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Centrica hits out at regulator as profits dive on warm weather It doesn’t know what it’s doing: Centrica rails at energy watchdog
(about 13 hours later)
Centrica, the owner of British Gas,lashed out at regulator Ofgem today after it revealed pre-tax profits fell by 40 per cent to £890 million in the first half. The growing row over future energy company profits has been further inflamed by the owner of British Gas.
Ahead of the Competition and Markets Authority probe into the energy industry, Ofgem claimed the Big Six are set to double their profit margins over the next year to 8 per cent. Centrica’s finance director, Nick Luff, used the announcement of a 40 per cent fall in half-year profits to launch a diatribe against the industry regulator Ofgem, which had caused a storm on Wednesday by predicting that the Big Six energy companies will double their profit margins over the next year.
But Nick Luff, Centrica’s finance director who is leaving next month after seven years in the job, said: “Ofgem do some theoretical calculations with a range of assumptions. You don’t have to do much to be quite wrong when you get to the bottom of page. “Ofgem does some theoretical calculations with a range of assumptions, but its figures for the last 12 months haven’t come true and it’s very hard to see how their numbers for the future could be correct,” said Mr Luff, who leaves Centrica next month after seven years.
“Ofgem’s figures for the last 12 months haven’t come true, and it’s very hard to see how their numbers for the future could be correct. He claimed there are 25 independent analysts covering Centrica and not one is forecasting that British Gas’s profit margins will go up. “Ofgem’s figures are unhelpful,” he added.
“There are 25 independent analysts covering Centrica and not a single one is forecasting British Gas profit margins will go up. Ofgem’s figures are unhelpful.” Centrica said it expected average bills to fall by 7 per cent, or £90, this year, although that is due to lower usage rather than lower prices. The group’s half-year profits came in at £890m, while its British Gas division saw profits rise 20 per cent to £455m.
British Gas’s operating profit rose by 20 per cent to £455 million in the half year. Centrica today said it expects average bills to fall by some 7 per cent, or £90, this year, but that is due to lower usage thanks to the warmer weather and energy efficiency measures, rather than lower prices. The argument with Ofgem centres on the regulator’s Supply Market Indicator (SMI), which was set up to help consumers understand what could happen to the different costs that will make up their bill for the next 12 months.
It lost 200,000 customers during the first half of the year. The latest SMI, published today, showed that the estimated margin before tax for a large supplier over the next year will rise from £101 to £106.
The political storm over energy prices continues, but Luff defended Centrica’s profit, saying: “If you’re a big business doing things at a huge scale, the numbers obviously add up. That suggests the average energy company profit margin on household bills is 8 per cent – a figure that has almost doubled in a year due to falling wholesale and environmental costs, according to Ofgem.
“Yes, the business generated  £550 million of [post-tax] profit in first half, but that was on £15.7 billion of revenue.” The watchdog has told suppliers to explain to consumers why, when wholesale prices are falling for this winter, they are not seeing cuts in prices.
Luff is part of a management exodus at Centrica: British Gas boss Phil Bentley quit last year and chief executive Sam Laidlaw is also departing, to be replaced by BP’s Iain Conn. It was Ofgem’s concerns that savings were not being passed on to customers that led it to refer the energy market to the Competition and Markets Authority for investigation.
But Luff claimed the political backlash against Centrica had not influenced his decision to take the same role at publisher Reed Elsevier. Ahead of Mr Luff’s comments, Angela Knight, the chief executive of Energy UK,  said: “Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere.”
“It goes with the territory. What the company does is very important. Energy used to be cheap. Now it’s not. Tonight one of the “challenger” energy companies joined the fray. Ecotricity’s founder, Dale Vince, said: “Ofgem has a track record of getting these numbers wrong. Last January it predicted a £120 profit for the Big Six, revised the figures down to £28 and the actual outcome was £53. 
“That’s because we used to be self sufficient in gas, but are no longer. We have to compete in an international market.” “Ofgem knows energy companies buy power at least 12 months in advance. Therefore its figures are utterly misleading. Ofgem claims to champion simplicity and transparency in the energy market – these figures are over-simple and anything but transparent.”
Asked if he would return to Centrica to run the business in the future, Luff said: “I think that’s pretty unlikely.” But consumer groups hit back at the energy providers and attempted to retrain the focus on high bills.  Citizens Advice’s chief executive, Gillian Guy, said: “Suppliers keep shifting the responsibility for what’s causing rising prices, leaving consumers struggling to understand why the prices they pay remain high when the biggest chunk of costs that suppliers face continues to fall. 
“It only goes to reinforce why the Competition and Market Authority’s inquiry is so important in order to establish if people are paying a fair price to heat and light their homes.”