Centrica wants selective price cuts to beat off rivals
Friday 28 February 1997
Roy Gardner, Centrica's chief executive, is understood to have submitted a detailed package of discounts to Clare Spottiswoode, the regulator, affecting some of the 500,000 homes taking part in the first trial of domestic competition in the South-west of England. Since the trials began in May 1996 British Gas has lost 18 per cent of its customers to rival suppliers, who are offering to knock as much as 20 per cent off bills.
Ofgas, Ms Spottiswoode's department, will only allow Centrica to cut prices when it decides competition has become fully established. Mr Gardner believes that with almost 20 per cent of South-west customers no longer using Centrica, that point has been reached. However rival suppliers including Calortex, the market leader in the first trial area, have already pledged to oppose any cuts.
Mr Gardner said he believed Ms Spottiswoode was sympathetic, but declined to reveal the levels of discounts. He said: "We're discussing this with Ofgas. I don't think you will have to wait long before you see some announcements from us."
Centrica indicated that numbers switching to new suppliers in the second phase of the trials, involving a further 500,000 homes in Avon and Dorset, had been smaller than expected. Just 3 per cent of households have so far moved, though Mr Gardner said more switches were in the pipeline. Another million homes will be able to choose their supplier in Kent and Sussex next month.
British Gas, now renamed BG plc, yesterday revealed a dramatic, though expected, plunge into the red after making further restructuring provisions in its last results as a combined distribution and supply corporation. The two halves of British Gas demerged earlier this month. Current cost losses last year after tax totalled pounds 571m, compared with profits of pounds 130m in 1995.
The long list of provisions which hit the figures totalled pounds 1.14bn, of which pounds 822m went to Centrica and pounds 424m went to pay for extra voluntary redundancies across the group. Almost 12,500 staff left British Gas last year.
The headline provisions included pounds 635m Centrica was forced to spend on its "take-or-pay" problem, where it has to buy gas at inflated prices. Renegotiating contracts with BP and Mobil cost pounds 341m. BG also spent pounds 70m on the demerger. A further pounds 100m went on sorting out customer services problems at Centrica.
Richard Giordano, BG's chairman, defended the provisions. He explained: "Nobody likes to lose money but these provisions had to be done. The only way to get the company in a state to go forward was to clear the decks as much as possible."
Shares in BG gained 2p to 175.5p, while Centrica's shares closed unchanged at 68p.
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