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Centrica

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Centrica plc
Company typePublic limited company
LSE: CNA
IndustryUtilities
Founded17 February 1997
HeadquartersWindsor, United Kingdom
Key people
Sir Roger Carr
(Chairman)
Sam Laidlaw
(Chief Executive)
Revenue£22,423 million (2010)[1]
£2,194 million (2010)[1]
£1,942 million (2010)[1]
SubsidiariesSee below
Websitewww.centrica.com

Centrica plc (LSE: CNA) is a multinational utility company, based in the United Kingdom but also with interests in North America. Centrica is the largest supplier of gas to domestic customers in the UK, and one of the largest suppliers of electricity, operating under the trading names "Scottish Gas" in Scotland and "British Gas" in the rest of the UK.

Centrica is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalisation of approximately £15 billion as of 23 December 2011, making it the 26th-largest company on the London Stock Exchange.[2]

History

Demerger of British Gas

British Gas plc demerged on 17 February 1997 to form two separate companies: Centrica plc and BG plc.

Centrica took over gas sales and gas trading, services and retail businesses, together with the gas production operations in the North and South Morecambe gas fields.

BG plc was renamed BG Group plc in December 1999. BG Group plc uses the British Gas name overseas but it is a separate company to Centrica and has no involvement with the British Gas retail brand in the UK

In 1998, Centrica’s supplier monopoly for gas came to an end. Centrica maintained the British Gas retail brand but is only allowed to use this brand name in the UK. The electricity market also opened up to competition and, through the British Gas brand, the company started supplying its first domestic electricity customers.

Acquisitions

In late 1998, under CEO Sir Roy Gardner and Finance Director Mark Clare, Centrica attempted to diversify – firstly by developing the Goldfish credit card,[3] then in 1999 by acquiring the AA for £1.1 billion.[4] In 2000 Centrica further diversified with the opportunistic purchase of OneTel in the UK, a residential telecoms operator.[5] Soon afterwards Centrica also bought the Dyno franchise group (best known for its Dyno-Rod drains unblocking service).[6]

In September 2008 the Company acquired the Caythorpe gas-producing field near Bridlington to use for storage purposes.[7] It also agreed to buy 20% of British Energy from EDF, financing this with a £2.2 billion, 3 for 8 rights issue.[8][9] The rights issue offered shares at 160 pence per share and closed on 12 December 2008.[10]

In August 2009, Centrica took over Venture Production, a North Sea gas producer.[11]

On 17 November 2010, the Company acquired the assets of heat pump installation company Cool Planet Technologies Ltd. for GBP0.5 million in cash. This will give a boost to company’s strategy of developing a broad range of low carbon technologies and advice.[12]

In November 2011, Centrica agreed to buy $1.6 billion stakes of 8 fields on the Norwegian continental shelf from Statoil ASA. In a second deal, Centrica agreed to buy 5 billion cubic meters a year gas from the same company from 2015 to 2025 as equal to 5 percent of U.K. gas consumption.[13]

Asset selling

This strategy of diversification changed in mid 2003, possibly under pressure from major city shareholders to deliver better returns and/or possibly anticipating pressure on the core UK energy supply business. The change of strategy started with the sale of the Goldfish business to Lloyds TSB Bank[14] (who subsequently sold it to Morgan Stanley Bank International Limited).[15] Then in 2004 Centrica sold the AA to two private equity firms; Luxembourgish CVC and British Permira for £1.75 billion.[16] Then in 2005 Centrica sold their OneTel business to Carphone Warehouse.[17]

Consolidation

Since 2005 Centrica has declared a strategy of consolidating within the energy sector, upstream and downstream, including expanding operations overseas. New Chairman Roger Carr replaced retiring chairman Sir Michael Perry in 2005, whilst new CEO Sam Laidlaw picked up the reins from retiring CEO Sir Roy Gardner in 2006.[18] Sam Laidlaw brought significant experience of 'upstream' operations, securing supplies of energy which can then be sold on through Centrica's consumer business.

Dealings with Gazprom

In January 2006, it was rumoured that the Russian state-owned utility company Gazprom was seeking a takeover of Centrica. This created controversy in the media, while the Department for Trade and Industry stated any deal would be subject to "intense scrutiny". Tony Blair announced in April that he would not block any potential deal.[19]

Operations

Centrica's operations are principally focused on the supply of electricity and gas to businesses and consumers in the United Kingdom, Continental Europe and North America. Centrica Energy also operates in Norway (gas exploration and production), Germany (trading) and Nigeria (gas exploration). Centrica has some back office functions located in India and South Africa.

