British Gas profits soar – but prices remain high

Consumer groups vent their anger at energy company's £541m profits

British Gas is on course for soaring returns from its 15 million household energy customers this winter, with profits expected to rise by 43 per cent to £541m, its owner Centrica told investors yesterday.

It said Britain's biggest energy supplier was trading "above expectations" despite a 7 per cent fall in demand due to the recession and increased energy efficiency.

In a note to investors, stockbroker Charles Stanley praised BG's residential supply business, saying its margins "came in at a very healthy 6.8 per cent (top end of target range)", adding it expected the returns to be maintained until its annual results in February. Consumer groups were less impressed, complaining that energy companies appeared to be profiteering from high prices, amid steep falls in wholesale costs for gas and electricity.

The Independent is calling for a 10 per cent cut in energy prices and greater powers for the regulator to act against firms that are not passing on cuts in wholesale costs, amid signs that suppliers are making sharply higher profits. In July, Centrica announced an 80 per cent rise in British Gas residential half-year operating profits to £299m, while operating profit across its business, which includes boiler and central heating services, rose by 56 per cent to £476m. Its latest trading update came a day after another supplier, Scottish & Southern (S&S), announced a 36 per cent rise in profit, from £302m to £410m, in its first half.

Last year S&S, the only other British-owned Big Six supplier, put its gas and electricity prices up by 44 per cent, or £384 per customer a year, reducing bills by 5 per cent on March 30 this year, after peak winter demand, to an annual average of £1,133. British Gas put gas prices up by 50 per cent and electricity prices up by 24 per cent last year – and cut them 10 per cent in February and May to an average of £1,127.

During the past year, wholesale prices have more than halved, from £84.95 per megawatt to £34.75 per megawatt in September, and from 61p a therm to 24p a therm.

Meanwhile, largely because of high retail prices, 6.6 million households have become trapped in fuel poverty, paying at least 10 per cent of their income on gas and electricity, treble the number five years ago.

More than 100 MPs have signed a Commons motion calling for the Competition Commission to investigate the pricing strategies of the Big Six suppliers. Four are foreign-owned: EDF, E.On, Scottish Power and Npower. The latter three are the most expensive energy companies.

Yesterday, responding to British Gas's statement, Fiona Cochrane, senior policy adviser at the consumer watchdog Which?, said: "There must be greater transparency over prices to convince people that they're not being ripped off by their energy supplier."

Consumer Focus, the publicly-funded watchdog, said: "Millions of customers struggling to afford their energy bills will find it difficult to understand how energy firms are making such healthy and, in some cases increasing, profits in the recession."

Joe Malinowski, founder of energy price comparison website TheEnergyShop.com, said that the Big Six suppliers were concentrating on lowering online tariffs for the minority of "price-sensitive" customers, rather than reducing prices for all customers.

"These online tariffs have tracked wholesale prices lower and now offer discounts of over £160 compared to standard tariffs," he said.

"So the potential to benefit from lower wholesale energy prices is there, but only if customers are prepared to shop around."

By taking advantage of cheap wholesale prices, two new companies, OVO Energy and First:Utility, are offering households much cheaper deals than the more established suppliers.