Tuesday 30 July 2019

Centrica's Woes and What They Betoken

From time to time we pass comment on Centrica - partly because energy is one of our themes; and partly because from inception as an Enron-wannabe spin-off out of the old monopoly British Gas, it's been an interesting company on an interesting 'journey' (as we're obliged to say these days).  

You can click on the link below to see our sporadic past comments.  Not all of them have been favourable, because Centrica went through a misguided phase of loud special-pleading for subsidies, which didn't endear them to us - or indeed to the government.  They've taken a few outright false steps over the years, notable among which were the move into "we-can-do-everything" banking & telecomms; and the big stake they took in British Energy nukes alongside EDF.  But they've done clever stuff too: intelligent re-calibration of commercial policy when things weren't working out as intended (these days we must call this 'pivoting'); and a series of adroit asset acquisitions (most notably gas-fired power stations and long-term electricity supply contracts) when prices were rock-bottom.  Their technical skills in the marketplace have always been pretty fair.

All in all, to have stayed independent for nearly 25 years is no mean achievement.

But today they have serious problems to address.  Mrs May's inane price cap has weakened the entire industry, as was widely foreseen; and for a couple of years now insider commentary has not been kind about Centrica's strategic decsion-making, once so laudable.  Share price has reflected these things. They are 're-basing the dividend' and the top man is quitting. 

There doesn't need to be any sentiment in this: but I feel uneasy when good companies can't find a way through.  The residential gas & electricity supply business is of course going through a shocking phase.  May's cap; the plethora of minnows that should never have been given licences (Ofgem's grievous fault) and have been going under at a rate; big players like RWE (Innogy/NPower) and SSE trying to exit ... this is a mess.  And against a backdrop for the entire energy sector of trying to get to grips with whatever the 'decarbonised' future will bring.

Civilisation is energy-intensive, as the great James Lovelock reminds us (he's just turned 100) - and society needs capable energy companies.  In civilised countries, energy should be like water and food: so well managed that the miracle of abundance goes almost unnoticed.  Darwinian processes are fine: but there's no pleasure in seeing a big healthy beast fall sick.  Yes; things can go very wrong if the energy market isn't working well.



Lord T said...

Energy will never be a commodity like food whilst the government has a finger in the pie. They screw up everything they touch.

andrew said...

Good to be reminded that we pretty much ran out of energy about 45 years ago and pretty much ran out of food 80 years ago.

All this takeaway food and aircon is a thin veneer over chaos.

I need to go to a hardware shop and buy candles.
Possibly four.

E-K said...

We're in the Matrix, Andrew.

Seriously. My boys (both doing STEM at university) say the likelihood is that we probably are in a simulation.

Anonymous said...

Bring back the CEGB & the old British Gas!

Elby the Beserk said...

Anonymous said...
Bring back the CEGB & the old British Gas!

3:24 pm
Maybe. Maybe not. Bought first house in 1978. Had gas pipe into it. Went to buy a cooker from British Gas showroom. Can't sell you one until the proper connection unit is installed. Call BG to sort this out. Can't do that until you have a gas cooker or whatever to connect it to.

Took a week of banging their heads together to sort it out.

No. Not back to the old British Gas. Worth noting that BT is still as useless as it was when it was nationalised. Not sure they know they aren't.

Now lets see if I can make out the grainy Captcha photos. Last three times I gave up. (1O iterations before accepted. Discrimination against the visually impaired, I call it)

Nick Drew said...

anon 3:24 is just baiting me!

Matt said...

Not sure the minnows are a problem. They come in to try a different approach, which fails and so do they. Customers still get electric but have a bit of a faff while moving to someone else. Be a different story if they were cut off when it happened but it's just a billing exercise.

@andrew - Pick up some tin foil to make a hat at the same time...

Nick Drew said...

Matt - what you say about the safety net for consumers is true: both the bottom-line security provided, and also the admin burden for all concerned, a socialized cost

But some of these tiny 'suppliers' are as dodgy as hell. They collect 'green' charges from customers and are supposed to pass them on to the relevant agency, but sometimes go bust still owing them. At least one I could point you to was clearly looted ruthlessly by its owner

It was an easy ride - indeed, a one-way bet - when wholesale prices were falling: the new supplier could stay short, buy spot, and easily undercut the bigger, more responsible players who'd hedged. But when the prices turn, like last year, the game's up

CityUnslicker said...

ND - I love the new minnows. They appeal to my base intstincts.

Forever in markets there are newbies trying to make a buck and undercut the real players. They come in, burn some money, even better in a regulated industry like Energy the end users are not in any danger of not being serviced either.

As such, I have for years spent a small amount of time signing up to the wackiest new energy co that will supply me at home - all at vast discounts to the big six. Every 8 months of so they die and I get transferred forcibly to a big 6, but before this I have found my next fix on desperate newbie.

From a consumer point of view this is great, I am getting subsidised electricity from banks and Private equity houses, much as I get subsided taxies via UBER.

Happy days and long may they last - You maybe quite right about the larger structural issue this causes, but then this is the issue with over regulation - the rule of caveat emptor is suspended thanks to the Government.

Matt said...

Agree with CU, these minnows wouldn't be able to game regulatory arbitrage if the dead hand of government wasn't trying to centrally plan the market.

I know the argument goes that we need some regulation to ensure the country doesn't suffer for lack of power. Problem is, that becomes the thin end of the wedge. Once they interfere once, they can't help but interfere in everything. That is the raison d'ĂȘtre of the bureaucrat.