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Centrica – the company which owns British Gas – today announced that  it had made profits of £1.26 billion.

This news comes just three weeks after British Gas told customers that it would be putting up gas prices by 18% and electricity prices by 16% from 18th August.

We shot a quick video blog post with uSwitch energy expert Tom Lyon to explain more about the profit announcement.

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by Tom Lyon

With the entire world’s media all focused on the sudden and dramatic fall of the News of the World after 168 years of publication, some are questioning whether British Gas might have seen this as a golden opportunity to bury bad news about price hikes.

But does today’s announcement represent damage control tactics on their part or simply one of life’s coincidences?  Ultimately only British Gas knows the answer but that shouldn’t prevent us from enjoying a few minutes of speculation…

As many, many people have said – mostly far smarter, wittier and more clichéd than me – hindsight is a truly wonderful thing and looking back there were a number of signs suggesting that today was a likely day for a British Gas price rise.

British Gas has been openly hinting at the need to put prices up for several months now, not least in a statement at the end of June when they indicated a 50% drop in profits in the first half of the year and the need for ‘retail margin recovery’, so we knew a hike was coming.

With this in mind, Centrica, British Gas’s parent company, will be announcing its half year results at the end of the month and this price rise needed to come before that to reassure shareholders worried about a fall in profits.

Add to that the trend that price rises tend to come on Fridays and we are down to a choice of two or three likely days in July.  The upshot of all this is, in hindsight at least, today was always one of the most likely days…

One other thing to bear in mind is the huge amount of work that goes into a price rise affecting this many customers  – I heard one industry-insider estimate that it costs suppliers around £1.5 million to change prices on their standard rates.

Whether this is true or not, it doesn’t take much to imagine the mammoth task of sending out millions of letters. British Gas, for example, has 9 million letters it has to print to send to customers, all dated and ready to start sending out on the day.  Now, the News of the World saga has been bubbling for a week or so but it only became huge news yesterday afternoon when its closure was announced.  In my view, anyone who thinks British Gas (or any other supplier) is capable of preparing for a price rise in less than 24 hours is totally off the mark and probably guilty of giving them a bit too much credit!

See Also:

British Gas set to announce record profits

British Gas set to announce record profits amidst controversy

British Gas is expected to announce an increase in profits likely to reach £2 billion tomorrow, mere months after announcing a 7% rise in both its gas and electricity prices for millions of customers across the UK.

If a rise in profits is evident, British Gas will face unavoidable scrutiny.

Already Ofgem, the government-backed energy regulator, is poised to announce the results of their ongoing investigation into a series of prices rises that occurred over the winter.

It’s been a winter to remember – the coldest in a century, with record public spending cuts and rising unemployment.

Despite this, all of the six major energy suppliers to the UK – British Gas, E.ON, SSE (Scottish and Southern Electric), npower, ScottishPower and EDF Energy –raised the average cost for gas and electricity for their customers.

If a hike in energy prices as snow swept through the country was considered bad timing, this profit announcement is going to be much worse.

The rises were not well received – many accused the energy companies of ‘cashing in’ on economic misery, an accusation they strongly denied. Unsurprisingly, an announcement of huge profit increases is likely to exacerbate these sentiments nationwide.

Still reeling from the revelation that CPI is on the increase, and average wages are falling throughout the country, sympathy for British Gas may be understandably sparse.

So if their profits have gone up, why?

Many of the energy companies argued at the time that the increases were indicative of the rising cost of wholesale gas; not least of all British Gas, which was quick to point out that its profit margin had lessened to just 1% as a result.

As well as this, the unprecedented cold weather has meant (British Gas could argue) an unprecedented level of gas and electricity use as millions opted to stay indoors, translating to an abnormal increase in profits that will not be sustained year round.

British Gas also say that it, along with every other gas and electricity company, will be expected to invest heavily in energy efficiency measures in order to comply with Chris Huhne’s ambitious Green Deal. British Gas’ bill alone is estimated at around £15 million.

While energy efficiency measures will inevitably reduce our dependency on other nations as well as lessen the amount of fuel we use every year, the present effect of rising fuel costs stands to devastate millions of households.

Although ‘vulnerable customers’ (as energy companies termed them) were generally protected from the price rises, fuel poverty continues to rise and affect entirely new demographics; no longer is it the elderly and very poor that need to worry about the cost of heating their homes, fuel poverty continues to affect a far wider spread of households.

The news in January that average profits per energy company had jumped from £60 per customer to £90 horrified many struggling to cope with day-to-day expense. It will be seen, inevitably, as corporate greed and Ofgem, already almost finished with its investigation, will be under renewed pressure to ‘show some teeth’, as one Conservative MP termed it.

But what is Ofgem likely to do in March when it releases its findings?

1. It could do nothing, although this is unlikely under the current intensity of the media glare.

2. Ofgem could prompt a review of industry regulations, as called for by Consumer Focus, which has publically demanded more transparency around profits and the actual cost of wholesale gas.

3. The third option, which would be the most radical, would require Ofgem to call in the Competition Commission, which will kick off a thorough review of all the regulations surrounding the energy industry.

The course of action remains to be seen, however, one thing we can be sure of is British Gas won’t be out of scrutiny for quite some time yet.