Centrica shares slump with Labour price cut pledge

The share price of the UK’s largest energy utility took a hit on Friday after Labour leader Ed Miliband ratcheted up the political risk faced by utilities by pledging to cut prices if the party comes to power.

British Gas parent company Centrica saw its share price plunge almost 2.5 per cent to 236.1 pence per share within hours of the market opening, after news that the Labour party intends to give Ofgem the power to force tariff price cuts to reflect the wholesale market.

Energy prices have become an increasingly politicised issue since September 2013 when the Labour leader first proposed to intervene in the sector by freezing tariff rates. Since then Centrica’s share prices has slid 41 per cent.

Some estimates indicate that the UK energy sector may already have lost £3 billion worth of investment as a result of the political risk created by the Labour policy.

Labour’s most recent move is a resurrection of its failed attempt in January to vote in legislation which would give Ofgem the power to force bill cuts, with the party suggesting this could amount to as much as a 10 per cent discount for consumers.

Analysts at RBC Capital said that even though the latest Labour pledge is “no surprise”, political risk for the UK’s big six energy companies is “now larger than ever”.

“With the heat of an election just months away, Labour are looking to gain votes with consumer-pleasing policies,” the analysts said.

“[But] many large suppliers have claimed they are more hedged than normal due to the threat of a Labour price freeze. As a result, if suppliers were forced to decrease their bills by the regulator this would certainly hurt the bottom line,” an investor note said.

Centrica is most exposed with 15 million customers, but SSE – which has over 8.5 million customers – also saw its share price slump, from 1492 pence to 1459 pence.