British Gas profits surge tenfold as energy bill rules relaxed

Ofgem’s changes have allowed British Gas to recover more of the costs it incurred for taking on customers from failed rivals – Simon Price

Profits at British Gas have surged tenfold after the industry watchdog relaxed restrictions on how much money energy companies could make from their bills.

Operating profits at the utility provider surged to £751m last year, up from £75m in 2022.

It comes after Ofgem, the regulator, increased how much profit suppliers could claim from household bills to make up for costs incurred during the Covid pandemic.

The change allowed British Gas to recover more of the costs it incurred for taking on customers from failed rivals.

British Gas’s parent company Centrica said: “A large portion of British Gas Energy’s profit (c. £500m) is a direct result of the changes Ofgem introduced to allow the recovery of prior period costs through the default price cap.

“Without this, profit would have been less than half the reported number. British Gas Energy was loss making in the second half and profit is down from the £969m reported at interims.”

Overall the Centrica group made a profit of £2.8bn after tax down from £3.3bn in 2022, a 17pc decline, the business said.

The company paid £1.1bn in corporation tax and windfall levies.

In a boost for shareholders – including around 500,000 retail investors, many of whom bought shares when the company was privatised by then-Prime Minister Margaret Thatcher – Centrica increased its full year dividend to 4p, up from 3p in 2022.

Mr O’Shea warned that profits were likely to fall in 2024 – Andrew Milligan/PA

Chris O’Shea, Centrica’s chief executive, said: “We’ve done a lot we can be proud of in 2023: we’ve paid over £1 billion in tax; we’ve created over 1,000 new UK based jobs as we continue to invest in customer service.

“We’ve improved security of supply through doubling the capacity of the Rough gas storage facility, through extending the life of the Morecambe Bay gas field into the 2030s, and through investing to extend the life of our nuclear power stations.

“All of this has been made possible by the strong financial and operational performance across our balanced portfolio of businesses in 2023.”

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Mr O’Shea warned that profits were likely to fall in 2024.

He said: “As you would expect, sharply lower commodity prices and reduced volatility will naturally lower earnings in comparison to 2023 as we return to a more normalised environment. Our performance over the past year has reinforced our confidence in delivering against our medium-term sustainable profit ambitions and continuing to create value for shareholders.”

In a statement first issued when it allowed suppliers to charge more. and reissued this week, Ofgem said that suppliers would be permitted to make a higher profit as a “one-off, as suppliers recoup some of the genuine and significant costs and losses they incurred over recent years due to covid and the Russian invasion of Ukraine”.

The regulator added: “We expect profit levels to fall back significantly moving forward to the reasonable and modest levels allowed for in the price cap.

“Reasonable profits are important for the sector to be sustainable and provide good customer service, healthy competition and innovation. Supplier failures, such as those that occurred at the start of the energy crisis, cause huge disruption and additional costs for all households.”

Centrica also reported that British Gas customers have run up debts to the company totalling £500m, double those seen in the previous year.

It warned that credit problems are now among the top three risks facing the company, along with weather disasters and major outages. It follows last year’s scandal over the force-fitting of prepayment meters with British Gas contractors forcing their way into vulnerable people’s homes, which led to a temporary ban on all forced energy prepayment meter fittings.

Centrica said: “In our assessment, overall credit and liquidity risk has increased due to a notable increase in customer debt driven by cost of living challenges, high levels of fuel poverty and relatively high inflation impacting our customers’ ability to pay for their energy supply.”

Mr O’Shea said the situation could worsen. He added: “My concern with bad debts is the impact on customers who are unable to pay their energy bills. Our bad debt charge almost doubled last year across residential and business to a little over £500m.

Mr O’Shea said customer debts were burgeoning in part because the company had been forced to halt prepayment meter installations since last year.

He said: “It’s very difficult for us to measure but undoubtedly it has an impact, not installing prepayment metres under warrant. But what we’ll be able to see is for those companies that have restarted [installing prepayment meters] – they should be able to tell you the difference between what they saw when they weren’t installing and what they see and now.”

“I can say that the focus of all of our colleagues is when customers get into trouble we encourage them to give us a call so that we can help them get into payment plans. Most people when they get into debt they suffer in silence and it gets worse and worse and has a massive impact on their mental health.

“So for us the whole thing is about how do we support our customers but  undoubtedly people are finding it tough at the moment but not just with energy with the [overall] deficit.”

Simon Francis, coordinator of the End Fuel Poverty Coalition, described Centrica’s profits as excessive. “These profits are astronomical for a firm providing the energy people need to stay warm and safe.

“At a time when household energy debt is spiralling to record levels and energy bills remain much higher than they were just a few years ago, the profits must be compared to the situation the firm’s customers are in – struggling through the energy bills crisis. Energy firms are operating on a playing field set by the government and people will rightly ask what this government is doing to curb these profits and fix our broken energy system.

“The only way to lower energy bills permanently is to insulate homes, improve energy efficiency of buildings and switch to cheaper renewable energy, which we are lucky enough to have in abundance.”

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