Centrica, the owner of British Gas, gave the clearest signal yet that energy bills are on their way up again, after it gave warning of a difficult environment for energy suppliers. Rising wholesale gas prices have reduced margins in the company’s residential gas and electricity supply business in the second half, prompting British Gas, the UK’s biggest supplier, to increase its key tracker tariff last week. However, today’s statement makes clear that further price rises are likely to be necessary. “Looking forward, the high wholesale prices will, if sustained, create a more difficult environment for retail energy suppliers in the UK going into 2008. We will continue to monitor this with regard to future pricing policy,” Centrica said. Since February, annual forward gas prices for 2008 have risen 42 per cent from 33p a therm to 47p a therm about 10p more than industry forecasts, according to analysts. Spot prices have risen 55 per cent over the past year to about 42p a therm from 27p.

High wholesale gas prices are also taking their toll on Centrica’s business to business operation, which supplies industrial and commercial customers with energy. In the trading statement, Centrica says that has become loss-making in the final quarter of the year and is likely to become increasingly loss-making in 2008 at current forward gas prices. Centrica’s power generation division, which supplies only about 40 per cent of British Gas’s needs, is expected to break even in the second half due to lower spark spreads the difference between the cost of wholesale power and retail power and higher levels of plant outages. Wholesale gas prices have been driven higher by soaring oil costs, a colder start to the winter than last year and European players buying supplies in the more liberalised UK market. British Gas was one of the first firms to cut energy bills early in the year, a move which won it back 250,000 customers. It now serves, once again, more than 16 million customers. Despite the rising gas prices, Centrica’s overall pre-tax profits will be in line with market expectations of about £2 billion for 2007, the trading statement said. The UK’s major energy suppliers are all poised to follow British Gas’s lead. npower, the third biggest supplier, confirmed today that customers following its tracker plan will see increases of 17 per cent for gas and 13 per cent for electricity from January 1. npower’s increases will mean an average £87 more a year on gas bills and £44 more a year on electricity bills for tracker plan customers, the company said. Most of its customers will remain unaffected. The increases to the tracker rate are significant because they give an indication of how much standard tariffs are likely to rise by. Analysts said that it looked increasingly likely that standard tariffs would have to rise by 15 per cent, which would mean consumers having to find an extra £137 a year.

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