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Monday, June 04, 2018

British Gas to feel £300m burn of price cap

The owner of British Gas stands to be the hardest hit by the plan to cap standard variable energy tariffs with a £300m blow to its earnings, which are already under pressure due to rising costs and falling customer numbers.

Centrica and its nearest rival, SSE, are also in the political firing line after hiking energy prices for millions of homes and inflaming tensions with government ministers who have vowed to put an end to "rip off" energy tariffs by the coming winter.

Analysts at AB Bernstein believe that Ofgem's latest proposals, set out in a 400-page industry consultation last week, suggest the price cap will be close to the current cap put in place for customers on pre-payment meters, at around £1,078. This is around £100 cheaper than the average standard variable tariff currently on the market.

For the largest listed energy giants the hit would be much higher. The difference between the British Gas standard tariff and the expected cap is £305 a year, and SSE's default rate is £207 above the cap. The pair also have a higher proportion of customers on standard tariffs.
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The analysts warned that the future profitability of energy giants was "more complicated" than calculating the difference in standard rates, multiplied by the number of customers on the default tariff.

Recent price rises across the industry are thought to be an attempt to soften the blow of an anticipated hike, they said. The sector's larger players are also building up their defences against government intervention by driving efficiency measures through their vertically integrated companies.

 

Read more at The Telegraph.