Centrica promises to pass on ‘green levy’ cuts while profits flatten

A tough time in business retail, low spark spreads for gas-fired power generation and poor conditions for gas storage have hit the profit forecast at Centrica. Meanwhile, the energy group pledged to pass on any government relief from "green levies" to households.

In an Interim Management Statement on Thursday, Centrica said it expected earnings per share in 2013 to be “at similar levels to 2012”, down from its June forecast of 3-4 per cent growth.

Ending auto-rollover contracts to business customers has squeezed margins in British Gas Business, contributing to expectations profits will be “significantly lower” than in 2012.

On the household side, average gas consumption for the first 10 months of the year was 4 per cent up on 2012, due to a long, cold winter. The company said British Gas Residential used the boon to absorb higher costs “for as long as possible” but was loss-making for a number of months. Price hikes of 8.4 per cent for gas and 10.4 per cent for electricity kick in on 23 November.

In light of a government review seeking to cut the impact of “green levies” on customers, Centrica finance director Nick Luff promised any cost relief would be passed onto customers in lower prices. “If those programmes are changed and that reduces our costs of delivering them, we will pass that onto customers,” he said.

The most likely saving is expected to come from moving costs associated with the Eco energy efficiency scheme into taxation.

Unlike EDF, which on Tuesday announced a lower price rise than its competitors based on anticipated changes, Luff would not be drawn on how big the savings might be. “There are clearly various options and we will have to see,” he said.

In UK power generation, the company expects to make a loss of around £130 million on gas-fired power stations, due to “very low market spark spreads”. Its fleet is running 25 per cent of the time and has so far generated 4 per cent less electricity than the same period in 2012. Its share in nuclear output was stable.

Luff said: “We are trying very hard to keep the [gas-fired power generation] business at cash break-even.”

Centrica Storage has got levels of gas in its Rough facility up to normal levels for the time of year after “record” summer input, but market conditions “remain challenging” with low summer/winter spreads. Forward spreads look even less favourable, with 2014 profits expected to be “substantially lower” than 2013

Baird and Caythorpe gas storage projects were scrapped and put on hold respectively after government ruled out subsidising such schemes, leading the company to write off £240 million of preparatory investment.

Despite a flattening of profits, the group said it was making “good strategic progress”, with new contracts in the upstream oil and gas business. It signed an LNG supply agreement with Qatargas in early November and bought a package of Canadian gas and oil assets in late September.