British Gas fights back

But Britain's biggest gas company is poised to report that it has enticed 150,000 new customers on to its books.

The rise in customer numbers, together with rock-bottom wholesale gas and commercial rates, should help British Gas to report profits of more than half a billion pounds for the year.

City analysts predict that British Gas Residential, the nation's biggest retail energy supplier, generated profits of £554 million in 2009 for its parent company, Centrica — up 46 per cent from £379 million in the previous year.
British Gas comes in from the cold

Centrica, due to publish its annual results on Thursday, is expected to reveal that with 150,000 new accounts, British Gas has finally reversed a seven-year run of falling customer numbers, bringing the total to 15.7 million.

Bobby Chada, utilities analyst at Morgan Stanley, said British Gas was in a "sweet spot" following a 7 per cent price-cut in its gas tariff this month and predicted that the group would continue to win new accounts in 2010.

Between the end of 2003 and 2008 Centrica shed a total of three million customers, amid accusations of uncompetitive pricing and poor quality service. Desertions reached a peak after a botched new IT system in 2006 that reduced the customer billing process to chaos.

Profits at British Gas were also boosted last year after wholesale gas and electricity prices plunged as the recession sapped demand. The wholesale price of gas fell to below 40p per therm in the second half, down from more than 100p per therm during mid-2008.

Sam Laidlaw, chief executive of Centrica, is expected to use Thursday's results to unveil details of a new strategy focused on selling home services, including insurance products, energy efficiency and renewable energy products such as wind turbines and solar panels.

But while British Gas enjoyed brisk growth in both profits and customer numbers in 2009, profits across the wider Centrica group are expected to have fallen back. Other, less well recognised businesses such as Centrica Energy, which operates power stations and acts as a wholesale gas supplier, are expected to report steeply lower earnings.

Average forecasts from City analysts predict total operating profits of £1.82 billion for the whole Centrica group, down 7 per cent from £1.94 billion in 2008.

Nevertheless, the announcement of a big rise in profits for British Gas is likely to fuel anger from consumer groups who accused the company of delaying retail price cuts last year, despite a steep fall in wholesale prices.

They have also attacked Centrica for profiting from increased demand for gas during the recent cold snap.

The results next week will not include earnings from January, when Britain was hit by some of its worst winter weather since the early 1980s. On January 7, UK daily gas demand hit a record high of 454 million cubic metres, up 30 per cent from a seasonal average of 350 million cubic metres.

Microgeneration is the new buzz word

British Gas seems finally to be on something of a roll. The company, which now claims to be the UK's cheapest gas supplier after trimming retail prices this month, is tempting new customers and winning market share from its Big Six rivals.

The strength of the British Gas brand and the company's hefty marketing spend during the downturn have no doubt helped.

But the strategy pursued by Centrica, its parent, of bundling gas and electricity supply together with home services, such as boiler, plumbing maintenance and appliance insurance products has also proved remarkably effective in drawing in new customers.

Now Sam Laidlaw, Centrica's chief executive, is planning to open up a new front in the battle for customers by capitalising on government plans to improve home energy efficiency and to encourage so-called microgeneration of renewable energy, which will see households producing some of their own power from small-scale wind and solar generation.

He believes that by offering customers "home energy audits" and with the use of new technology such as smart meters, Centrica can build a whole new market installing and maintaining these sorts of products.

Meanwhile, two shrewd deals last year could mark a turning point for Centrica by permanently reshaping the business.

Historically, Centrica has suffered from a shortage of its own gas and electricity production. That has forced the company to buy supplies on the open market, leaving it exposed to volatile wholesale prices.

The £1.3 billion purchase of Venture Production, a North Sea gas producer, and a 20 per cent stake in British Energy, the UK nuclear generator, from EDF for £2.3 billion, have helped to solve this problem.

Centrica is now more vertically integrated and more independent than it has been since its creation in 1997 after a demerger from the old British Gas.

In time, that should also improve Centrica's ability to compete on price.

Business electricity

20th February, 2010

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