Households could see fuel bills rise again this year
Centrica, the owner of British Gas, has signalled that fuel bills could rise again as its profits are squeezed by higher gas and power prices.
Centrica said it would take "action to deliver reasonable margins".
It warned it may have to take action after wholesale gas prices increased by 92% from a year earlier, and wholesale electricity costs doubled.
Centrica said its profits would be "materially lower" in the first half of 2008 despite British Gas price rises.
In January of this year, British Gas increased gas and electricity bills by an average of 15% in the face of rising wholesale prices.
Price comparison website uSwitch.com said that the average household bill would rise by about 10%, or roughly £105, by late summer, with a further 15%, or £173, hike in January 2009.
"It's pretty clear that something has to give and that household energy prices are going to be shooting up again this year," said Tim Wolfenden, head of home services at uSwitch.com
'Terrible news'
Allan Asher, the chief executive of industry watchdog Energywatch, said that if British Gas raises prices, other suppliers could follow suit.
"Sadly if one company goes ahead and raises prices, others will respond."
"For the fuel poor, it's terrible news," he told BBC News.
In April, French bank Societe Generale said Centrica's residential arm could be loss-making in the first half 2008, unless it raised domestic prices again.
"Today's announcement is likely to put downward pressure on consensus of 2008 estimated earnings per share of 26.2 pence, but this should not come as a surprise to investors given the current commodity price environment," Cazenove analysts said in a note.
Centrica's shares were up 2.7%, or 7.75 pence, at 295.25p in late morning trade in London.
Legal action
Centrica also said it was taking legal action against consulting and technology firm Accenture over the design and implementation of a customer billing system.
British Gas received many customer complaints when the new system was rolled out in 2006 and 2007, it said.
Centrica added that since Accenture left the programme, British Gas had managed to stabilise its customer service and customer complaints to watchdog Energywatch have fallen by 85%.
Accenture has said it met the specifications laid out by Centrica, and that the system was ready on time and within budget.
comments:
Centrica's profits might be lower despite price rises due to increased costs of production (ie. wholesale gas and electricity costs increased) and possible anticipated decrease in consumption of such goods. Perhaps hike in prices might discourage consumers from expending too much resources and hence cut down on usage. Therefore consumer expenditure might decrease and this would lead to decreased total revenue. After deducting relatively high production costs, profits would be lower.
'If British Gas raises prices, other suppliers could follow suit'. We see here several dominant firms of gas and electricity suppliers, which implies oligopoly. There are 2 ways to see the reactions of suppliers: 1. they increase price as well. The rationale would be that these firms are mutually interdependent and hence they have to maintain a relatively close price range of products and services. 2. their price remain as normal. Rationale would be that more consumers would turn to them and their sales would increase, contributing to increased total revenue.
Therefore there could be 2 possible reactions of suppliers.
"For the fuel poor, it's terrible news". It is because increased prices will add strain to their finances and further reduce access to such commodities.
There would be downward pressure on estimated earnings of its market shares as profits would have fallen due to increased costs of wholesale gas and electricity. There is possibility of price drop per share which might result in reduced confidence of investor to buy its shares. Hence company may lose some revenue in the financial sector.
Hui Pei (no idea y my name is pea. but nvm)
posted by pea @ 7:10 AM
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