Anger as British Gas profits rise 58% to £595 million

Centrica fuelled anger over energy bills today by revealing its British Gas residential arm made profits of £595 million last year - up 58% on 2008.

The group said British Gas, the UK's biggest energy supplier, achieved the profits haul due to the addition of 141,000 gas and electricity customers and following operational improvements.

The result comes amid mounting concern that utility firms were not quick enough to pass on falls in wholesale gas prices last year.

Centrica revealed a 7% drop in total group underlying operating profits to £1.86 billion as declines in wholesale gas prices saw dwindling returns from its upstream production business.

Centrica said it realised 2009 was a "difficult year for many of our customers".

British Gas was the first of the big six energy providers to cut prices last year and also led the way recently with a 7% reduction in gas bills.

However, the earnings figure for British Gas was far higher than most experts were expecting.

Industry watchdog Ofgem said this week that energy firms have boosted margins by £30 for each typical dual fuel customer in the last three months as wholesale energy costs fall.

British Gas claimed the average dual fuel customer paid £23 more last year, which offset a 7% decline in gas demand as the recession bore down on households and businesses.

Despite the soaring profits at British Gas, lower wholesale gas prices had a bigger downward effect on production profits than the boost given by the residential business, leaving the wider group's earnings down on 2008.

Centrica also warned that wholesale prices are forecast to rise again during 2010, although not to levels seen during the oil price bubble in 2008.

British Gas has 15.7 million energy customers in the UK after seeing the fastest rate of annual customer growth since 2003.

Customer service - an area of trouble for the group in recent years - showed signs of further improvements, with customer calls down 12% on 2008, according to the group.

GMB union spokesman Gary Smith called on the Government to look at redirecting some of the profits to help vulnerable and needy energy users. "There should be lower tariffs for these consumers," he added.

Last year's profits at British Gas set a record for the group, surpassing the £571 million made by the group in 2007.

This year is likely to have started just as well for the provider after the freezing weather in January saw demand soar to all-time highs.

Centrica said the volumes of gas flowing through the system was 20% higher last month than normal for a January.

Nick Luff, finance director of Centrica, said most of January's profits were passed on to customers through the 7% gas price cut.

But there was little sign of similar bill relief on the way for British Gas's electricity customers as the group said it was already the cheapest on the market.

He said wholesale prices are predicted to remain low for the bulk of 2010, although they look set to rise next winter.

The group defended its pricing in the face of criticism, saying there is always a lag between wholesale cost movements and retail bills.

"We have to buy many months in advance and the wholesale movements in price do take a while to flow through to retail prices," said Mr Luff.

Centrica also ploughs some of its profits back into investment for the development of new UK energy sources.

It has plans for £15 billion in spending for this over the next 10 years.

The group also announced today the launch of a new insulation business, which will see it recruit another 1,100 workers.

Philip Cullum, deputy chief executive of Consumer Focus, called for an immediate price cut following the announcement of the British Gas profits.

"Energy companies have no excuses for not cutting bills for their customers. It is clear the problems in the energy market are profound and that it requires fundamental reform," he said.

"For consumers, a combination of high prices and cold weather has exacted a heavy cost.

"Energy companies have taken advantage this winter, while more than six million UK households live in fuel poverty and face a desperate struggle to keep warm.

"That British Gas has been the only major energy supplier to cut standard prices over the past seven months demonstrates a market largely devoid of competitive pressure. Energy companies seem not to care about providing value for money.

"Unlike the other members of the big six, British Gas reports its results in detail and so takes much of the flak that deserves to be shared with the other companies. If ever a market was crying out for greater transparency it is the current UK energy market.

"Our big energy companies are producers and generators as well as retailers. As producers they do very well when wholesale costs are high, as retailers they do very well when wholesale costs are low. It really is a case of heads they win, tails we lose."