British Gas Warns of higher Gas Costs

Another round of energy bill price hikes looms after Centrica warns cost of supplying gas has risen by £50 a year

Millions of households face higher energy bills this winter after the owner of British Gas predicted that the cost of supplying homes will rise by £50 – probably by the end of the summer.

Ahead of what is expected to be a fractious annual general meeting on Friday, Centrica served notice on its 15.9 million UK customers that another round of price hikes are in the pipeline.

In an interim management statement it said wholesale gas prices for the forthcoming winter are around 15% higher than last year while non-commodity costs – such as transportation and government environment levies – will add £50 to the cost of supplying the average household this year. Because the wholesale gas prices were not factored into the £50 figure, bills could rise by an even higher amount in the winter.

Centrica said: "The trend for retail energy costs therefore remains upwards." The statement came as Pirc, the shareholder advisory group, warned that Centrica's new executive pay scheme means "potentially excessive amounts could be awarded". Sam Laidlaw, Centrica's chief executive, was paid nearly £4m in 2011 despite a rise in pre-tax profits of just 1%. The biggest impact on Centrica's 2011 results was at its "downstream" operation, dominated by the British Gas residential outfit, which reported a 30% fall in operating profit to £522m.

Centrica's statement means that British Gas customers should brace themselves for a price rise announcement at the end of the summer. Last August British Gas raised electricity prices by 16% and gas prices by 18%, although it has since cut electricity prices by 5%, while leaving gas prices unchanged. In 2011 higher household prices were offset by lower usage due to mild weather, reducing the average bill by £37 to £1,024. If the £50 cost increase is passed on to customers it would represent a 5% increase on last year's average bill for British Gas customers.

Centrica added in its statement that the business is trading in line with expectations. In a hint to the government over its struggling plans for a new generation of nucelar power plants, the group added: "Further clarity is needed to deliver the investment required in new [energy] generation capacity." Centrica is a 20% shareholder in the eight nuclear power stations owned by British Energy, a business controlled by France's EDF. Both EDF and Centrica are waiting for the government to confirm financial support for nuclear energy – through a set carbon price and subsidies for low-carbon energy – before deciding whether to press ahead with plans to build new plants. The most advanced project is at Hinkley Point in Somerset.

Source: The Guardian

11th May, 2012

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