In a statement issued prior to its annual general meeting on May 19, Centrica has reaffirmed the challenges it faces in the downstream energy market caused by rising wholesale prices.

The utility group admitted that it had lost some 350,000 customers from its residential business in 2006 so far, triggered largely by a price rise imposed in February due to surging wholesale costs.

The first two months of the year were particularly challenging with the positive financial effect of the recent retail tariff increase in British Gas not being felt until March. Even after our pricing announcement the wholesale cost of gas and electricity continued to escalate, Centrica said in its statement.

This adversely impacted the profitability of British Gas Residential Energy, which will be loss-making in the first half, and the large industrial contracts. The relatively cold winter also placed exceptional demand on our engineers within British Gas Services and the resulting additional costs reduced profitability in the period.

The firm predicted its results for the full year would be towards the lower end of market expectations, and highlighted the prolonged closure of the Rough gas storage platform as a major factor in this.