Business

British Gas owner to take £70m hit from price cap

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The new cap on energy bills is set to cost British Gas's owner Centrica £70m in the first quarter of 2019, the company has said.

The cap, which starts on 1 January, means an average dual fuel customer who pays by direct debit should pay no more than £1,137 a year.

This is £68 lower than British Gas's standard variable tariff (SVT).

British Gas shed 372,000 household accounts in the four months to the end of October as customers left this rate.

British Gas, the biggest energy supplier in the UK, has 3.1 million customers on its SVT, down from 4.3 million at the start of the year.

It plans to reduce this to below 3 million by the end of the year.

Centrica gave the details in a trading update in which its chief executive, Iain Conn, said the company was on track to achieve its financial targets for the years in the face of "strong competition" and "regulation in energy supply".

"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.

The price cap, introduced by regulator Ofgem, is intended to save 11 million customers an average of £76 a year on their gas and electricity bills. More than half of all households in Britain are on default tariffs because they have never switched or have not done so recently.

The cap is due to be reviewed in February, and then be adjusted in April and October each year.

Ofgem has already said that the level of the cap is likely to rise in April 2019, to reflect the higher cost of wholesale energy. As a result, the average annual saving in 2019 is likely to be lower than £76.

Centrica's shares were the biggest fallers in the FTSE 100, down 9% to 132p and heading back to levels from seven months ago.

In its trading update, the company said it expected full-year adjusted earnings per share of about 11.5p, but analysts said this was 10% lower than had been expected.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said that while the guidance on profitability was a short-term problem, it faced a longer-term challenge in retaining customers.

"The longer-term problems lie in the British Gas business, where a price cap and shake-up in regulation is costing the group hundreds of thousands of customers," he said.

"Centrica's making progress in shifting consumers off the single variable tariffs that are being targeted, but it's a slow process and there are still some 3 million customers that will be affected."

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