Singapore Markets closed

Centrica to scrap standard tariff to fend off energy price cap

By Susanna Twidale and Oleg Vukmanovic
FILE PHOTO - Electricity pylons are seen in London, Britain August 1, 2017. REUTERS/Neil Hall

By Susanna Twidale and Oleg Vukmanovic

LONDON (Reuters) - Centrica <CNA.L> is to scrap a higher rate tariff for new customers as part of industry efforts to see off price caps threatened by the government and said it had no plans to follow rivals and spin off its retail energy business.

Prime Minister Theresa May said in October she would impose controls to tackle what she called "rip-off energy prices" - home power bills have doubled in Britain over the past decade to an average of about 1,200 pounds a year.

The move has piled pressure on Centrica and Britain's other big energy suppliers, already facing competition from smaller, more nimble rivals able to offer cheaper deals.

After years of loosing customers, SSE <SSE.L> and Innogy <IGY.DE> announced plans to merge and list their British retail units in a separate joint venture.

Centrica CEO Iain Conn said his company had no plans to follow suit.

"We believe we can have an attractive energy business in the UK," he said on a conference call on Monday.

Centrica, the owner of Britain’s largest energy supplier British Gas, said it would stop offering its standard variable tariff (SVT) - the payment targeted by the government cap.

Utilities charge customers SVTs if they do not choose fixed-term deals that are generally cheaper. Regulator Ofgem said SVTs offered by the big six suppliers in August were on average almost 320 pounds per year more expensive than their cheapest deals.

Centrica said it would give customers a choice of at least two, three-year tariffs at the end of their contract period as part of an attempt to move all customers off SVT deals, but did not commit to making the new tariffs cheaper.

"The default needs to be an unattractive tariff but not a punitive tariff," Conn said, adding it would need to be higher than other available tariffs to incentivise people to engage in the market and switch deals.

Centrica will set up a new 12-month default tariff with no exit fees for customers that do not pick a new contract after their existing one expires.

The changes would be introduced by March 31, 2018, it said.

Utilities have long said the bigger bills are partly caused by rising government energy policy costs, including renewable energy subsidies.

Centrica challenged the government to find a new way of funding policies, such as those to support new renewable power generation, through general taxation and not via bills.

"We believe the government should consider a less regressive mechanism to recoup policy costs, to protect those on the lowest incomes," it said in a statement.

Conn said these policy costs add around 200 pounds per year to bills.

The supplier also called on the government to phase out SVT deals altogether and prohibit so-called evergreen tariffs without an end-date, arguing that such deals reduce customer engagement.

Britain's other three big six energy suppliers are Iberdrola's <IBE.MC> Scottish Power, E.ON <EONGn.DE>, EDF Energy <EDF.PA>.


(Reporting By Susanna Twidale and Oleg Vukmanovic, additional reporting by Kate Holton; Editing by Andrew Heavens and Jane Merriman)