Centrica, the owner of British Gas, is expected to lose £70m in the first quarter of 2019. They say the new cap on energy bills, which will come into effect on 1 January, is to blame.
The new cap has been set at £1,137 per year for average dual fuel customers who choose to pay by direct debit. Ofgem, the regulator for gas and electricity markets in the UK claim that the cap will save 11 million households a total of £1bn.
Ofgem set the cap in order to save each household £76 per year on gas and electricity bills, but the £1,137 figure is £68 short of the average annual cost of the Standard Variable Tariff (SVT) that 3.1 million British Gas customers are on.
The number of people on British Gas’ SVT is already down 1.2 million since January, down from 4.3 million, with 372,000 customers leaving British Gas in the four months leading up until the end of October alone. British Gas says it is set to have less than 3 million households by the year’s end.
Ian Conn, chief executive of Centrica, said that despite ‘strong competition’ and the change in regulations, the company was still set to achieve its targets for the year.
“Maintaining a focus on performance delivery and financial discipline and demonstrating resilient cash flows remain our objectives for 2019 and beyond, as we deal with the impact of the UK energy supply default tariff cap,” said Mr Conn.
However, the company does admit the price cap is going to hit them hard, and will “result in some negative near-term impact on earnings and cash flow, particularly in 2019”, predicting losses of £70m during the first quarter of 2019.
Ofgem has plans to review the cap in February, with further adjustments in April and October over the next few years. Consequently, the real savings that households will make are likely to be less than the £76 they have been aiming for as they predict that the cap will rise in April 2019.
Simply Switch COO Mike Rowe said: “2018 has been a bit of a bumper year for price hikes across the board and this latest exodus from British Gas shows that, increasingly, customers are looking to take matters into their own hands and seek out better deals elsewhere. It’s particularly promising to see a large reduction in the number of customers on British Gas’ standard variable tariff. SVTs are invariably the most expensive plans offered by any supplier.”
Shares in Centrica dropped 9% in early trading on the FTSE 100. The company’s share price, now around 132p, is trending towards the figures seen seven months ago. In a trading update, Centrica predicted a fall of £2.1-2.3bn in their operating cash flow for 2018, with a net debt of around £2.5-3bn. The company also expects adjusted earnings of 11.5p for the full year, about 10% lower than analysts had initially predicted.
Despite the focus on the £70m loss the company is predicted to make, head of equity strategy at Interactive Investor, Lee Wild, says that it “won’t make much of a dent in the annual profit figure”.
He added: “a sprinkling of negatives in this third-quarter trading update have overshadowed solid progress in key areas. Customer retention and the generous dividend payment have been, and remain, two major factors for shareholders. Centrica’s British Gas arm has never been much good at the former, and another 372,000 customers have been lost in the past four months.”
