Profitability: that's the beauty of gas

A month after putting its prices up by 15%, British Gas has reported a 500% jump in profits...

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Last Updated: 31 Aug 2010

British Gas said this morning that its profits in 2007 soared to £571m, compared to a mere £95m the year before – helping parent company Centrica to boost operating profit by 40% to £1.95bn. This might please shareholders (who are in line for a higher dividend than last year) but if you’re one of those who endured escalating gas bills all year, you’d be forgiven for feeling slightly aggrieved.

Naturally, British Gas has blamed the recent price hikes on the rising cost of gas and electricity in the wholesale markets. And with oil prices at an all-time high (it topped $100 a barrel again this week), it does have some justification. It certainly wasn’t the only one, either – most of its big rivals did the same.

On the other hand, these energy companies aren’t quite so quick to adjust prices when the cost of oil is falling. British Gas admitted that it made two-thirds of its profit in the first half of the year, when prices were sliding – and although it did cut bills in March and April, consumer groups reckon that it didn’t pass on the full saving to its customers.

As you’d expect, the usual suspects have been turning up the heat on British Gas this morning. As well as energy consumer watchdogs, the trade unions have also been lining up to have a pop: following earlier criticism from Unite and Unison, the GMB steamed in today to accuse British Gas of ‘fleecing customers’. It’s ‘greed gone mad’, they snarled. There seems to be unanimous agreement that the sector needs more or better regulation -  and it's true that the regulator is one of the most toothless around.

Centrica CEO Sam Laidlaw was well and truly on the defensive today, arguing that British Gas needed to make big profits so it could invest £1bn a year on new energy sources and improve its customer service. And despite claims that customers will soon start voting with their feet and deserting British Gas, he pointed out that some 200,000 customers actually came back to the provider in the second half of the year.

But given that he’s unlikely to be cutting his prices any time soon, he might have a tough job hanging on to them...

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