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Ed Davey vs Centrica: You can only poke a gassy bear so many times before it lashes out


By Andy Barr, Head Yeti

February 10, 2014 | 5 min read

When a boxer gets caught on the ropes, sometimes they use it as a chance to get their breath before coming out fighting and beating the bejesus out of their punched out rival. I have a sneaking suspicion that this is what is going on with Centrica; it is biding its time.

Ed Davey has had it up to here with Centrica

Hang on, shall I pop in some context? So, I used to work as a political analyst for a large utility, one of the original 14 electricity distribution companies. These are the people who supply the cables that get the electricity to your door, and not those shyster electricity supply companies (although they were all as one when I worked there).

I know it is cool to hate energy companies; they are probably only one wrung off bankers and estate agents in terms of the most hated industries in the UK. One of the biggest companies is Centrica, owner of British Gas, and it is under the political cosh at the moment.

Energy is a key political topic in the run up to the 2015 general election and the Lib Dems and Labour have accidentally collaborated to drive Centrica’s share price down to a significant low.

First of all, in September 2013, Ed Mili-bland made one of his rock solid pledges (will be gone by 2015 no doubt) to freeze fuel prices were his lot to get into power. Then up came Ed Davey, secretary of state for energy and climate change, who today made some noises about watchdog OFGEM needing to consider radical actions in the gas markets in case British Gas was using its market size to maintain or inflate prices yada yada yada...

The interesting chunk of Davey’s statement relates to his suggestion that OFGEM should even consider splitting British Gas up if it thinks it will help consumers.

This is the bit that may cause Centrica to dust itself down, get its breath back and come back fighting. I don’t know about you, but I have been very surprised that it has not come out raging given the obvious provocation.

In very real terms, British Gas/Centrica is, as we all know, a massive player in the sector. It is of course going to have issues as any business of that size and with such operational complexity would.

BUT, it has historically set the benchmark for standards and compliance with the rules and regulations set out by OFGEM. It is some time since I worked in that sector but when I did it was British Gas that we all turned to first to see what its reaction was to much of the new legislation that came through.

Let's not forget that the pound value of investment that British Gas/Centrica can invest in its network is governed by OFGEM, as are the prices it can charge, and that it reports back on various operational performance standards on a monthly and quarterly basis. What I am saying is that OFGEM has had plenty of time, opportunities and reasons to take a deeper look at British Gas over the years but hasn't.

Surely if the company was carrying out such price manipulation, or even if there was a whiff of it, OFGEM would have come down hard.

Could this just be more political posturing by one of the main three parties in the run up to the election? Probably. Could it also be the straw that broke the camel's back?

Centrica announces is final results to the stock market on Thursday 20 February. Its share price is at a low point and it will need to give some assurances to its shareholders that it has a plan in place to recover.

Or, it could make a series of statements that hint towards its legal options should the attacks continue.

Mili-bland can fire out all of the soundbites he wants about freezing fuel prices were he to get into power, but the legalities of such a move are complex, expensive and could ultimately, and ironically, drive prices up for consumers (someone has to pay for this).

Similarly, Davey may be in the hot seat, but once again, the reality of splitting up a business is far different from the simple task of just talking about it to grab some headlines. I imagine Centrica will have had a legal team the size of Tibet looking at itsoptions before you can even say “Has anyone seen Sid?” (Anyone remember that advert?)

Feb the 20th. Pop the date in your diary because that is when I expect Centrica to come out fighting.


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