Conservatives' price cap plan smashes owner of British Gas

British Gas owner Centrica sank to the bottom of the FTSE 100 on Monday as the City braced for a £330 million hit from the Conservative party’s flagship election plan to cap energy prices.

The owner of the country’s biggest energy provider took the heaviest hammering after work and pensions minister Damian Green confirmed price caps for the two-thirds of British households on standard tariffs will be in next month’s Conservative manifesto.

Such a cap would swipe £332 million off Centrica’s operating profits in just the first year, according to Bernstein analysts. The energy giant’s pre-tax profits for 2016 were £2.2 billion. Shares in Centrica dropped almost 5%, or 8.8p, to 198.8p in response, while the only other listed Big Six provider, SSE, fell 3% to 1404p.

Centrica shares are trading more than a third lower than this time in 2014.

“It’s going to be tough for these firms to generate the kind of profits they have been able to up until now,” warned Neil Wilson at ETX Capital, “and with the Conservatives almost certain to win a thumping majority, it’s highly likely the pledge will be carried out.”

The Government considered tighter regulation on the energy industry last September, but ducked out after providers voluntarily froze prices over winter.

Five of the Big Six suppliers, all but British Gas, have since raised standard variable tariffs, forcing about half of UK households to pay more.

The Tories’ plans are expected to take around £100 a year off the gas and electricity bills of some 17 million British families.

Mark Freshney at Credit Suisse warned customer service would fall as a result, and companies could face higher bills. “All the energy suppliers will be looking to prepare by taking indirect costs out — billing systems, bad debts, advertising, commissions — companies will have to do all the self-help they can, even if it reduces customer service standards. Putting up prices to business customers may also be a response.”

Macquarie analysts downgraded Centrica from Buy to Neutral and claimed: “We see the risk of the utilities once again becoming a political punchbag.”

Analysts mused that SSE could cancel plans for a £200 million share buyback in response to the cap, while the industry quickly corralled an attack on the Tory plans. Prime Minister Theresa May promised MPs a “muscular and strong action” to defend against firms “milking” loyal customers.

But Centrica boss Iain Conn, who has just received a controversial pay rise of almost 40% to take home £4.2 million last year, said the government’s plan would “reduce competition and choice, stifle innovation and potentially impact customer service”.

ScottishPower, another Big Six provider which is owned by Spain’s Iberdrola, also claimed a price cap will lead to “less competition” for customers.