Centrica: Reward for owners, pain for customers

Tsunami waves gush into a complex near the Unit 4 reactor at the Fukushima Dai-ichi nuclear complex in Okuma The Fukushima disaster in Japan has had knock-on effects for Centrica

The reason Centrica's British Gas business recently pushed up what it charges for gas and electricity - by 18% and 16% respectively - is clear from its results for the first half of the year.

Operating profits are down 19% to £1.3bn and statutory profits are down 64% to £468m.

But what may upset financially squeezed customers and energy campaigners is that Centrica's dividend has been increased by 12% - and the group's chief executive says that with the help of the recent price rises profits for the year as a whole should rise.

So pain for customers is a reward for shareholders. Now these are not two distinct groups: millions of people hold British Gas shares indirectly through their pension schemes.

But, if asked, many of those saving for a pension would probably sacrifice the dividend for lower energy prices.

However, we are not talking about boom times ahead for Centrica. It faces plenty of challenges - as it makes clear.

There's the higher tax recently imposed by the Chancellor on gas taken out of the North Sea.

Centrica is explicit that there will be an indeterminate delay to the building of new nuclear power plants following the Fukushima disaster in Japan.

And the group isn't overjoyed at the plans of the regulator to force energy companies to simplify and make more transparent how they charge for gas and electricity.

As for Centrica's vast number of employees, they'll note that the group says "significant management action will be required to ensure that the business remains competitive" - which is normally the sort of thing companies say prior to announcing that costs and jobs are being cut.

What will also be interesting is whether the owners of the business, the shareholders, see that statement about "significant management action" being needed as a coded warning about the prospects for future profits.

Update 09:33: On the dividend increase, which will be controversial (have a look at my @peston Twitter stream for evidence of that), Centrica says that the 12% rise is semi-automatic - because they have a policy of setting the interim on the basis of the previous year's final dividend payment.

The board of course always retains discretion to change a dividend policy, and chose not to exercise it on this occasion.

Centrica adds that it first warned that the nuclear construction programme would be delayed, when giving evidence to MPs on the Energy Select Committee in June.

It will be some months before it can say how long the delay will be and when precisely the new nuclear plants should be generating power.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 272.

    The so called market, in my view does look to be a massive fraud but the real issue is that the price of Gas is going to rocket and it will become common place in the UK for people to be unable to heat their homes in winter and many will die of cold. In fact the Govt. seem to have no plans that will guarantee 24 hour base load power to industry in five years time and avoid an economic crash.

  • rate this

    Comment number 271.



  • rate this

    Comment number 270.

    There will be weeping and gnashing of teeth for those without hot water bottles hanging arround their necks

  • rate this

    Comment number 269.

    The regulator does not need to know the price the energy companies pay for gas. It can simply look at the size of their profits in relation to the size of the business etc. and judge on that

  • rate this

    Comment number 268.

    Hooray! My original comment has been reinstated after moderator over-zealousness, though I expect the point's been lost in the meantime.Shame no apology is posted but the original point remains more than pertinent.

    Energy companies still need 2 justify how they distribute profits put the public @ risk rather than shareholders & pass on taxes designed 2 penalise THEM not consumer for profiteering.

  • rate this

    Comment number 267.

    264.United Dreamer
    Why do you keep saying 'Tories'? First off, Tories, Labour and Dems broadly support the action. Secondly, it's a NATO-led campaign.

    The reason isn't genocide, but it was oil in your previous post? Basically, you're speculating whilst using only half the facts. Megrahi hasn't even been mentioned before his 'appearance' yesterday, so that's rubbish too.

  • rate this

    Comment number 266.

    The worst decision Thatcher made was privatising the utility companies they should be run as non-profit. Now we have the majority foriegn owned and not giving a damm about customers another negative thing about Britain Im encouraging my children to emigrate.

  • rate this

    Comment number 265.

    #243 That_Ian - fair enough so you could easily have replaced it with "However, their [practical implementation always fails, often spectacularly (e.g. Capitalism)."

  • rate this

    Comment number 264.

    Marnip - the reason for the bombing is political. Its not moral. If you want the MAIN reason I would say it was because the tories wanted to put tangible political distance between them and labour after the furore of the Megrahi release and the involvement of the Brown government, tapping into the public outrage. The uprising gave them the opportunity and reduced risk. The reason was not genocide.

  • rate this

    Comment number 263.

    Where's old writingsonthewall gone? I'd like an answer to my climate change question ...

  • rate this

    Comment number 262.

    219.United Dreamer
    Who said armchair bombing was the solution?

    I'm going to tell you again that using other failures as an excuse not to act in Libya is a fallacy, and you're too clever for that so stop using it.

    You keep coming back to 'well, we're not in Syria', after I keep telling you we should be.

    To continue the 'it's oil!' line is becoming the resort of stupid people.

  • rate this

    Comment number 261.


    Sort of. There are companies out there now - and it's about to take off - offering free panels. They'll keep the FIT, you get the bill reduction.

    It does seem strange to be charging the energy companies, given the price increases.

  • rate this

    Comment number 260.

    I agree with the commentator who posted about getting rid of this pretend market (and while we are at it let`s get rid of all the other pretend markets, water, rail, bus routes etc.). These are just monopolies where we have limited or no choice and we are being ripped off. Re nationalise all of them and plough any profits back into improving the services (which is what they are)

  • rate this

    Comment number 259.

    167. WOTW

    Can you prove the revolution is not happening? - I seem to recall you went awfully quiet when it was proven you were lying about your 'making money on short positions'

    - I don't recall this. I went quiet for a bit as you went away and I was busy making money! You didn't prove anything.

    I think the onus is actually on you to prove that the revolution is happening.

  • rate this

    Comment number 258.

    256.myneerkop and 257.Up2snuff

    That's exactly right! Must protect the shareholders and CEO bonus!

    That's why it should be nationalised.

  • rate this

    Comment number 257.

    re #256
    I understood that everyone (regardless of income/wealth) pays £38 pa on energy bills to fund 'green' measures.

    No-one, politicos/journos, appear to have dealt with likely possibility that as we 'save'(use less) energy, suppliers will find sales, bonuses, share price going down and will want to increase their prices - negating any consumer saving - to maintain their earnings.

  • rate this

    Comment number 256.

    Can anybody advise what the effect of FITs will be on domestic energy costs?
    If the FIT is funded by the energy supplier, one houshold's £600/year earner is another household's cost increase. Every home installing FITeligible solar systems is increasing the cost of energy, regardless of the dubious claim of saving the planet.
    Have I got this right?

  • rate this

    Comment number 255.

    On another point can you remember when petrol companies offered you something free like a mug....

    it's a bit different offering a free Mug to installing free insulation for customers!
    Mug cost say 2.99
    Cost of insulation, labour to install transport etc
    Significantly more
    comparing a mug to free insulation is a joke as a garage can give u a mug but it wont save petrol use!

  • rate this

    Comment number 254.

    Profit isn't a dirty word, if Centrica don't make profit then they cannot invest in future energy for the UK. take away this profit and reduce investment in future energy supplies then we have a situation of the lights go out! The uk is no longer self sufficient in Gas we need to import! if you don't like the bills then become more energy efficient! i have and have halved my bill for electric!

  • rate this

    Comment number 253.

    You could contact British gas to complain, (fined £2.5 million for failing to deal with customer complaints.

    That fine was for 2008 Customer complaint issues since then a new system is being installed in BG to resolve these issues! money invested from profits to improve service and infrastructure!

    We need recognise that without profit there can be no investment in for the future.


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