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Why British Gas is struggling as 230,000 customers switch

British Gas is losing customers. Photo: Centrica/Press Association Images
British Gas is losing customers. Photo: Centrica/Press Association Images

British Gas lost almost a quarter of a million customers in the first four months of 2019, according to its owner Centrica (CNA.L).

Britain’s biggest energy supplier admitted in a trading statement today that it had lost 234,000 customers from its UK home energy network.

It said most of the exodus happened in March and April, when the company raised its prices after the government loosened its cap on what energy firms can charge customers.

The decline of British Gas

The firm is gradually losing market share amid widespread public frustration at rising bills in recent years. Switching services have gained prominence, with a number of smaller firms now edging into the sector, and some local authorities even launching their own suppliers.

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The majority of UK homes still used Centrica’s gas in the mid-2000s, but its share of the domestic gas market was down to 40% at the end of 2013, and has slipped still further to 29% in the final quarter of 2018. In electricity, it remains the biggest player also saw its market share drop from 25% five years ago to 19% last year.

Centrica’s statement did not make clear if the recent dramatic drop in customers was a net or gross reduction. It means the real number of customers leaving could be even higher, but may have been offset by a rise in new customers.

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The cap on ‘rip-off’ prices

Prime minister Theresa May introduced a cap on energy prices. Photo: Andrew Matthews/PA Wire/PA Images
Prime minister Theresa May introduced a cap on energy prices. Photo: Andrew Matthews/PA Wire/PA Images

The energy regulator Ofgem had offered companies some relief by lifting its cap on prices by 10% in April, reflecting rising wholesale prices.

All of the ‘Big Six’ energy firms including British Gas duly announced price hikes for customers, prompting what it today called a “spike in customer churn” as users shopped around for better deals.

But Centrica still blamed the cap for making trading conditions “challenging,” as it prevented further tariff hikes and the company took a £70m “one-off” hit when the cap was first introduced in January.

The cap was intended to be a flagship domestic policy for Conservative prime minister Theresa May, though such reforms have been largely overshadowed by Brexit.

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She condemned energy firms for their “rip-off” prices in her early days as prime minister, intervening in the market with a price cap her party had branded “Marxist” when promoted by the opposition a few years earlier.

Centrica even tried to mount a legal challenge to the policy, contesting the way Ofgem had calculated the cap.

Centrica’s cost-cutting drive

The firm said today that warmer weather and falling UK natural gas prices had both also added to its woes in the first four months of the year so far.

But it still expects to achieve key targets for the year including savings of £250m, staff cutbacks of up to 2,000 workers, a £500m sell-off of “non-core” operations and cash flow of £1.8-2bn.

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Although operational performance has been largely in line with our plans, external factors have presented challenges for Centrica during the first four months of 2019, in the form of the default tariff cap, warm weather, and falling gas prices,” said Iain Conn, Centrica’s chief executive.

“We have also experienced extensions to nuclear outages. However, we continue to focus on those things we can control and as a result we expect to achieve our 2019 cash flow and net debt targets.”

It is due to announce its interim 2019 results on 30 July.