British Gas owner posts £1.3bn profit, so why the price hikes?
British Gas owner Centrica faces public outrage today after reporting £1.3 billion in half-year profits - just three weeks after announcing massive price hikes.
The UK's biggest energy supplier, British Gas, which itself made £270 million, plans to lift gas and electricity prices by an average of 18% and 16%, respectively, from 18 August (see the British Gas to hike prices news story).
Key Points
£1.3bn Centrica profit
BG hiked prices just three weeks earlier
Consumer groups hit out at hikes
Some nine million customers will be hit by an average yearly £190 jump in their dual fuel bill, taking it to a typical £1,219.
The hike comes at a time when household incomes are becoming increasingly squeezed by high inflation and muted wage growth.
Audrey Gallacher, director of energy at independent lobby group Consumer Focus, says Centrica "seems to win whether wholesale costs are high or low".
She says: "Retail profits margins may have been reduced by recent increases in wholesale prices, but as they are also major gas and electricity wholesalers, they can still make healthy profits at the other end.
"Consumers will be more worried by their increasing bills than which part of an energy company makes the most money. Given Centrica profits remain strong, consumers are bound to question whether recent large price hikes were necessary."
Why are prices rising?
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Centrica says adjusted operating profits in the six months to 30 June at British Gas fell by 54% compared to the same period last year as it battled with a 30% increase in wholesale gas prices and lower consumption.
It says British Gas saw an 18% year-on-year decline in gas usage in the period, as well as a 3% drop in electricity consumption, and that although profits were made in the first quarter of the year, energy has been sold at a loss since April.
Events in the Middle East and Japan, plus strong Asian demand, have been blamed for consumer price rises, as they have resulted in an increase in both commodity prices and taxes.
But because energy is a necessity, not a luxury, many consumers argue firms should use profits from elsewhere in their business to keep household bills down.
When we put this theory to managing director of British Gas, Phil Bentley, last month, he responded: "Profits for the industry are 3% to 5% of a bill, if that. If you built a £1 billion wind farm and sell it as a loss we would not build in the first place.
"If selling at a loss we would no longer supply energy."
Centrica says without the pending price rise in August, it will make a loss in the second half of the year.
Paul Green, chief executive of Energyhelpline.com, says: "Clearly, in a privatised market, British Gas has a duty to shareholders to increase profits and one way of doing this is raising prices.
"However, even though profits are down 54%, many customers will still feel they are high, especially as the company has just introduced its second price increase in eight months."
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