Price row over record profits at British Gas

Calls for price cuts as profits soar 58 per cent at Centrica's retail division

British Gas was last night defending itself against a barrage of calls for further price cuts after record profits led to charges that energy companies are "out of control".

Yesterday's annual results showing British Gas spiking 58 per cent to a record £595m, despite a 7 per cent fall in consumption, sparked outrage from consumer groups.

The revelation came just days after industry regulator Ofgem accused the so-called "big six" energy companies of earning an average 40 per cent more in profits per household over this winter, as net margins soared from £75 per customer to £105.

Government-backed watchdog Consumer Focus was yesterday calling for "immediate and significant price cuts" from both British Gas and its competitors. "Energy companies have no excuses for not cutting bills," Philip Cullum, the deputy chief executive, said. "It is clear the problems in the energy market are profound and that it requires fundamental reform."

Simon Hughes, the Liberal Democrat Energy spokesman, said: "These massive profits show that the energy companies are out of control and their regulator is out of action."

In its defence, Centrica stressed that British Gas has cut its prices three times over the past year. Its retail business cut its prices by 7 per cent earlier this month. Not only is it now the cheapest of all the UK's energy suppliers, but it has added another 141,000 residential customers in the last 12 months, taking the total to 15.7 million.

The company also emphasised yesterday that the high profits from its retail division were not the whole story. The group's power generation business also saw a major boost – rocketing up from £11m to £147m – as falling gas prices made its gas power stations more competitive against coal-fired rivals. But the same low prices sent operating profits at the company's oil and gas production business crashing by 62 per cent.

The company's North American business also saw profits down by 29 per cent to £153m, thanks to tough economic conditions and a one-off £61m charge from its residential business. Taken together, Centrica's group revenues grew by 5 per cent to £22bn but adjusted operating profits fell by 7 per cent to £1.86bn.

Chief executive Sam Laidlaw also defended his company's profit margins, which were coming in for particular flak. Over the year as a whole, margins were 7.6 per cent, not far from the 6-7 per cent target range. But in the second half, they jumped to 8.7 per cent, fuelling claims that prices should have been cut both earlier and lower.

"The reality is that a 7.6 per cent margin is not an exceptional return," Mr Laidlaw said. "This is a business with big working capital and capital requirements, where we have to produce gas in hostile environments, ship it across the world, liquefy it and transport it to customers' homes, and our margins are low compared with BT's 15 per cent or the 8.5 per cent at Marks & Spencer."

The group also has massive investment commitments as it attempts to expand its upstream business to shield itself from the price volatility in the open market, Mr Laidlaw said.

Last year the group upped its UK oil and gas reserves by 50 per cent with the purchase of Venture Production, and spent £3bn buying a 20 per cent stake in nuclear giant British Energy. It is also investing in wind energy and gas storage facilities. "At the end of the day, these profits go on ensuring that we keep the lights on," Mr Laidlaw said.

Some commentators say the issue is not British Gas, but its rivals. Joe Malinowski, the founder of the price comparison website TheEnergyShop.com, said: "It is unfair to be too critical of British Gas given its recent record of price cuts. The real question is, why are the other energy suppliers not cutting their standard energy prices?"

Alongside yesterday's results, Centrica announced it is hiring 1,100 people in its insulation business and buying gas assets in Trinidad and Tobago to take it into LNG for the first time.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?