February 10, 2014 at 12:24 pm
British Gas has seen a massive decrease in its profits over 2013 due to customers taking their business elsewhere. In an attempt to avoid rising energy prices, many homeowners have switched to smaller companies, leaving the largest energy providers, such as British Gas, out of pocket.
British Gas, the UK’s largest energy supplier lost around £30 million in profit in 2013, compared to 2012: a 4.1% drop. This is due to nearly 350,000 customers switching in recent months from the six biggest energy suppliers such as British Gas, to smaller companies that offer lower prices and better service. This comes as no shock considering British Gas had recently increased its average energy bill by 9.2%. With a free market, larger companies that have the monopoly also have freedom to increase their prices radically. However, this appears to have had a detrimental effect on profit towards the end of 2013.
The massive loss of profits for British Gas has had a significant impact on their share prices, especially since Centrica, the parent company of British Gas, issued profit warnings at the end of 2013. Knowing they wouldn’t meet their profit targets, Centrica warned shareholders in advance in order to avoid a major backlash. Admitting that they had fought the rising costs of energy by absorbing the costs themselves throughout 2013, British Gas were left with no other choice but to drastically increase their household gas and electricity prices in order to appease shareholders.
However, with this unforeseen move to placate shareholders, Centrica has let down many of their loyal customers, forcing them to explore alternatives. This, inevitably, has led to thousands of customers switching from British Gas at the end of 2013, causing a direct hit on overall profit.
Due to the drastic rise in energy costs, politicians have stepped in to address the issue, with Ed Miliband, Labour Party Leader, promising a price freeze on energy, if Labour win the next election. Shadow Energy Secretary, Caroline Flint, has also expressed concern, stating: “We will break up the big companies, put an end to their secret deals and make tariffs simpler.”
However, despite the political promises to curb the monopoly on the energy free-market, concerns still abound for Centrica and British Gas, who are now acutely aware that price hikes and political intervention lead to loss of investor confidence and loss of shareholders. Despite the worry of political involvement, Sam Laidlaw, Chief Executive of Centrica has released a statement saying: “Energy suppliers and politicians both have a role to play in helping to minimise the impact of higher costs on bills and improving transparency to restore trust in the industry.”
Despite the hike in prices, Centrica still continues to invest in North Sea oil reserves, making it unclear whether they intend to lower costs or continue with the new high prices.