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Centrica Sinks to 14-Year Low as May Plans Energy Cap Law

  • Utility’s trading volume surges to 4 times 20-day average
  • Centrica CEO Conn says energy price caps are bad for customers

Centrica Plc plunged to its lowest level since 2003 as the U.K. government plans to publish a draft law as early as next week to cap household energy prices.

Shares in the U.K.’s biggest power and gas supplier to homes fell as much as 7.4 percent and SSE Plc dropped as much as 5 percent. Utilities from Germany’s EON SE and Spain’s Iberdrola SA with operations in Britain also fell as Theresa May on Wednesday followed through on an election promise to cap charges in what she called U.K.’s “broken” energy market.

May’s government will “bring an end to rip-off energy prices,” she told delegates at the Conservative Party’s annual conference in Manchester, England. “We will always take on monopolies and vested interests when they are holding people back.”

The government and the nation’s biggest utilities have come under increasing pressure from the Labour Party, other lawmakers and consumer groups to revamp how the retail market works and to curb prices for the most vulnerable consumers. Centrica is the utility that is most exposed to the planned regulation, RBC Europe Ltd. said Wednesday after the speech.

Details of the plan circulated by May’s office after her speech suggested the measure is softer than her words suggested. The law will give Ofgem the powers to set the cap, and the measure can only be temporary, according to the briefing. That means the power will be in the hands of the independent regulator, rather then ministers who might deploy it for political purposes. The planned law will cover all so-called standard variable tariffs, which cover about two thirds of the consumers supplied by the six suppliers that dominate the market.

The U.K.’s market is broken because it punishes loyal customers with higher prices and the most loyal customers are often those with lower incomes, the elderly, people with lower qualifications and people who rent their homes, she said in her speech.

While further structural changes in the energy markets are needed, price caps reduce competition and “have been bad for customers,” said Iain Conn, Centrica’s chief executive officer, by email.

Rather than limit prices, the U.K. should end standard variable tariffs, he said in a statement.

The Windsor, England-based company fell 6.1 percent to close at 179.3 pence in London. That’s the most since May last year and the lowest end-of-day level since September 2003. The stock has slumped 23 percent this year.

EON, which has said it plans to end all its standard variable tariffs, slid 3.1 percent, the most since June. Iberdrola dropped 3.4 percent. The 29-member Stoxx European 600 utilities index slid 1.5 percent, paring its annual gain to 6.6 percent.

SSE will “look carefully” at the proposals, the company said in an emailed statement. The utility “believes in competition not caps.”

Centrica “is getting hit again and again for the same thing,” said Deepa Venkateswaran, an analyst in London at Sanford C. Bernstein & Co.

May and her government had mooted price caps in the run up to the election in a bid to show low-income voters that she’s on their side. The action followed through on the manifesto pledge -- copied from a similar policy first proposed by Labour -- to rein in the so-called Big Six utilities. Last year, the Competition and Markets Authority said consumers were overpaying on their bills by 1.4 billion pounds ($1.9 billion) a year by remaining on default fares instead of changing suppliers.

“We share the Government’s concern that the market is not working for all consumers, especially the vulnerable, and will work with the Government on their plans announced today to better protect consumers on poor value deals,” Ofgem said in a statement.

Read more about what Energy Secretary Greg Clark told Bloomberg Television

Centrica’s trading volume was 4 times the 20-day average.

“I would buy it. It’s getting extremely cheap,” Venkateswaran said about Centrica’s stock. With big investments needed to boost uptake of electric vehicles and smart meters, “it’s not in the interest of the government to bankrupt the suppliers.”

— With assistance by Anna Edwards

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