Energy support scheme cash potentially at risk as more suppliers could go bust, warns Centrica CEO Chris O’Shea
More energy suppliers could go bust this winter potentially taking government payments intended for customers with them, the chief executive of British Gas owner Centrica has warned.
Chris O’Shea told Sky News that the UK energy market, regulated by Ofgem, offers “wealthy individuals” behind some retail suppliers a “free bet” to speculate, with other bill payers liable for the price of failure.
More than 30 retail suppliers have collapsed in the last 18 months as a consequence of soaring gas prices, and he said some remaining suppliers could technically be trading while insolvent this winter.
He also warned that government energy support, paid to suppliers in advance, could be vulnerable in the event of a collapse, adding to the cost of failure being shared by bill payers.
“The energy retail market has been loss making for a number of years and so there are a number of energy suppliers that are in a precarious financial position and that’s just getting worse every day,” he said.
“Every day that they make more losses they get in a worse position the risk of failure increases. And I really worry that we’re going to see more failures.
“We’ve learned a lot from some of the new entrants to the market, some of them have brought in some good practices, but by and large they’re owned by wealthy individuals who have free bet.
“If this goes right, they will make even more money than they have today. And if it goes wrong, our customers have to pick up the cost – that cannot be right.”
The government has stepped in to support business and households with a cap on the maximum price for units of gas and electricity, reimbursing suppliers for the difference between that and the real cost of energy.
Customer deposits at risk
Mr O’Shea said the decision to pay suppliers up-front meant that money was at risk in the event of collapse, along with customer deposits.
“The government gives [the payments] in advance and that increases the risk. If that supplier goes under, and have taken that government money before they’ve given it to consumers, then that will just increase the cost of failure.”
Mr O’Shea was speaking at the Easington Gas Terminal on Humberside as Centrica began drawing gas from the Rough offshore storage facility for the first time since it reopened in October to try to improve the UK’s energy resilience.
The current overcast weather has cut solar and wind power generation in recent days, increasing the price and demand for gas and prompting a call from the National Grid to increase supply.
“Rough is working exactly as it should, which is to bring that gas from the offshore storage facility, put it into the system, meaning that we can make sure that we’re the gas fired power stations running with the gas to people’s homes, and we keep prices down for consumers,” Mr O’Shea said.
“If that wasn’t here today we’d have to look for alternative sources of gas, or we’d have to look for ways to cut electricity consumption. But definitely the place would have gone up by the simple economics of supply and demand. If demand goes up and supply doesn’t go up, then prices increase. So it is keeping prices down, but it also means we don’t have to look elsewhere.”
British Gas said the advert was filmed before the third COVID wave and industrial action
Rough is currently using only 20% of capacity but to increase needs £1bn of investment Centrica says relies on reaching a deal with government to guarantee a return, and the company would like to convert the storage field to hold hydrogen, doubling the investment required.
Windfall tax worries
Mr O’Shea said that Centrica is committed to the UK but warned that the recent increase in the windfall tax put oil and gas developments at risk, and could deter inward investment.
“A windfall tax doesn’t really create the right environment for investment into the UK. So I worry about the potential long term impacts on investment.
“I think undoubtedly what happens is that for companies that might have marginal projects that just about made economic sense before a windfall tax, those projects are unlikely to be helped by a windfall tax, and therefore there are several projects that may not come because of this.”
One of Britain’s biggest housebuilders is exploring a £1bn takeover bid for Cala Group, a rival player in the sector which has been put up for sale.
Sky News has learned that Persimmon, which has a market value of £4.74bn, is leaning towards submitting an offer for Cala ahead of a bid deadline next week.
City sources said it would be a strong contender to buy Cala, whose homes have a significantly higher average sale price than those of Persimmon.
Insiders expect Cala, which is being auctioned by Legal & General (L&G), to command a price tag of about £1bn.
If Persimmon is successful in the auction, it would mark the York-based company’s biggest acquisition for years.
Under Roger Devlin, its chairman, and chief executive Dean Finch, the company’s share price has rallied by over 20% in the last year.
In a trading update last month, Persimmon said it was on track to deliver growth in new home completions this year to up to 10,500.
The Cala auction comes amid a general election campaign in which new home provision is expected to figure prominently.
Both main parties are likely to set out new policies to stimulate housebuilding growth, according to sources.
Analysts said this weekend that other housebuilders were also expected to consider bids for the L&G-owned company.
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These could include, they said, Persimmon’s larger rival, Taylor Wimpey, and Avant Homes, which is owned by Elliott Advisors and Berkeley DeVeer.
