British retail energy woes weigh on E.ON, Centrica

By Christoph Steitz and Susanna Twidale

FRANKFURT/LONDON (Reuters) - E.ON and Centrica, two of Britain's so-called "big six" energy providers, warned on Monday of a toughening retail market, raising the chance of cost cuts in response to falling profits.

Britain's major energy utilities have faced competition from small, more flexible rivals entering the fray while the government has put a cap on electricity prices, causing several companies to cut their earnings outlooks.

"We will have to talk to the regulator," E.ON finance chief Marc Spieker told journalists on Monday after reporting first-quarter results and flagging cost cuts at its British unit, where profits fell by 60 percent.

"Self-help measures alone won't fix this."

British regulator Ofgem was told by parliament last year to cap energy prices after lawmakers said customers were being overcharged for electricity and gas. Prime Minister Theresa May had called the tariffs a "rip-off".

Ofgem increased the cap by 10 percent on April 1 and all big six suppliers raised their standard prices by the same amount, including Centrica's British Gas, E.ON and Innogy's Npower.

However, due to unseasonably low wholesale prices for gas, analysts expect Ofgem to announce in August the cap will be reduced when the next price review begins in October.

Large energy retailers in Britain have also struggled due to competition from smaller rivals, often able to offer customers cheaper deals due to their frequently lower overheads and nimbler operations.

Small and mid-tier suppliers control around 25 percent of the market, up from less than 1 percent around seven years ago.

(Graphic - British electricity retail market share, https://tmsnrt.rs/2E4Khuh)

Between them, E.ON and Centrica have lost more than 400,000 customers in Britain so far this year.

Centrica, Britain's largest energy supplier, said it faced a challenging trading environment in the first half, but maintained its full-year outlook for operating cash flow and net debt.

Shares in E.ON were up 0.8% at 0930 GMT, while Centrica's stock traded 1.8% higher.

As part of a larger asset swap with peer RWE, E.ON is likely to end up owning Npower, which has been hit even harder by the sectoral crisis.

Spieker said E.ON was in talks with Npower's management, adding that it was considering all options for the unit.

(Editing by Thomas Seythal and Dale Hudson)