Higher energy prices hit British Gas profits

Energy group Centrica said today that higher energy prices would weaken profitability at its British Gas division next year.

Centrica said it would not increase household bills immediately but would absorb some of the rise in electricity and wholesale gas prices at the expense of its own margins.

Bills last went up in September and contributed to British Gas losing 630,000 more customers than it gained in the second half of its financial year.

Although suppliers have since followed suit and raised prices, sales at British Gas have recovered to only 80 per cent of the level before the changes to bills were announced.

Centrica was forced to act after wholesale gas prices in the second half of year rose 32 per cent on a year ago, while electricity prices increased by 18 per cent.

In a trading statement, Centrica assured investors that its results for the year to December 31 would be in line with hopes following improved performances in its other divisions.

More gas has been produced in its upstream business during the second half of the year to take advantage of the surge in energy prices.

At the same time, its gas storage business was continuing to exceed expectations and full-year profits in the division would be ahead of last year.

Centrica said it was comfortable with meeting market forecasts for its 2005 results because an improved performance by its gas production and storage businesses would offset flat margins at British Gas.

Gas production was expected to be at least 10 per cent higher than previously expected, while operating profits in storage would be significantly higher next year.

* Troubled nuclear power generator British Energy today announced a steep rise in operating losses and admitted that it was facing a challenging second half. The group said increased pension costs, an inability to take advantage of electricity price rises and higher depreciation charges had had a "significant adverse impact" on its profitability and cash flow in the first half to September 30.

Group losses after tax and one-off items came in at £262 million against £79 million last time. British Energy added that the rest of 2004/5 would be difficult due to a number of unexpected shutdowns at its plants since mid-March and delays in reopening power stations at Hartlepool and Heysham.