Contrary to the opinion of the regulator Ofgem regarding the profits of British Gas Energy Supplier, the home and business energy giant as reported a sharp fall in its profits following the warm winter of 2013/14. The Centrica owned energy provider has announced its figures for the first half of the year and they suggest that the abnormally warm winter hit the energy supplier pretty badly.
In fact, the average British Gas customer can look forward to energy bills that are up to £90 lower than this time last year. It is thought that households and businesses across the UK were refraining from using appliances such as central heating due to the considerably warmer temperatures, even through the usually bleak months of January and February. Actual consumption of gas was down 24%; a considerable decline.
Freak Weather Conditions...
Of course it wasn’t just here in the UK that we saw freak weather conditions. As we were enjoying a less abrasive winter, the States was experiencing the effects of the polar vortex which put much of the country under ice and snow. This also had a knock on effect for UK energy suppliers as generating companies had to charge additional ancillary costs.
With regard to home energy, the operating profits of British Gas fell by around 25% to £265 million whereas operating profits for the company’s parent arm was down 35% at £1.03 billion.
Contrary To Ofgem Prediction
This news comes after Ofgem has publicly stated that the Big Six energy firms’ profits were likely to double over the next 12 months. Indeed, following their own inquiry, they have referred the investigation to the Competition and Markets Authority (CMA) in order to delve more deeply into these soaring profit margins. However, if the announcement from British Gas does have truth in it; this could render such a probe as less important.
As a result of this drop in profits, Centrica has suggested that turnover is less than what is required for British Gas to make necessary investments in the future of the business.
Home Energy Exodus...
Indeed, British Gas saw a flurry of home energy customers leave in the first quarter of 2014 as more and more customers look to energy suppliers from outside of the Big Six, although this has stabilised in recent months.
It is not all doom and gloom for British Gas however, as chief executive Sam Laidlaw has stated that the energy supplier can expect to return to growth in 2015.
Many industry experts are keen to impress upon customers that British Gas’ prices have not been lowered to reward customers, but simply due to a lack of demand for its services. So, there may be some truth in Ofgem’s forecast that overall, the profits of the Big Six are set to double in the next year. The results of the forthcoming CMA probe will surely tell the full story and establish whether gas and electricity supplier are indeed passing on their savings to home and business energy customers.
Big Six Profit Margins...
Ofgem has estimated that the overall profit margin of the average Big Six member would be around the 8% mark.
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