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Centrica warns over price controls


British Gas owner Centrica is set to reveal annual results.

British Gas owner Centrica is set to reveal annual results.

British Gas owner Centrica is set to reveal annual results.

Bosses at British Gas parent Centrica have warned that political intervention and price control threats increase the chance of "the lights going out" in Britain as the group revealed a customer exodus and falling residential energy profits.

New chairman Rick Haythornthwaite said political moves such as Labour leader Ed Miliband's pledge to freeze prices if the party wins power were "immensely damaging" and threatened crucial investment in the country's energy market.

"I think the reputation of Britain as a place in which to invest is under threat and the time to correct that is now, not after the 2015 election, by which time the possibility of the lights going out in Britain will be looming much larger."

He said the warning was not scaremongering, adding: "We've got to restart collaborative, constructive dialogue around these key issues. We cannot afford to wait, hostilities have got to cease."

Centrica reported a "difficult" set of annual figures as it said profits from its residential energy arm dropped 6% to £571 million after rising wholesale prices and a milder winter, which meant households have not had to crank up the heating.

The firm said it lost more than 360,000 gas and electricity customer accounts last year, down 2% to 15.3 million, as households switched to cheaper rivals after it hiked prices by 9.2% on average from November as part of a round of painful winter bill rises across the industry.

The group has shed around another 100,000 accounts so far this year, but said customer switching was "stabilising" after scaling back its price rise by 3.2% following a shake-up of the Government's so-called green levies on bills.

British Gas said it was "confident we can go back to customer growth", helped by the recent launch of new fixed price deals.

Across the group, operating profits were 2% lower at £2.7 billion last year.

Critics rounded on the group despite the drop in earnings, with shadow energy and climate change secretary Caroline Flint attacking "profits on the back of spiralling bills for hard-pressed consumers".

Lobby groups called for regulators to deliver better competition in the market and consider a full-scale investigation.

Adam Scorer, director of Consumer Futures, said: "A nger won't help consumers, only action to reduce their exposure to rising prices will."

"Ofgem needs to deliver vigorous competition in the market - or refer it to the Competition Commission if it cannot. And consumers should use their anger as a prompt to shop around for a better deal or make their homes more energy efficient," he added.

Centrica's shares have plunged by more than a fifth since the autumn following Labour's price freeze pledge, with the stock driven down further after Energy Secretary Ed Davey recently called for a full inquiry into the energy market that could see British Gas broken up.

In a letter, Mr Davey urged competition authorities to "think radically" as they consider whether to launch a probe.

He has raised concerns over Centrica's dominance in the gas supply market, querying why its margins were several times higher than for electricity, and claiming consumers could save £40 a year if they were brought in line.

British Gas revealed profit margins for its gas business stood at 8.9% in 2013 - far higher than the 0.8% electricity margin.

But outgoing finance director Nick Luff denied the group was taking advantage of its market leading position.

He said: "Scale does give us an advantage in terms of costs, which means we can offer good service and prices to our customers, but it doesn't give us an advantage that means other suppliers can't compete with us."

The group claimed on a dual fuel basis, its margins were competitive in the market and said two-thirds of its customers were on dual fuel tariffs.

Mr Luff said the firm "can't make promises" over prices for the year ahead, but added it would look to keep tariffs "as low as we can for as long as we can".

It said this year's milder winter weather was likely to see bills come down by 9% or 10% as households use less energy to heat their homes.

Centrica's results showed that higher wholesale prices and unseasonably warm weather at the end of last year saw British Gas suffer an 18% slump in operating profit in the final six months of 2013, which offset a better start to the year.

But it defended its right to make profits, saying that for every £1 made in profit, it invests almost double that amount in securing future energy supplies - building power stations and wind farms, as well as buying gas from abroad.

In a move to calm mounting public anger over rising energy bills, chief executive Sam Laidlaw has already said he would donate his annual bonus - worth a potential £1.7 million - to charity.

The group remained tight-lipped on reports that it was lining up candidates to replace Mr Laidlaw.

While he has not officially confirmed departure plans, it is widely believed he is preparing to call time after nearly eight years at the group.

Mr Haythornthwaite, who replaced Sir Roger Carr as chairman last month, said he was looking at long-term succession planning, but added Mr Laidlaw was "doing a great job for this company".

The group is still searching for a replacement for Mr Luff, who announced plans to leave last month.

Regulator Ofgem said Centrica's results showed consumers have been "voting with their feet" over price rises.

A spokesman said: "Nearly two million consumers are now with independent suppliers and several of the big suppliers are seeing customers leave them in large numbers.

" However, Ofgem wants to ensure that every aspect of the market is as competitive as possible - that is why we are also reviewing the state of competition in the energy market together with the Office of Fair Trading and Competition and Markets Authority and are looking to make it easier for independent suppliers to compete against the Big Six."