Centrica defends profits from Ed Davey attack

Centrica has defended its profits after an extraordinary attack from energy secretary Ed Davey on Monday that has hit its share prices.

The energy giant “does more than any other organisation to secure gas and power for British customers”, said Chris Weston, managing director of supply arm British Gas.

Over the last six years, Centrica has invested £13.7 billion, or £1.85 for every £1 earned, he said.

In an unusual, Davey singled out British Gas for scrutiny in a letter to Ofgem. He wrote to ask Ofgem to focus on gas supply, not just electricity, in its review of competition in the energy sector due out next month. While saying it was “vital” for Ofgem to be independent, he encouraged the regulator to consider triggering a full market investigation, which could lead to it breaking up major energy companies.

Davey noted gas supply margins are around three times higher than in electricity and criticised British Gas for having some of the highest prices in the market. Centrica is the only one of the big six energy companies to have significant upstream gas interests as well as a supply business.

British Gas profit margins are on average 5 per cent after tax, said Weston. “Britain has one of the most competitive energy markets in the world, with gas and electricity prices among the lowest in western Europe. Around 80 per cent of British Gas customers have switched their tariff or supplier at least once.”

From market closing on Friday to 2:30pm on Monday, Centrica share prices slipped 2 per cent to 308p.

Peter Atherton, analyst at Liberum Capital, said policymakers should give “pause for thought” before breaking up Centrica. It is the only UK company “with a clear commercial imperative to ensure the UK is amply supplied with affordable gas” and the financial capacity to do so.