due this autumn. Recommendations from Centrica are likely to include support for the Government's recent commitment to a carbon floor price, and calls for a feed-in tariff or similar support mechanism for low carbon generation, including new nuclear power. "All low carbon technologies have some form of support, with the exception of nuclear, but we have to have a level playing field," Mr Laidlaw said. "It is not a case of subsidising nuclear but of discriminating against it."
Carefully avoiding even a hint of concern over the appointment of Energy Secretary Chris Huhne – who, as a Liberal Democrat, has long opposed new nuclear – Mr Laidlaw warned that stakeholders will have to work together to meet the challenge. "There is a lot to be done to make this happen – energy market reform, planning, technology licensing and so on – and that is not going to happen by benign neglect but only with a sustained push from industry and government," he said.
Despite Centrica's robust defence of its British Gas profits, the group still face criticism from consumer groups yesterday. "Millions of customers struggled to afford high energy prices over one of the coldest winters in recent years and for British Gas and other companies the result is massive returns," Audrey Gallacher, the head of energy policy at Consumer Focus, said.
"Such huge supplier profits will sound alarm bells, yet again, over wholesale price cuts not being fairly passed on to consumers," she added.