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British Gas urged to cut energy prices as residential supply arm profits leap

Published 18/02/2016

British Gas operating profits jumped to £574 million last year from £439 million a year earlier
British Gas operating profits jumped to £574 million last year from £439 million a year earlier

British Gas faced calls to cut energy prices further after revealing profits at its residential supply arm surged by nearly a third last year.

The Centrica-owned supplier insisted the £574 million haul - up from £439 million in 2014 - came on the back of increased energy demand rather than profiting from falls in wholesale prices.

British Gas has already cut prices three times since the beginning of 2015, last week becoming one of the last Big Six providers to lower tariffs in the recent round of reductions, announcing a 5.1% decrease from March 16.

Wider group underlying earnings at owner Centrica fell 12% to £1.46 billion, while adjusted operating profits dropped 4% to £863 million.

But the British Gas figures reignited controversy over prices in the industry, with consumer groups hitting out at the size and timing of cuts.

Gas prices in wholesale markets have fallen by 41% since 2014, while electricity prices have dropped by 29%.

Major suppliers have announced gas tariff cuts of around 5% in recent weeks, although a ll but one do not take effect until March, while none of the major suppliers have reduced electricity prices.

Britain's energy sector is already being investigated by the Competition and Markets Authority (CMA) which began a wide-ranging probe in the summer of 2014.

The CMA said last July that households were overpaying suppliers for their energy by around £1.2 billion a year and failing to switch to get the best deals.

Richard Lloyd, executive director of consumer group Which?, said: "C ustomers will be asking why energy suppliers have only cut their gas prices by such a paltry amount."

British Gas said wholesale market costs only make up around 38% of a dual fuel bill and only around a third of electricity bills.

It has said previously it is unable to lower electricity prices due to rising costs, such as for network delivery.

Iain Conn, chief executive of Centrica, said: " We absolutely have passed on the low costs of commodity prices as they fell to our customers.

"We saw a very mild 2014 and we saw a more normal 2015 and therefore the amount of energy that our customers used went up and therefore the actual total profit went up," he said.

British Gas saw a 5% hike in gas usage despite the warmest December on record, while p rofits were also boosted thanks to lower energy efficiency scheme costs.

The group added there was scope for more price cuts if wholesale prices fell further.

The group lost 119,000 customer accounts to reach 14.7 million over last year.

The wider Centrica business was impacted by plunging commodity prices, with the cost of oil more than 70% below peaks seen in the summer of 2014.

The group is slashing costs to deliver savings of £750 million over five years, announcing last July that it would cut 6,000 posts - around 10% of its workforce - although 2,000 new jobs will be created, so the net loss will be 4,000.

It said 3,000 roles are expected to go this year.

Shares in the FTSE 100 Index-listed group rose 5% as the drop in earnings was lower than feared in the market.

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