BRITISH Gas has lost 350,000 customers so far this year after increasing household energy bills by 22% in February, its owner Centrica said today.

Consumer groups urged customers to ditch the firm earlier this year after the company came under fire for hiking bills despite banking record profits.

In a statement ahead of its AGM, Centrica said the first two months of the year had been challenging as the tariff increases were not felt until March.

Centrica said British Gas started the year gaining customers but once the price hikes were announced, numbers dropped off.

Due to its marketing strategy - including a promise to fix prices until 2009 - sales recovered within four weeks of the announcement and British Gas secured 700,000 fixed price accounts, the firm said.

"In the year to date, we have experienced a net loss of 350,000 energy accounts," the statement said. "Over recent weeks, net losses have slowed substantially."

Previous price rises have prompted 1.5 million customers to leave British Gas, which has around 17 million customers, since 2004.

Costs

The firm has blamed the rising costs in wholesale gas and electricity for the price hikes.

"At current retail tariff levels and without a drop in wholesale energy prices, British Gas Residential Energy would be loss-making in 2006," the firm said.

The cost of wholesale gas has been driven by falling gas production in the UK, particularly in the North Sea.

Shortfall

The European Commission and UK regulator Ofgem said earlier this year that the lack of open access across continental energy markets had been a key factor behind the shortfall in gas supplies coming into Britain.

Shares fell by 4% today as Centrica said group earnings for the full year would be towards the lower end of market expectations.

As well as being hit by wholesale prices, a fire in February at Centrica's North Sea storage operations in Rough, Britain's largest gas storage facility, is costing the firm around '40 million, it said.

For the rest of the year, the group will benefit financially from the higher prices and management will continue to reduce costs, it added.

Although British Gas will try to hold residential price levels during the year, it will not be immune to the record oil prices and volatility in wholesale gas prices, it said.