Rough ride is over for gas: Centrica’s investment pledge should silence calls for a windfall tax on energy, says ALEX BRUMMER
Amid subsiding economic confidence, unscheduled earnings upgrades are a rare thing and most likely to come from the energy sector. Centrica is a revived enterprise under the leadership of Chris O’Shea, and benefiting from a flight to quality.
As competitors who failed to ring-fence customer payments have fallen over the precipice, the past outflow of households using its services has been stemmed.
O’Shea is already braced for the cries of foul and windfall taxes should it, as now projected, deliver sharply higher profits.
Investment: Centrica is a revived enterprise under the leadership of Chris O’Shea, and benefiting from a flight to quality
To meet the criticism head on, the group is making a series of pledges aimed at blunting critics.
In an age when we all bemoan a lack of customer service, it is adding 500 British-based employees to help its 7.3million gas customers navigate a period of stress. It has also set up an immediate £6million ‘special needs’ fund to assist those unable to pay.
The British Gas owner recognises that the ‘just in time’ model for UK gas supplies is no longer satisfactory, and the country needs security of supply.
The current plan is to reverse the 2017 decision to pull out of gas storage at Rough on the East Coast. It is planning for a £2billion refurbishment and sees an opportunity for hydrogen production too.
It is not asking for government subsidy, just a favourable financial regime using the kind of regulated asset structure deployed on the Thames Tideway.
Moreover, as a 20 per cent shareholder in Britain’s nuclear industry – legacy of Roger Carr’s stewardship – there is a willingness to become involved in Sizewell C if the finances can be unlocked now that China is almost certainly out.
The harder question for O’Shea is how to balance the needs of three major constituencies’ customers, its 500,000 ‘Tell Sid’ private investors and the workforce. The current commitment is that it will take no extra profits per customer from the energy price shock.
The company also has managed to settle the dispute with the unions which flared up in the pandemic.
That leaves shareholders, who saw their dividend suspended in the pandemic, as the remaining interest group to be dealt with.
As for windfall taxes, the Centrica view is that if the UK wants new energy facilities, the most important factor is predictability for investors. A tax regime which blows with the political breezes is counter-productive.
No sooner had the Prince of Wales’s dirge been brought to a halt by Black Rod than the whinges from the accounting reform lobby started to arrive.
After the audit and governance failures of recent times, from Carillion to Patisserie Valerie, and a truckload of reports on reform, why was Kwasi Kwarteng not getting time in the legislative agenda?
Minutes later came the recall notices.
Downing Street’s explanatory notes, the equivalent of the Budget Red Book, demonstrated it was there after all.
The new bill is described in grandiose terms of ‘rebuilding trust’ in the audit system. Sir John Kingman’s shiny new statutory regulator, the Audit, Reporting & Governance Authority, is finally on the runway. Directors and private companies will be swept into the new regime.
Much more fuzzy is the response to former Stock Exchange chairman Donald Brydon’s call for a rewriting of ‘true and fair view’ to take account of a much broader range of issues, including governance.
On the vexed issue of directors’ pay, Brydon wanted the ramshackle way in which executives reward themselves fat-cat packages to be subject to audit. No mention of that. So a half step rather than a stride in cleaning up capitalism.
Terrific that Rishi Sunak is full square behind an initial public offering for Cambridge-based smart chip designer Arm in London. Now he must make it happen.
To do so he needs to summon SoftBank tycoon Masayoshi Son to Downing Street and inform him that the welcome mat has been withdrawn.
Instead of the long-term commitment pledged, Son weakened Arm’s position in China by allowing Beijing officials (now removed) to infiltrate the board, hived off a chunk of the equity to the slumping Vision Fund and tried, but failed, to sell the British champion to rival Nvidia.
Sunak must use the ‘bully pulpit’, the power of his great office, to read the riot act.