Gas giant warns over prices

British Gas owner Centrica warned today of potential further bill hikes for customers after revealing that continued high wholesale gas prices would hit results this year.

The firm said that overall operating profits for the first half of this year would be "materially lower" compared with a year ago, mainly due to poorer performance in its British Gas Residential arm.

It added that wholesale gas prices for the second half of this year were double those compared with a year ago.

Centrica said: "While the current outlook for gas prices does create a challenging environment for energy suppliers, we will take the necessary action to deliver reasonable margins in the retail business."

British Gas upped gas and electricity bills by an average of 15 per cent in January to help cope with rising wholesale prices.

City analysts have warned in recent weeks that Centrica may need to increase prices because of rising wholesale costs. A note from Societe Generale last month said the company's residential arm could be loss-making in the first half of this year, if it fails to hike its domestic prices again.

The company has a long-term margin target of between 5 per cent and 7 per cent, but SocGen said the residential figure could be in the region of 2 per cent this year and may even be negative in the current half year.

Citi noted last week that wholesale gas prices were 27 per cent above the levels at which Centrica last raised retail prices. It said that Centrica will require a 12.6 per cent increase in retail electricity prices in the third quarter of this year if it wanted to meet Citi's full-year earnings target.

Average month-ahead wholesale prices for gas and electricity were 92 per cent and 100 per cent respectively higher than a year ago, Centrica said today.

It added that sales of British Gas energy accounts had slowed since January's bill hikes, with the number of customer accounts down from around 16 million to 15.9 million in the past four months.

They are being driven by record oil prices, rising demand in Asia for the available liquefied natural gas (LNG) and insufficient supply from continental Europe.

The group said that its gas production business at Centrica Energy had been particularly strong, and was offsetting losses experienced from "legacy" industrial and commercial gas supply deals with businesses such as independent power stations at cheaper rates.

Centrica's group operating profits for the first half last year were £1.25bn, with £1.95bn achieved for the full year.