At the end of July, it was announced that British Gas had increased its profits by 23% during the first six months of 2012. The total amount of profit stands at £345 million.
The residential arm of British Gas put much of the increased profit down to people using more heating in their homes because of the poor weather. But some of the profit is also due to the way they raised their prices previously. This has caused a range of consumer groups, union leaders and politicians to criticise the company.
For example, Audrey Gallacher, director of energy at Consumer Focus, said: “Hard-pressed consumers will be shocked to see such a big rise in profits when British Gas has been warning of the need for price increases. The disconnection between profits and prices risks deepening consumer distrust over energy bills.”
Gallacher also said: “Customers need guarantees that falls in wholesale prices will be passed on as fairly and quickly as rises in wholesale prices.”
Ann Robinson, Director of Consumer Policy at uSwitch, commented: “Soaring profits show that British Gas could, and should, cut its prices ahead of winter. This would go some way to acknowledging the pressure customers are under as they struggle to afford their household bills.”
Centrica, the owner of British Gas, is a major player in the UK’s residential energy market, supplying just over 40% of the gas and 25% of the electricity market. Where they lead, many other companies tend to follow.
Sam Laidlaw, Centrica’s Chief Executive, has defended the company, saying: “Centrica has performed well in the first half of 2012 despite challenging market conditions, although the increase in earnings must be placed in the context of unusually low levels of consumption and profits in the UK in the first half of 2011.”
Over on its website, British Gas also claims that “we invest £1.80 for every £1 we earn.” Investments include the recent announcement of a £1.4 billion investment with GDF Suez to develop a major North Sea gas field off the Norfolk coast, with a further £700 million to follow.
Passing costs on to customers
When wholesale costs have risen, energy companies have tended to quickly pass this on to the consumer, often increasing their prices somewhat above the rise in the wholesale price. When the wholesale costs have fallen again, consumer groups have complained that it takes considerably longer for the consumer price to be reduced
In August 2011, British Gas raised domestic gas prices by 18% and electricity by 16%. In January 2012 they reduced electricity prices by 5%.
By comparison, in October 2011, Npower raised domestic gas prices by 15.7% and electricity by 7.2%. In February 2012 they reduced their gas prices by 5%.
E.On raised gas by 18% and electricity by 11% in September 2011, then lowered electricity prices by 6% in February 2012.
There is some discrepancy in the timings, and in the amounts charged. In addition, some companies have reduced their electricity prices and others have reduced their gas prices.
While the Office of Gas and Electricity Markets, or Ofgem, is responsible for regulating the companies running the gas and electricity networks, it does not tend to take action against companies that fail to pass on reductions in wholesale prices to their domestic customers. This is unlikely to change in the near future.
So what are your options in the meantime? While the energy suppliers are in control of prices, as a consumer you have the power of choice. Make sure you regularly compare your supplier to others, so you know you’re getting the best deal. And of course using energy efficiently can also bring down your bills.
Every time I hear of these huge profits it really winds me up! We can all see through the ridiculous price rises and not so generous price reductions. Petrol forecourts seem to do the same thing as oil prices rise and fall.
Once again investors and big business reap the benefits at the expense of struggling families and pensioners!