Cold weather boosts British Gas profits

Author: By Kelly Macnamara, Press Association

The energy giant reported operating profits of £299 million for the six months
to June 30, up from £166 million in the same period last year.

It said lower consumption per customer during the period was “more than
offset” by the effect of the increase in prices in 2008.

British Gas made a 10 per cent reduction in the standard gas tariff from
February and a similar cut in electricity prices in May.

But the firm said it benefited from higher than expected demand from the
chilly weather in January and February.

Profits for the whole Centrica business were down 5 per cent to £936 million.

British Gas also benefited from lower wholesale costs in the period.

The firm said this had allowed it to drop the price of energy for its
residential customers, which had in turn enabled it to improve its
competitive appeal.

British Gas Residential had just over 15.5 million customer accounts at the
end of June, but this compares to the 15.6 million it reported for the end
of December.

Revenues for the period were up 15 per cent to £4.38 billion.

While oil has risen fairly steadily from its lows at the beginning of the year
the price of wholesale gas has remained depressed due to fears about global
oversupply.

Centrica said this was partly because demand for gas from industry dropped in
the first half of the year as companies responded to the financial crisis by
temporarily closing sites.

The firm’s upstream gas production business was hit by the reduction in
wholesale prices, which contributed to the fall in group profits.

Centrica chairman Roger Carr said: “The economic environment is showing little
sign of rapid improvement.

“The resultant drop in wholesale gas prices does benefit British Gas and its
energy customers, but obviously has a negative impact upstream.”

The group has attempted to reduce its exposure to the volatile wholesale
markets by making strategic purchases in the industry.

It has dipped its toe in the nuclear power sector with a 20 per cent stake in
generation firm British Energy after buying the stake from France’s EDF for
£2.3 billion in April.

The deal also involved it selling its Belgian business, SPE, and Centrica said
it now expects to offload all its small downstream businesses in Europe to
concentrate on the UK and North American operations.

It has also taken a 29.9 per cent stake in North Sea gas company Venture
productions and has made a hostile takeover bid for the firm.

Buying Venture would enable Centrica to supply 60 per cent of its energy from
its own assets and resources.

Centrica’s net debt more than tripled in the period, from £511 million in
December to £1.89 billion in June because of the increased investment in the
business.

Mr Carr added: “The changes we have made and continue to make to the business
model will make Centrica stronger as commodity prices remain volatile.

“With the industry facing massive capital requirements in the UK and North
America to meet the challenges of security of supply and climate change
there is no shortage of opportunities.

“Within our own business organic opportunities exist in gas development,
renewables, new nuclear, gas storage and thermal generation.”

Wholesale gas prices soared last year and Centrica said they did not pass on
all of the increase to their customers.

Higher costs wiped more than two-thirds off British Gas profits last year,
with the division’s surplus falling by 69 per cent to £166 million.

The company said today that while customer numbers in the residential business
had fallen in the first months of the year, the reduction in prices had
sparked a turnaround.

It said by the end of last week it had 6,000 more customer accounts up on the
end of December.

“This is due to us offering the cheapest electricity in the market, and also
the cheapest dual fuel for those paying by direct debit,” a spokesman said.

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