THE gas and electricity firm which supplies power to more than one million Scots has been forced to defend itself after record- ing profits of £1.3 billion in the wake of announcing double-digit price hikes for customers this winter.

The utility giant Centrica said the latest half-year profits were down from £1.6bn to £1.3bn with British Gas -- which operates as Scottish Gas north of the Border -- seeing its figures slump significantly by 54% to £270 million.

British Gas said the company would start running at a loss without the price hike, adding “challenging” market conditions and a rise in wholesale prices were to blame.

The cost of gas bought in advance to supply homes this winter rose to more than 70p per therm last month compared to 55p in the same month last year.

Centrica last month announced an 18% increase in gas prices, with electricity due to rise by 16%.

With a decline in North Sea oil production and a growing emphasis on gas imports, UK consumers are seeing their bills dictated by fluctuation in the world markets. Natural disasters such as the Japanese earthquake, which increased demand for gas given the closure of two nuclear power plants, and geo-political unrest in the Arab world are also driving the increase in bills.

Consumer groups called for a greater “competitive spark” in the markets given the big six fuel firms in the UK sell gas on both a retail and wholesale basis.

A spokeswoman for Consumer Focus Scotland said: “Centrica seem to win whether wholesale costs are high or low. Retail profits margins may have been reduced by recent increases in wholesale prices -- but as they are also major gas and electricity wholesalers, they can still make healthy profits at the other end.

“Consumers in Scotland will be more worried by their increasing bills than which part of an energy company makes the most money. The most important issue is not whether Centrica’s profits go up or down. What matters is whether the energy market works for consumers and if it does not, what can be done to make it work.”

Ofgem will investigate whether the latest round of household price hikes fairly reflect conditions on the open market.

The regulator said that the cost of gas to be used in winter this year has risen from around 60p a therm paid in January to nearly 75p by the end of March. Since then, the price has fallen only slightly, and, at the start of last month, stood at just above 70p a therm.

The stockpile of fuel bought in advance for the colder conditions fell from around 50p in January 2010 to around 40p, before recovering to around 55p last June. This leaves companies, including Centrica, paying around 30% more for fuel this winter.

Nick Luff, Centrica finance director, said: “With events in the Middle East and Japan, strong Asian demand pushing up commodity prices, an increase in taxes, the energy market review, the retail market review -- this has been a significant period for companies in the industry.”

Scottish & Southern Energy and ScottishPower have also announced price rises.

Energy analyst David Hunter of McKinnon & Clark in Dunfermline, which buys £6bn worth of fuel a year on behalf of its industrial and commercial customers, said: “Centrica are obviously going to take some flak over its profits, even if they are down on last year. They have argued that if they are not going to put up their prices, British Gas would start to make a loss.”

Mr Hunter added that the closure of two nuclear power plants in Japan following the earthquake earlier this year had raised demand for gas on the open markets. This was com-pounded when Germany followed suit and announced it was to close all its nuclear plants over the next 10 years.

The energy analyst said that unrest across the Arab nations had had a similar effect on the wholesale market, particularly the significant drop in Libyan oil output. He said: “If the price of crude oil goes up as a result of political uncertainty you will likely see the natural price go up as well. There is nearly always that contagion.”