The energy giant Centrica reported record profits of £742m at its British Gas retail business yesterday, provoking criticism from consumer groups over the group's recent 7 per cent increase in energy bills.
But Centrica said the majority of the 24 per cent boost was from the unusual conditions in the first half of 2010, with second-half profits down by 48 per cent as margins were squeezed by rapidly rising wholesale prices.
Overall, Centrica's group profits came in at £2.4bn, up by a healthy 29 per cent compared with the previous year, on revenues broadly flat at £22bn. The group is raising its dividend by 12 per cent to 14.3p a share.
The company reported strong performances from other divisions with a 47 per cent rise in profits in its upstream business and Direct Energy, its US operation, reporting profits up by 53 per cent to £234m.
"Last year was unusual in that there was very high demand in the first half because of the cold weather but the wholesale price did not react," Nick Luff, Centrica's chief financial officer, said. "The second half was much more normal."
Centrica said its strong balance sheet was required to make the £40bn-worth of forward contracts needed to secure Britain's energy supplies and also to make long-term infrastructure investments. And it reported that a quarter of a million residential accounts were signed up in the past year.
"The fact is we have the most competitive pricing, we have good service levels, and we won lots of customers," Mr Luff said. "We're doing all we can to help customers make their homes more energy efficient because that is the best way to control bills."
Britain's energy retailers are under investigation by regulator Ofgem over pricing. The most recent flashpoint for criticism of British Gas was the December price hike, just as the Christmas cold snap began.
But Centrica said the increase to customers' bills was an unavoidable consequence of wholesale gas prices ballooning by more than 45 per cent over the past 12 months, and that the company's strong first-half performance helped hold off the price increase as long as possible.
Critics remained unconvinced. "Of course there is a case to be made for having strong British companies in a time of such economic uncertainty, and yes, we need suppliers to post healthy profits in light of the huge investment needed in our clapped-out energy systems," Ann Robinson, the director of consumer policy at uSwitch.com, said. "But, there is also a pressing need for affordable energy in British homes, and whether suppliers have got this balance right, or not, is something that Ofgem now needs to answer as a matter of urgency."
Alongside the financial results Centrica yesterday revealed plans to invest £450m over the next three years in the York and Ensign gas fields in the North Sea. The move comes hot on the heels of yesterday's announcement of a £2bn, three-year, 2.4 million-tonne LNG deal with Qatar. Both are part of the energy company's strategy to secure long-term gas supplies as North Sea production starts to run down.