Principal divisions and subsidiaries

Continental Europe

  • Oxxio (Netherlands)
  • Luseo Energia (Spain)
  • Centrica Energie GmbH (Germany)
  • Centrica Energi (Norway)

North America

  • Direct Energy - one of North America's largest energy and energy-related services providers with more than 5 million residential and commercial customers
  • Direct Energy Business Services
  • WTU Retail Energy
  • CPL Retail Energy

United Kingdom

  • Centrica Energy - sources gas and electricity from Centrica’s own production and third parties to supply residential and industrial customers in Great Britain and continental Europe
    • Gas fields
    • Power stations
  • British Gas Services - provides central heating and gas appliance installation and maintenance and low-carbon and energy efficient products and services
    • Dyno-Rod
  • British Gas Residential - supplies gas and electricity to UK residential customers,
    • British Gas (England & Wales)
    • Nwy Prydain (Wales)
    • Scottish Gas
  • British Gas Business - supplies gas and electricity to UK business customers
    • Energy360
  • Centrica Storage - the UK’s largest gas storage company, it operates the Rough gas storage facility which provides approximately 70% of current UK storage capacity
  • Newfield Exploration UK

UK operations

Gas and electricity supply

File:British Gas.svg
The current monochrome British Gas logo, which is now being phased out.
The new British Gas logo which is being phased in from 2011.

Centrica plc, trading as British Gas (and as Scottish Gas in Scotland) is market leader in the supply of energy to UK households. In recent years the UK wholesale energy market has become more volatile, leading to increasing energy prices. Consequently the core residential energy business of British Gas has been running at a loss according to results released by parent, Centrica plc.

British Gas supplies gas and electricity to over 20 million customers in the UK. Centrica does not own or operate any of the gas transmission or electricity distribution networks in the UK.

Energy assets

To help to manage price volatility, Centrica announced a variety of investments in new sources of supply that may help wholesale prices to come down in the future. During 2005, the company estimated that nearly £600 million was spent on new gas, power and renewable energy assets, with a further £400 million committed to help import more gas into the country.[20] Since 40% of electricity is generated by gas-powered stations, this investment was predicted to reduce the cost of electricity. In parallel, British Gas announced in July 2006 that they intend to improve customer service.

By early 2007 market reports suggested that UK wholesale energy prices had stabilised and started to fall. In March 2007 British Gas (and Scottish Gas) implemented the first price reductions in the UK residential energy market for six years, a move followed by other major energy suppliers.[21] In late April 2007 British Gas again reduced prices, highlighting that some competitors had yet to reduce prices in 2007. Having suffered heavy losses of customers as prices were rising, British Gas claimed that the new environment of falling prices would allow them to grow their customer base.[22]

Gas-fired power stations

Centrica currently operates eight gas-fired power stations in the UK:

  • Barry
  • Glanford Brigg
  • Killingholme
  • King's Lynn
  • Langage (885MW)
  • Peterborough
  • Roosecote
  • South Humber Bank

Microgeneration

Centrica has secured acquisitions and exclusive access and distribution agreements in microgeneration technologies to build a varied portfolio of low carbon products and services. This includes Solar Technologies, Semplice Energy Ltd and interests in Ceres Power Holdings plc and Econergy.

Nuclear power

In 2009, Centrica purchased a 20% stake in nuclear power generator British Energy from EDF Energy. The company now produces 14.3% of its electricity from nuclear (the second highest rate in the UK), helping it to achieve the lowest carbon emissions of the major providers.[23] Centrica has also acquired an option to purchase a 20% stake in EDF's subsidiary, NNB Generation Company (NNB GenCo).[24] NNB GenCo is planning to build an additional 6.4GW of nuclear capacity in the UK.

Wind farms

In 2009, Centrica completed its 180MW Lynn and Inner Dowsing offshore wind farm development and announced plans to build the £725m Lincs offshore wind farm capable of generating over 270MW.

Centrica has also submitted applications for consent for two offshore wind farms, Docking Shoal and Race Bank, totalling 1160MW. Subject to approval and construction, by the middle of the next decade these three projects, together with existing operational wind assets, would give Centrica more than 1.75GW of generating capacity in the UK, capable of meeting the annual needs of more than 1.2m homes.

Senior management

For the role of chief executive, Sam Laidlaw receives an annual compensation of £1,535,000. This total consists of £906,000 salary and a £629,000 bonus.[25]

Controversies

Greenwash

British Gas was accused of greenwashing in the advertising of its Zero Carbon tariff in 2008 after the Advertising Standards Association upheld a complaint about the 'greenest domestic tariff' claim.[26]

Following this adjudication, British Gas signed up to Ofgem's Green Supply Guidelines which aim to give an objective interpretation of 'green tariffs' and raise the standard of industry products. British Gas supported the stipulation that a green tariff must deliver an additional environmental benefit and not simply charge a premium for renewable electricity that would have been generated anyway under the Renewables Obligation. The company continues to offer Zero Carbon which is based on this principle of additionality.

