UK Gas Giant Considers Profit Cap to Slash Energy Bills Amid Cost of Living Crisis

Centrica, owner of the largest UK energy and home services company British Gas, has announced plans to voluntarily cap growing profits in order to reduce household bills and add to tackling tensions over the issue, according to the Guardian.

Centrica chief executive Chris O’Shea told the newspaper that he wants his company to become the first to sign up to renegotiated contracts with the government on its electricity generation.

O’Shea did not elaborate on what proportion of Centrica’s profits he was prepared to relinquish or how much the company hopes to receive from the government.

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In an interview with the Guardian, he said that “sometimes if you go to the government and propose you take a lower price they look at you like there must be something else in it for you.”

“We are obviously in this business to create value for all of our stakeholders, customers, country [and] colleagues. But it’s not about maximizing this year’s profits; it’s about having a long-term sustainable business,” the Centrica CEO underscored.

O’Shea recalled that his company supplies more than 8 million homes and businesses in the UK with energy, and that “if they can’t afford their energy, we don’t have a sustainable business.”

“And so when you think about this holistically […] if we put something like a CfD ['contracts for difference'] regime in place for existing assets then, God forbid, if this ever happens again and we see prices go where they go, there’s an automatic adjustment mechanism,” he pointed out.

An CfD is an agreement between an investor and an CfD broker to exchange the differences in the settlement price of a financial product between the opening and closing trades.

The Centrica chief executive also said that alternative options and suggested means for capping wholesale gas prices could “distort the market massively and have perverse consequences.”

When asked if he supports the CfD proposal to grapple with a possible windfall tax, O’Shea said, “a windfall tax by its nature is a one-off. It doesn’t fix the structure of the market. We’re trying to solve the same issue in a way that’s sustainable.”

Part of new UK Prime Minister Liz Truss’s energy bill freeze announced earlier this week, the introduction of renewable and nuclear power generators will be encouraged to supply electricity at below the current market rates, with Truss refusing to impose a windfall tax on them.

On Thursday, she said that energy bills would be capped at £2,500 per year from October 1, adding that the phased-in measure will last for two years to save a typical household around £1,000 a year and help cope with soaring living costs.

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Opposition parties were quick to warn that the government's plan to ease the cost-of-living crisis without taxing energy companies would burden Britons with debt. Labour leader Keir Starmer argued that the freeze would force taxpayers to “foot the bill”.

The leader of the Liberal Democrats, Ed Davey, for his part insisted that “this phony freeze will still leave struggling families and pensioners facing impossible choices this winter as energy bills almost double.”

The remarks came after the UK energy regulator Ofgem revealed in late August that the energy price cap would rise 80% to £3,549 per year for an average household from October 1. Analysts warned that without urgent government intervention, the sum could skyrocket to as much as £6,000 in 2023.