Persimmon is the UK’s third-largest housebuilder by market capitalisation, behind Taylor Wimpey and Barratt Developments.
Both Persimmon and Taylor Wimpey were among eight housebuilders named by the Competition and Markets Authority in February over suspicions they had exchanged commercially sensitive information.
A takeover of Cala by another major housebuilder would underline fresh momentum in the industry’s consolidation, after Barratt Developments unveiled a £2.5bn deal to acquire rival Redrow.
The prospective sale of Cala represents the first significant strategic move by its new chief executive, Antonio Simoes.
Bankers at Rothschild are overseeing the auction.
Mr Simoes described Cala as “a very strong business” during an earnings call earlier this year on which he was quizzed about the housebuilder’s future ownership.
L&G took full control of the business in 2018.
Cala reported a slide in half-year profits last autumn, citing a “challenging market”.
The company has a long-term goal to build 3,000 homes annually.
Persimmon and L&G declined to comment on Saturday.
Business
Ex-Post Office boss Paula Vennells admits removing reference to Horizon IT system from Royal Mail prospectus
Former Post Office boss Paula Vennells has admitted to amending the legal document Royal Mail issued to would-be investors before it became publicly owned to remove mention of the flawed Horizon IT system.
Data from the accounting software created by Fujitsu was used to prosecute more than 700 sub-postmasters for theft and false accounting.
Many more victims lost their homes, livelihoods and good reputation to repay non-existent shortfalls.
Now the inquiry set up to establish a clear account of the introduction and failure of Horizon has heard during Ms Vennells’s third and final day of questioning that she removed “at the very last minute” reference to Horizon from the prospectus Royal Mail issued before it was listed on the London Stock Exchange.
A prospectus is a legal and financial document detailing key information for potential company investors.
It was the first time the issue was raised with Ms Vennells.
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Paula Vennells breaks down in tears again
She said: “It was flagged to me that in the IT section of the Royal Mail prospectus, there was reference to – I can’t remember the words now – but risks related to the Horizon IT system… the line that was put in said that no systemic issues had been found with the Horizon system.”
Ms Vennells wanted the reference removed as, “the Horizon system was no longer anything to do with the Royal Mail group” she said, and contacted the company secretary to have the reference removed.
Based on this action Ms Vennells wrote to a colleague “I have earned my keep on this”.
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She was at the top of Post Office for 12 years and served as its chief executive for seven of those, from 2012 to 2019.
In at times emotional testimony, Ms Vennells said she “loved the Post Office” and worked “as hard as I possibly could to deliver the best Post Office for the UK”.
Business
Energy price cap: Average bills to fall by more than £100 – but predictions say they will rise again
The average annual energy bill will be £506 cheaper than a year ago from July, the sector’s regulator has announced.
The energy price cap – which limits what can be charged per unit of energy – is due to fall from the month after next.
It means the average annual bill will be £1,568 a year, 7% less than at present.
But while the July figure is a reduction, bills are still more expensive than before.
Before the energy price shock, caused primarily by Russia’s invasion of Ukraine in February 2022, a standard 12-monthly bill was £1,084.
Money latest: Energy bills fall – but predictions say they will rise again
So compared with three years ago, energy is costing homes an extra £484.
During the current period from 1 April to 30 June, the energy price cap is set at £1,690 per year for a typical bill.
Energy regulator Ofgem sets the cap four times a year, with the latest announcement applying from July to September.
The overall rate of inflation came down in April – in large part thanks to the current higher cap which came into effect that month and brought prices down for energy users, according to the Office for National Statistics.
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Price cap model faces review
However, many households are in debt to energy providers.
“The fall in the energy price cap reduces bills slightly, but our data tells us millions have fallen into the red or are unable to cover their essential costs every month,” said Dame Clare Moriarty, the chief executive of Citizens Advice.
“People cannot rely on lower energy prices alone to escape the financial issues they’ve been experiencing. That’s why we need better targeted energy bill support for those really struggling to keep the lights on or cook a hot meal.”
More expense to come
Latest forecasts suggest bills will increase again coming into winter as wholesale gas costs are on the rise.
Respected research firm Cornwall Insight said it expects the fall announced today “may be temporary”.
It predicts a typical bill will increase to £1,762 from October and remain around this level until the end of March.
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Gas prices reached four-month highs earlier this week on concerns that Russia could halt gas flows to Austrian multinational oil, gas and petrochemical company OMV and that US exports to Europe may be damaged by a contractor at a Texas terminal filing for bankruptcy protection.
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