(Published on Left Foot Forward, 1.03.13)
Home energy prices went up sharply in late 2012. The excuses used by the Big 6 suppliers focused on the adverse implications of the need to pay for the government’s environmental policies, such as the support for renewable energy and better home insulation.
British Gas told its customers of a 6% rise in prices in November 2012, giving a long explanation of the reasons why prices had to rise. Unfortunately for company, we can now check some aspects of its story against what its parent, Centrica, has just told its shareholders about its financial performance in the UK during 2012. As we might wearily expect, the disparities between the two accounts are striking. Below are six statements extracted from the press release that announced the price rise, followed by a summary of Centrica’s comments today (28.02.13).
1) Even after this increase, our margins after tax in 2012 will only be 5p in the pound
The actual figure for 2012 was 6.6%, over 30% greater than British Gas said. In cash terms, operating profit was up 11% to £606m for the UK domestic energy supply business.
2) Prices in the wholesale market for gas this winter are around 13% higher than those paid to secure gas for last winter
According to Centrica, the average price of gas was 58 pence per therm in 2012, unchanged on 2011’s figure.
3) The cost of the Government’s policies, including: CERT, CESP, ECO, FIT, the Renewables Obligation and the Warm Home Discount have added around £25 to the cost of supplying the average household in 2012
The figure quoted by Centrica is actually £19, just under a quarter less than the figure used in the price announcement. The error was compounded by the failure to acknowledge that ECO (the Energy Company Obligation) didn’t actually exist at the time of the price rise. British Gas, along with several other suppliers, used forecasts of higher future environmental costs as pre-emptive justification for its cost hikes. Government denies that the new policies coming into force in 2013 will be any more costly than the old schemes.
4) On average, the cost of delivering energy to the home has increased by around £25 in 2012
Actually, the figure was £34 a home, 35% more than British Gas said. The point is not the amount of the increase, which is relatively trivial as a fraction of the typical domestic bill, but the wish to play down the part played by necessary capital investment in forcing up prices. British Gas exaggerated the cost of environmental and low-carbon measures while underplaying the importance of the improvements in the electricity and gas grids.
5) The company is making every effort to reduce its own operating costs, which are falling.
Centrica says that the operating costs per British Gas domestic customer rose from £102 to £104 a year during 2012.
6) Despite the increase in prices announced today, assuming seasonally normal weather conditions, British Gas Residential profits in the second half of 2012 are expected to be around 15% lower than for the same period of 2011
Second half year profits from serving UK residential customers fell not by 15% but by 0.8%. The fall was from £263million to £261m.
More generally, Centrica paints a picture of growing profitability in its stable UK business supplying homes and businesses. Cash flows are healthy and the future secure. There’s not a word about the any of the problems used in the press release to justify hiking prices. If the energy companies want us to trust them, they shouldn’t be telling one story to their investors and a completely different one to their customers.