British Gas Profits from cold winter

British Gas will come under renewed pressure to cut its prices after parent company Centrica indicated it is on course to surpass last year's record profits.

The residential supply arm is benefiting from cheap wholesale energy prices and higher consumption by households from the bitterly cold weather at the beginning of the year.

Centrica was giving a trading update covering the first six months of its financial year before it reports results for the period in July.

Price comparison site said that British Gas is now likely to cut tariffs before then. The other "Big Six" energy suppliers typically wait for British Gas to cut bills before they do so themselves. Tom Lyon, energy expert at, said: "If British Gas is going to announce high profits in July, I would not be surprised if they passed on price decreases before then so they can talk about it at the results."

But he cautioned that the cuts were unlikely to be large, partly because companies need to bolster their balance sheets to invest about £200bn to revamp Britain's ageing energy infrastructure and meet tough environmental targets.

Centrica said that households used 7% more gas in the first three months of the year because of the cold snap. It also said that British Gas had attracted an extra 200,000 residential customers this year in Britain to a total of 15.9 million, which also boosted profits. British Gas cut its gas prices by 7% in February, making it the cheapest gas and electricity supplier.

For the first six months last year, British Gas made an operating profit of £299m, up 80% against the same period in 2008. Centrica said that the business "is expected to perform strongly in 2010 with profits heavily weighted towards the first half" and indicated that profits would be higher than last year. British Gas has also saved £200m as a result of a restructuring, with analysts at Charles Stanley forecasting another £100m was due. Analysts are forecasting a group profit of £2.1bn for the year, against £1.9bn last year. Profits for its gas production arm, and its power stations are likely to be lower because the recession has resulted in lower energy demand and lower prices.

After buying North Sea gas producer Venture Production, as well as a 20% stake in nuclear generator British Energy, British Gas is now less reliant on volatile wholesale energy markets for the electricity and gas it needs to supply its customers. Now, only about 40% of the energy supplied is bought in, compared to 80% four years ago.

Both the Conservative and the Labour parties claimed in the election campaign that they would introduce more competition in the energy market without specifying how. The existing big six firms are responsible for the vast majority of the gas and electricity supplied in the UK, making it impossible for a sizeable competitor to enter the market. Because the companies are also vertically integrated, which means they supply most of their customers using their own gas and power stations, or their upstream business, they are guaranteed to make a profit: when energy prices are high, their upstream business makes a profit. When the opposite happens, as is the case with Centrica and British Gas, the supply arm benefits.