Customer complaint response

In July 2011, British Gas was fined £2.5m by the energy regulator Ofgem for failing to deal properly with customer complaints.[27] After a year-long investigation into the British Gas, Ofgem found it had breached regulations on how energy companies should handle disputes. Ofgem found that British Gas failed to re-open complaints from customers who indicated they felt the matter was not resolved adequately, failed to provide sufficient information to complainants about the energy ombudsman service, and failed to deal properly with complaints from micro-businesses because it had not implement the necessary processes and practices.[27]

A spokesperson for British Gas said the company felt that finding it in breach of rules for failing to provide adequate information to consumers about the energy ombudsman was "disproportionate to the mistake".[27]

British Gas Business was fined £1m in July after Ofgem's investigation found the company had misreported the amount of electricity supplied under the British government's renewables obligation.[27] British Gas claims it spotted the problem – it said an over-reporting of the amount of renewable energy it was supplying caused by human error – and notified the regulator.[27]

See also

References

  1. ^ a b c "Microsoft Word - Prelims Front half FINAL.doc" (PDF). Retrieved 18 April 2011.
  2. ^ "FTSE All-Share Index Ranking". stockchallenge.co.uk. Retrieved 26 December 2011.
  3. ^ "Centrica pays £85m for Goldfish data". BBC News. 6 August 2001. Retrieved 18 April 2011.
  4. ^ "Power firm buys AA". BBC News. 5 July 1999. Retrieved 18 April 2011.
  5. ^ Richard Wray (4 July 2001). "Centrica purchase builds up telecoms business". Guardian. UK. Retrieved 18 April 2011.
  6. ^ This is Money16 August 2004, 12:00 am (16 August 2004). "Dyno-Rod in Centrica's sights?". Thisismoney.co.uk. Retrieved 18 April 2011.{{cite web}}: CS1 maint: numeric names: authors list (link)
  7. ^ Published on Thu 25 Sep 08:30:13 BST 2008. "Centrica buys old gas field". Yorkshirepost.co.uk. Retrieved 18 April 2011.{{cite web}}: CS1 maint: numeric names: authors list (link)
  8. ^ "Centrica looks to raise £2.2bn" (Document). BBC. 31 October 2008. {{cite document}}: Unknown parameter |url= ignored (help)
  9. ^ "Approval from the OFT of Centrica's acquisition of 20% of British Energy from EDF" (Document). Centrica. 7 August 2008. {{cite document}}: Unknown parameter |url= ignored (help)
  10. ^ Centrica (November 2008). "Provisional Allotment Letter". {{cite journal}}: Cite journal requires |journal= (help)
  11. ^ "Venture offer – Centrica achieves 58.7 per cent. level". Centrica Plc. 24 August 2009.
  12. ^ "British Gas New Energy Acquires Cool Planet For GBP0.5M Cash". Added latest Acquisition. 17 November 2010. Retrieved 17 November 2010.
  13. ^ Gismatullin, Eduard; Lundgren, Kari (22 November 2011). "Centrica Agrees to Buy Norwegian Gas Fields From Statoil for $1.6 Billion". Bloomberg.
  14. ^ Rough ruling and Goldfish sale boost Centrica[dead link]
  15. ^ "Lloyds TSB sells Goldfish brand". BBC News. 20 December 2005. Retrieved 18 April 2011.
  16. ^ "Centrica gets bumper price for AA". BBC News. 1 July 2004. Retrieved 18 April 2011.
  17. ^ "Carphone buys One-tel for £132m". BBC News. 19 December 2005. Retrieved 18 April 2011.
  18. ^ Name * (14 March 2006). "Centrica's new Chief Executive is outsider Sam Laidlaw". Businesswriter.wordpress.com. Retrieved 18 April 2011.
  19. ^ Gazprom free to bid for Centrica Daily Telegraph, 26 April 2006
  20. ^ "Centrica signs Drax supply deal". BBC © BBC 2006. 11 April 2006.
  21. ^ "British Gas cuts energy tariffs". BBC © BBC 2007. 12 March 2007.
  22. ^ "British Gas cuts its energy bills". BBC © BBC 2007. 26 April 2007.
  23. ^ Fuel Mix Information
  24. ^ Centrica to invest in EDF nuclear business in the UK
  25. ^ "Sam Laidlaw: Executive Profile & Biography". BusinessWeek. McGraw-Hill. Retrieved 2 September 2009.
  26. ^ "ASA Adjudication on British Gas Trading Ltd". ASA. 30 January 2008.
  27. ^ a b c d e Insley, Jill (27 July 2011). "British Gas hits out at £2.5m Ofgem fine". The Guardian. London.

External links

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