British Gas profits warm up

Laura Kuenssberg

Former Business Editor

British Gas profits warm up Credit: Lewis Whyld/PA wire

Another energy company, another rise in profits. This morning it's Centrica, the parent company of British Gas, which has seen a 15% rise in profits in the first half of this year. And a 23% rise in profits at British Gas itself.

Consumer groups are already gnashing their teeth - none of us have a choice about paying utility bills, so surely when money is so tight, energy companies should not be making so much money?

No one at British Gas expects them to win a popularity contest. Yet it is worth putting the increase in profits in context. The chunky rise is in part because the same figures last year were unusually low, so the rise is from a low base. In fact, these profits are still below the five year average.

A plumber working on the controls for a gas boiler as British Gas profits warm up Credit: Rui Vieira/PA Wire

How then to explain the fact that revenue, the amount the company makes, has risen far faster than our consumption of gas? Company sources say it is largely because so many of their costs are fixed. So if our consumption falls, revenue falls at a much faster rate. If we all use more gas, revenue increases at a much faster rate. And they say, although the cost of wholesale gas has fallen, they have not benefited from the fall because they buy most of their gas far in advance. It is also worth remembering that energy companies themselves only control 15 percent of the bill. The cost of the gas itself, payments towards renewable energy imposed by government both figure too.

British Gas profits warm up Credit: Lewis Whyld/PA wire

All in all that means the company believes they are only making a reasonable return on the sizeable investments they have to make to produce and sell energy to the rest of us. Their margins are roughly 5% - normally considered to be roughly the kind of return that a business requires to grow.

But with significant political pressure on the companies and consumers' mistrust of of the big energy companies, those explanations may not win them many friends.