Centrica tackles the issue of high winter gas demand - and profits

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20 May 2013, Gas, Electricity

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As UK residents will be all too aware, the 2012-13 winter season contained the coldest March since 1970. For the first quarter of 2013 the average temperature in the UK was 3.4 degrees Celsius compared to 6.1 degrees a year ago and a long-term mean temperature of 5.0 degrees. Unusually low temperatures resulted in UK households cranking up the heating, which meant that Centrica's British Gas unit supplied 18% more gas to households than during the previous year, as well as just over 3% more electricity.

In October 2012 Centrica increased gas prices by 6% and unsurprisingly the cold weather means that its profits for the first half of 2013 will almost certainly be higher than a year ago. But "almost" is the word, because the April to June 2012 period was colder than average. So, if we have normal second quarter weather this year the first half period as a whole should not be significantly colder than in 2012.

Even so, Centrica has very adroitly taken a pre-emptive step by recognizing that the public will focus only on its high profits for the first quarter, and has promised to use windfall profits to keep prices down for as long as possible in 2013. Smart public relations, but as noted in the Datamonitor opinion pieces "Centrica results attract criticism again but there is a bigger picture" and "Ofgem's analysis of the Big Six's 2011 margins justifies prices," we should not lose sight of the fact that margins for UK energy suppliers are not excessive.

Recent figures suggest that in 2012 Centrica earned less than GBP50 profit on an average household gas and power bill of GBP1,200, a margin of only 4.04%. In 2013 early estimates suggest Centrica will earn GBP100 profit per customer on an average household gas and power bill of GBP1,325, a margin of less than 8%. This is not excessive, but the political sensitivity of the rising bills households face means such a consideration is lost.

www.datamonitorenergy.com / asken@datamonitor.com / @DatamonitorEN

Source: MarketLine

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