By Mark Fairlie
The parent company for British Gas and Direct Energy, Centrica, has hit the headlines again after losing another 110,000 accounts since the year began.
With many households buying both their electricity and gas from British Gas, equating to two accounts, more than 70,000 customers have chosen to leave the provider in just four months.
Tough times for Centrica
The past few years have been both hot and cold for the energy services firm, Centrica. The company lost 1.3 million energy accounts in 2017 alone, out of the firm’s total 113 million supply accounts in the UK, with the beginning of 2018 bringing with it new challenges.
The ‘Beast from the East’ caused a spell of unexpectedly cold and icy weather earlier this year. Centrica noted that they had seen an “increased energy demand” during this period, however, the extreme weather also resulted in an “exceptionally” high number of boiler breakdowns leading to more complaints and unhappy customers through this period.
With over 145,000 callouts to broken boilers in just one weekend, more than twice the weekly average, British Gas had its busiest week ever this year; resulting in service plan costs driving down their profits for this quarter.
Price hikes and price caps
The additional stress on the company was further increased by the Government’s new energy gap for 11 million households across the UK. The Domestic Gas and Electricity Bill allows regulator Ofgem to limit the rate of standard variable tariffs until 2020; saving customers an average of £100 per year.
A report from the Competition and Markets Authority (CMA) found that consumers were paying roughly £1.4 billion a year in excessive fees charged by the six main UK energy providers’ standard variable tariffs.
Reported in the Independent, Prime Minister Theresa May said the new legislation would “force energy companies to change their ways” to protect “older people and those on low incomes who are stuck on rip-off energy tariffs”.
Iain Conn, chief executive of Centrica, speaking to the Guardian, stated that the impact of the new legislation on British Gas remains uncertain, yet Centrica’s share prices stand at around a fifth lower than before the price cap was confirmed last November. However, it is believed that once the final government plans are revealed this summer, the firm’s cash flow could be hit by between £80million and £220million.
This new cost comes at a time when British Gas announced a 5.5% increase in both gas and electricity bills to come into effect in June. Centrica put the rising wholesale cost of energy down to the firm striving to meet emissions targets and roll out smart meters across the country.
Other energy giants such as Npower, EDF and Scottish Power have also announced price increases this year, spurring consumers across the UK to switch their suppliers to find better deals.
What does the future look like for Centrica?
Conn admitted that 2017 had been “extremely challenging” for Centrica, but he remains optimistic despite “high levels of competitive intensity”. He also noted that the rate at which the firm was losing customers has been slowing considerably compared with the 823,000 customers lost between July and October last year.
Whilst price increases later this year will no doubt result in more customer losses, Centrica believes the company will have a great deal more success with their “connected home” strategy; with CEO Conn expecting to have more than a million consumers signing up to the service allowing them to manage their heating, lighting and security remotely.
The company is reportedly also on track to meet their targets for 2018 including holding dividends at 12p a share. Centrica has also stated they are making “good progress” in its £1.25billion per year cost-cutting programme, with more than 1,000 of their 4,000 total job cuts having taken place by the end of the year.
The executive board of Centrica also forwent annual bonuses at the end of 2017 as a result of the share price crash, with Conn personally passing up on £610,000 to appease shareholders.