Centrica questions Ofgem's claims
7:50am Thursday 31st July 2014 in © Press Association 2014
British Gas owner Centrica showed little sign of cutting energy tariffs today as profits fell and it hit back at Ofgem over "deficiencies" in analysis suggesting household margins were set to double.
Chief executive Sam Laidlaw dismissed the regulator's figures as "theoretical" as the company's own data suggested profits from each household would be half that estimated by the regulator.
Energy companies are under intense political pressure over bills with calls for falling wholesale gas and electricity prices to be reflected in customer charges.
But half-year results from British Gas showed its operating profits dropped 26% to £265 million, with earnings becalmed by mild winter weather. The wider Centrica group saw adjusted operating profits fall 35% to £1.03 billion.
Latest figures from Ofgem suggest energy suppliers will make a pre-tax profit of £106 per household over the coming year, up from £53 last year.
But according to Centrica, British Gas will make only £40 per household in 2014, or £51 before tax, a 20% fall on last year. Post-tax margins were expected to be 4%, beneath the 4.5%-5% band it says it needs to support investment in the business.
Mr Laidlaw told BBC Radio 4's Today programme: "The Ofgem analysis is a theoretical analysis. What we are actually publishing today is the actual facts.
"We have been in discussions with Ofgem for a number of years about this methodology, which has its deficiencies and they recognise that it needs to be changed."
British Gas customers are paying higher tariffs this year after they were hiked 9.2% last autumn, though the rise was scaled back following the Government's shake-up of so-called green levies on bills.
But Centrica said the average bill was expected to be £90, or 7%, lower this year reflecting warmer weather and energy efficiency measures.
The company reiterated that tariffs were not expected to change during 2014 "recognising competitive conditions in the UK energy supply market".
It said it had faced "fierce competition" from smaller rivals who because of their size are exempt from some of the Government's so-called "green levies".
Customer numbers had fallen by 1% over the first quarter before stabilising, the company said.
Centrica defended its stance on tariffs by pointing to the way it buys much of its energy in advance and that the benefit of lower wholesale prices for next year is offset by higher costs elsewhere.
The results come as Centrica and other "Big Six" suppliers face a full-scale competition probe - which could see it face the prospect of being broken up.
In the US, Centrica's business saw earnings held back as it faced additional power market charges during harsh weather at the start of the year.
Mr Laidlaw said: "With challenging trading conditions on both sides of the Atlantic in the first half, earnings will be lower in 2014 than in 2013. However, the group is well positioned to return to growth in 2015."
Chairman Rick Haythornthwaite said there had been challenges "both as a result of the weather and reflecting the wider political environment".
He paid tribute to the "exceptional leadership" of Mr Laidlaw, who is to retire at the end of this year. It was announced earlier this week that he will be replaced by BP executive Iain Conn.
Mr Laidlaw told Today the company had a record of being the first to reduce prices "wherever we possibly can" so if the opportunity arose "would do so before the election or after the election".
But he said the business's costs were the key factor in deciding whether a reduction was possible rather than the "spectre of what may or may not happen in the election" with Labour pledging to impose a price freeze.
British Gas serves around 11 million homes.
Richard Lloyd, executive director of consumer group Which?, said: "British Gas profits are down because of a warm winter, not lower prices.
"Energy companies must do everything they can to pass on any savings to their customers including falling wholesale and network costs."
Shadow energy and climate change minister Jonathan Reynolds said: "Ofgem's forecasts for the industry for the next 12 months is just the latest example of an energy market that is not working.
"Britain's hard-pressed bill-payers have seen their energy bills rocket, despite falling wholesale costs, while David Cameron sits on his hands and repeatedly fails to stand up to the big energy companies."
Separate figures from French-owned EDF - another of the Big Six suppliers, serving around four million households - showed that operating profits in the UK rose 9.5% to £560 million for the first half of the year.
It said the growth was the result of higher output from its nuclear power stations, compared with a period last year when more of its generating capacity was out of service for planned maintenance.
EDF said a decline in gas sales due to milder weather was partly offset by 3.2% growth in customer accounts.