Newspaper article The Evening Standard (London, England)

Centrica Gets Zapped but It's Network Firms Whose Power Needs Dimming

Newspaper article The Evening Standard (London, England)

Centrica Gets Zapped but It's Network Firms Whose Power Needs Dimming

Article excerpt

Byline: Simon English

IT'S possible to feel sorry for Iain Conn, the fairly charming chief executive of Centrica, the company behind British Gas. The main role of the person holding this job is to take regular biffs from the tabloids for being energy fat cats. His predecessor Sam Laidlaw became Sammy Two Pools in The Sun, which claimed he used twice the amount of energy of an ordinary family just to heat his first swimming pool, and planned to build a second.

Conn is having a miserable year, presently failing either to satisfy customers in search of cheap deals -- 820,000 left in the last four months -- or shareholders, which saw the stock crash 15% on one day last week.

Profit margins at British Gas, often the highest in the sector, were above 7% in 2016. That's higher than for supermarkets, say, where Tesco struggles to turn a PS100 grocery bill into a fiver of profit. But it doesn't automatically scream "price gouging".

Perhaps the real place we should be looking for energy fat-cattery is behind the scenes, at the profits made by the gas and electric network firms, the companies that control the transmission of power into our homes. (Think of it like this: if National Grid runs the motorways, these firms run the A and B roads).

These 10 network companies make profit of towards PS8 billion a year, in some cases with margins as high as 40%. Their costs can make up 25% of a household's average annual bill -- about PS300. Since these companies have a natural monopoly, it's hard to see why this is justified.

The equivalent businesses in Germany have margins of just 7% to 9%, so collective swtich Difficult Centrica executive website The Big Deal tells me. The company that is in charge of electricity transmission in London is called UK Power Networks. As well as London it covers the East of England and the South-East. It made PS1.05 billion in 2016, up 31% from PS803 million in 2013.

(The London bit specifically made PS347 million in profit last year -- up 18% from PS294 million in 2013). …

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