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British Gas owner Centrica warns of higher gas costs British Gas owner Centrica warns of higher gas costs
(about 7 hours later)
Millions of households face higher energy bills this winter after the owner of British Gas predicted that the cost of supplying homes will rise by £50.
Ahead of what is expected to be a fractious AGM on Friday, Centrica served notice on its 15.9 million UK customers that another round of price hikes are in the pipeline. Senior executives at British Gas have been accused of being an "utter disgrace" after being awarded a potentially generous pay deal just as they warned that more price rises were on the way.
In an interim management statement it said wholesale gas prices for the forthcoming winter are around 15% higher than last year while non-commodity costs – such as transportation and government environment levies – will add £50 to the cost of supplying the average household this year. Because the wholesale gas prices were not factored into the £50 figure, bills could rise by an even higher amount in the winter. The attack from a member of parliament's energy and climate change committee came as a large group of shareholders voted against the remuneration report while other companies faced the latest blowback from the "shareholder spring".
Centrica said: "The trend for retail energy costs therefore remains upwards." The statement came as Pirc, the shareholder advisory group, warned that Centrica's new executive pay scheme means "potentially excessive amounts could be awarded". Vladimir Kim, the top shareholder in the mining firm Kazakhmys, said he would step down as chairman within 12 months, a new executive pay package at oil services group Petrofac faced opposition from shareholders and a quarter of investors rejected a remuneration report at shipbroker Clarkson.
Sam Laidlaw, Centrica's chief executive, was paid nearly £4m in 2011 despite a rise in pretax profits of just 1%. The biggest impact on Centrica's 2011 results was at its "downstream" operation, dominated by the British Gas residential outfit, which reported a 30% fall in operating profit to £522m. But the greatest acrimony came at Centrica, the parent group of British Gas, after it warned that it might have to increase energy bills this winter by at least £50.
Centrica's statement means that British Gas customers should brace themselves for a price rise announcement at the end of the summer. Last August, British Gas raised electricity prices by 16% and gas prices by 18%, although it has since cut electricity prices by 5%, while leaving gas prices unchanged. In 2011, higher household prices were offset by lower usage due to mild weather, reducing the average bill by £37 to £1,024. If the £50 cost rise is passed on to customers it would represent a 5% increase on last year's average bill for British Gas customers. John Robertson, a Glasgow MP, who sits on the energy select committee, said: "It's clear that Centrica think this is a good day to bury bad bills. The fact they chose this day to announce these price rises, when [former chief executive of News International] Rebekah Brooks is before [the] Leveson [inquiry)], shows they are an utter disgrace," he said.
Centrica added in its statement that the business is trading in line with expectations. In a hint to the government over its struggling plans for a new generation of nuclear power plants, the group added: "Further clarity is needed to deliver the investment required in new [energy] generation capacity." "This government has to act to put an end to greedy gas companies taking hard-pressed customers for a ride. Pensioners in my constituency are only just getting over the budget, now they are hit with the prospect of rising energy bills."
Centrica is a 20% shareholder in the eight nuclear power stations owned by British Energy, a business controlled by France's EDF. Both EDF and Centrica are waiting for the government to confirm financial support for nuclear energy – through a set carbon price and subsidies for low-carbon energy – before deciding whether to press ahead with plans to build new plants. The most advanced project is at Hinkley Point in Somerset. Centrica's chief executive, Sam Laidlaw, and the British Gas managing director, Phil Bentley, were accused by one investor of presiding over an "arrogant" company that had been fined £2.5m for not investigating customer complaints properly.
Another shareholder asked Laidlaw whether he would hand back the bonus element of his remuneration package of nearly £4m, a question that finally triggered an impassioned defence of the chief executive by Sir Roger Carr, the Centrica chairman. "We are very fortunate to have Sam Laidlaw for this business," said Carr. "For five years he has done a remarkable job for this company and one I am very proud to be associated with."
The group pay arrangements had very high hurdles in place that had to be overcome for bonus payouts to be made, he argued, but 12% of shareholders still voted against the remuneration report when it came up for approval.
Both the Pension & Investment Research Consultant and the Association of British Insurers had raised concerns about the pay proposals.
Meanwhile in a statement British Gas said wholesale gas prices for the forthcoming winter were about 15% higher than last year and non-commodity costs – such as transportation and environment levies – could add £50 to the cost of supplying the average household this year.