14th Nov 2013 08:59
LONDON (Alliance News) - British Gas parent Centrica PLC Thursday came out fighting against recent criticism of another steep increase in its consumer energy prices, saying it had to put up bills because its residential arm had been loss-making for several months and it still expects its profit margin in that business to slightly be slightly lower than last year.
With politicians also calling for the power companies to use some of the big profits they make in power generation to keep residential bills down, Centrica also warned that it currently expects its UK gas-fired power stations to make a loss of about GBP130 million this year as it generated less power and market spreads are very low.
Five of the big six UK energy supplier have now raised prices ahead of the winter, with Centrica's average 9.2% increase for gas and electricitry bills among the highest. The increases have sparked heavy criticism from lawmakers of all sides who say the companies need to do more to keep bills down. The power companies argue that they're having to put up prices to make necessary investment in infrastructure, and they also blame taxes for renewable energy programmes imposed by the government.
The arguments have left the power companies in a fix, caught between the need as listed companies to make profits and pay dividends to shareholders and their role as suppliers of energy to the British public at a time when wage growth is running below inflation and way below the recent rises in energy prices.
"With household incomes under pressure, affordability is understandably the key concern for our customers. At the same time, investor confidence has been damaged and there is increased uncertainty over investment in the energy infrastructure that the UK needs," Centrica said in its statement.
"Energy suppliers and politicians both have a role to play in helping to minimise the impact of higher costs on bills and improving transparency to restore trust in the industry," it added.
UK Prime Minister David Cameron has pledged to review the green energy taxes that some experts say have added as much as 10% to energy bills, while opposition Labour leader Ed Milliband has pledged to freeze energy prices for two years if his party gets into power in 2015.
In a detailed trading update, Centrica said it expects to report adjusted earnings per share at similar levels to last year. The figure had been up 2% at the half-year stage, so the outlook represents a deterioration in the second half.
It said its residential energy supply margin will be a little under 5% after tax, while its services business, which fixes and installs boilers and heating systems, will deliver a modest profit increase as reduced household spending continues to restrict revenue growth.
Margins are under pressure in its British Gas Business unit as market conditions remain challenging and it decided to stop automatically rolling over contracts, while its North American energy supply business is also seeing pressure on margins.
It also warned that its storage business will see a sharp drop in profitability in the second half of the year that will continue into 2014. It confirmed that it will take about GBP240 million in provisions for deciding not to proceed with an offshore gas storage project in Baird and to put the Caythorpe onshore project on hold indefinitely.
Still, it expects oil and gas production to increase substantially as more North Sea wells come on line and after it bought some Canadian assets in late September. Production this year is expected to rise to 77 million barrels of oil equivalent, and then up to 85 million barrels of oil equivalent in 2014.
Centrica said it is also continuing to explore options for its Race Bank wind farm projects, including seeking financial partners, as it awaits a government decision on contracted prices.
Centrica shares were down 2.8% at 353.76 pence early Thursday, the biggest fall on the FTSE 100.
By Steve McGrath; [email protected]; @stevemcgrath1
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