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Centrica, the owner of British Gas, is expected to smash its earnings record this week and post profits of about £2 billion for 2007, an increase of more than 40 per cent on the previous year, according to consensus estimates by analysts.
The announcement on Thursday is likely to provoke accusations that energy suppliers are exploiting consumers. It will come only a month after British Gas raised prices for 11 million gas and electricity customers by 15 per cent.
Allan Asher, of Energywatch, the consumer group, said that he would examine the Centrica results and those of other British suppliers for evidence of overcharging.
“All of these suppliers are going to post huge profits for 2007,” Mr Asher said. “Our concern is that when wholesale prices go up, they are quick to raise domestic prices, but when they go down, they are very slow to pass the reductions on.”
Energywatch is contributing evidence to an investigation into the retail energy market announced this month by the Select Committee for Business, Enterprise and Regulatory Reform.
Sam Laidlaw, chief executive of Centrica, is likely to point out at the annual results that, despite a strong performance in the early part of the year, the profitability of its core British Gas Residential division fell sharply. That left Centrica, he is expected to say, with little choice but to raise prices last month to restore margins for 2008.
British Gas Residential, the largest and most profitable of Centrica's eight businesses, posted a £533million profit in the first half of 2007. Analysts believe that it was barely profitable in the second half after wholesale energy prices surged, tracking record global oil prices of nearly $100 per barrel. It may have ended the year at a loss.
The bulk of the profits earned by Centrica last year are expected to come from other parts of the business, including Direct Energy, its North American energy business, and the upstream division Centrica Energy.
Centrica is also likely to emphasise that the rising cost of investing in renewable and low-carbon electricity generation to meet tough new renewable-energy targets set by the European Union will mean rising prices for consumers.
The cost of building offshore wind farms is estimated at about £2billion per gigawatt of generating capacity, compared with less than £1billion for a traditional gas-fired power station.
Mr Asher rejected this argument. “Where is the evidence that these companies are really investing in renewables?” he said. “The UK is a long way behind the rest of Europe in developing this type of energy.”
Meanwhile, an Early Day Motion in Parliament calling for an investigation into UK energy prices by the Competition Commission has been signed by 74 MPs.
The motion, tabled by the Labour MP John Grogan on February 4, highlights concerns about a perceived lack of competition in Britain and asks the Government “to instruct the Competition Commission to conduct a full market investigation and where necessary take action to increase competition”.
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This thread is a joke. The company is massive, it has over 15m customers and only makes £550m, Do that maths, it's less than £40 per customer. Rememeber the infrestruture that have to maintain, and from previous experiences, when there is a leak, they come out very prompt.
If the average customer thinks their £80 a month gas bill is high, maybe you should see the average FTB mortgage repayments!
Paul, Camberley,
UK gas prices continue to rise, contrary to what we were told when the industry was denationalised and new pipelines built. Anyone interested in the reason for the dramatic rises in gas prices since 2003 should read the work of Professor Phil Wright of Sheffield University. Basically the gas companies own upstream and downstream production and have bamboozled Offgen over their pricing and costing models. And the UK gas market after liberalisation, is being exploited to protect the much less liberal continental European marketplace. We are out on a limb and it is being sawn off.
hazel, London, UK
I believe strongly in the free market economy. And think that people and companies should be free to make as much money as they want, however, there is an exception to this line of thinking.
Core critical businesses should be state owned and re-nationalised. Gas, electricty, water, the distribution and the generation. Also train transportation which is critical should also not be in private hands. Then any profit these divisions made could be invested back into the country and improving the infrastructure for the benefit of everyone rich and poor alike. Also the core telecoms provider BT should be wholly owned as these services and the national ownership are intrinsic to the stability of the country.
With all other 'luxury' items being free to open market competition... Mobile phones for example.
Luke Faichney, Robin Hood's Bay, England
I am not surprised. My average winter quarter bill over the last three years was £360. This year the charge is £752, and my tariff is supposed to be fixed.
iain laurie, elgin,
Read the figures and what you see is that the company didn't do well on the residential side of the business this year, so is it really price gouging? The money it made came from upstream parts of the business i.e. the extraction of the oil and gas in the first place. Centrica has hedged its options, like other companies. When crude oil and gas prices go up, it's residential retail arm loses profitability, but the upstream side producing the oil and gas, becomes more profitable. Normally the retail earns more. The fact is the cost of oil and gas has more than doubled over the last decade as places like China demand more. Have electricity anfd gas bills gone up by as much? If people are complaining so much, why don't they do more to reduce their energy losses in their homes? it's not as if there isn't support for this (grants etc), meanwhile shops leave their doors open with the heat gushing out. Who monitors their fuel bills these days? Not enough people that's what.
John, Knutsford, UK
No company that provides vital basic services to the UK, including gas, electricity, water and petrol should be making ridiculously high profits off the backs of consumers even in the best of economic times - Fair pricing standards should be enforced - Profits are what keeps a business running, but consumers can only afford to pay so much for a service - Eventually they will be priced out of the market and will have to ask government for assistance to meet the demands of these monopolistic companies - Taxes will then go up even more to meet the demand for this assistance - Consumer spending will drop considerably - Jobs will be lost - The economy crashes - Government will be blamed - Meanwhile, Centrica and the others will continue to report record profits and their shareholders will be laughing all the way to their summer homes in Ibiza -
WTaylor, London, UK
Rather than have 5 hours of culture children should have 5 hours of economics.
Cenntrica operates in a very competitive market. If that market is rigged then it is a matter for the OFT. If not it is a matter for no one.
If Centrica are growing their profits by providing a desirable product in an eficient matter they should be praised. This is a rarity amongst UK businesses.
If their is fuel poverty, and I don't doubt it, that is a matter (largely) of taxation. By taxing those on low-incomes so heavily it is the government that is the bad guy.
Eddie Reader, birmingham, england
Centrica is one of the few British companies left in this market?
They'll buy their energy a year ahead, so the current price rises will reflect prices for 2009.
David, Enfield,
On the Downing St website their is a petition calling for a windfall tax on the profits of these greedy companies
Richard , Bexhill, UK
When the elderly, infirm and retired who are on fixed incomes are hit with a 15% rise in price for a commodity they cannot do without read that the supplier is posting record massive profits we know we are in the grip of a system that cares nothing for its people. The power supply industry should never have been placed in the hands of greedy shareholders. Rip off Britain strikes again.
mike gee, bournemouth, uk
It's about time the utilities were all investigated for their legalised stealing. The rise in gas prices is directly proportionate to the rise in wholesale prices but when it comes to the falls, then only part of the real price fall is passed on and then it is ususally 'phased in' over a quarter!
The reason they do this is because they have a monopoly and they can get away with it. From where I am sitting the British are being fleeced left right and centre by greedy corporations led by equally greedy executives. Corporate greed is rife in this country and the government and its toothless watchdogs look on and do nothing because it is good for government coffers.
David Thijm, Stourbridge, UK
Does anyone realize the vast amount of money is clawed by the Government from Centrica to go back into the pockets of the moaning reds?
noel matthews, grand rapids, mi/ usa
Forget Northern Rock nationalise the rip off foreign owned utility companies Gordon.
Cromwell, Leeeds, England