British Gas feels the heat as profits jump nearly 60%

If you're the UK's biggest energy supplier, a huge jump in profits doesn't tend to go down well.

Last Updated: 31 Aug 2010

British Gas said today that it made record profits of £595m in 2009, a whole 58% up on the previous year, thanks largely to a big drop in wholesale energy prices. This trounced City expectations – but unlike most listed companies, that’s not necessarily a good thing for Centrica, British Gas’s owner. Since we actually used 7% less gas than we did the previous year, these bumper profits will only fuel arguments that the big energy suppliers are at best failing to pass on their own cost savings, and at worst, profiteering at our expense…

Centrica said that British Gas’s revenue was up just 3% last year – it signed up an extra 141,000 customers, while demand has been particularly strong recently with all the rotten weather we’ve been having. However, profits rose disproportionately because its costs were a lot lower: it spent 45% less buying energy on the wholesale market to re-sell to the rest of us. Despite this, the average bill for each customer was apparently ‘slightly higher’ than in 2008 – itself a year of big price hikes. All in all, this boosted operating margins from 4.8% to 7.6%.

That's pretty healthy for a utility, to say the least - and not surprisingly, it has raised the hackles of consumer groups. Regulator Ofgem claimed earlier this week that energy suppliers are now making more profit per customer than at any time in the last five years – £105 per person, to be precise, a whole £30 more than they did in the previous year. So the obvious question is: if energy suppliers are spending a lot less buying in energy, why aren’t they passing this saving on to us rather than feathering their own nests via higher profit margins?

Now to be fair to British Gas, it did recently cut its prices by 7%, becoming the first of the big energy suppliers to do so (possibly a pre-emptive strike, with these bumper results on the way?). Centrica claims this makes it the cheapest on the market – and it will inevitably put the pressure on rivals to follow suit. On the other hand, Anne Robinson of uSwitch told the Guardian today that even if this happens, the average bill will still be £281 higher than it was two years ago – despite wholesale prices falling by about 60% in the last 18 months.

Clearly the big energy companies need to invest in the infrastructure required to secure future supply. But for the moment, it’s hard to see how these numbers add up.

In today's bulletin:

RBS faces bonus backlash as losses hit £3.6bn
Slump in business investment hits recovery hopes
British Gas feels the heat as profits jump nearly 60%
Ganging up to get a better deal
Turn up the heat with corporate speed-dating

Find this article useful?

Get more great articles like this in your inbox every lunchtime