Sam Laidlaw on British Gas’s ‘trilemma’ and why he mentioned blackouts

March 29:

Sammy Two Pools is sitting in front of me. That’s tabloid-speak for Sam Laidlaw, chief executive of Centrica, parent company of British Gas.

We’re in his office in Mayfair. In October last year, two days after British Gas said it was raising the price of electricity by 10.4 per cent and gas by 8.4 per cent, it was revealed that Mr Laidlaw was having a second swimming pool built at his home in the Cotswolds. The red-tops and the left vented their wrath.

This week, he was in their sights again. When Ofgem said it was launching the deepest ever investigation into the Big Six power suppliers, Mr Laidlaw warned that the uncertain industry climate could lead to the halting of new investment, and blackouts. Cue his occupying virtually the entire front page of the Daily Mirror and an extra moniker: “The Blackout Blackmailer”.

But new money coming into the industry, Mr Laidlaw says, has virtually ground to a halt. By 2020, the UK will be relying on imports for 70 per cent of its gas needs.

“In primary energy, the UK’s production of gas is falling rapidly. North Sea oil and gas output has fallen by 38 per cent over the last three years… So, when it comes to security of supply there is a pressing need for solutions.”

Yet politicians are falling over themselves to slate the energy companies, with British Gas, the supplier of gas to 15 million homes, the principal villain.

How have things got so bad?

“There’s been a lot going on. Ever since the credit crunch there’s been disdain for large businesses generally. Household incomes have been flat to falling, so a lot of people have been feeling the pinch,” he says.

“We’re mandated to replace power stations, and that puts costs up, which in turn puts bills up. So it was always going to be difficult.”

Yes, but this difficult?

He smiles a rueful smile. “We’ve always tried to do our pricing efficiently, to take a more pragmatic approach. It’s worth going back to 2007, when household incomes were increasing and all prices went up sharply. In 2007, bills went up by 50 per cent, then we brought them down. But there was little of this. The main change is the lower disposable income for households, plus politicians are capitalising on the situation and making promises they will find hard to deliver.”

It’s not the level of interest he resents – he understands that – but the interference based on ignorance.

“This business is so interwoven with the fabric of Britain and the fortunes of our customers that it can make a real difference to the quality of life. It never can be like any other business with just a profit motive; we’ve always got a much broader agenda. So we’ve got social programmes that have seen 1.8 million customers helped with their bills, and another half a million given extra assistance.”

He is not stupid: “We’re not expecting to be immune from politics.” What’s causing the difficulty is the sheer short-termism of those doing the shouting, the lack of vision for Britain’s long-term energy needs. That’s what he finds hard to countenance.

It’s worse for British Gas and its owner, he accepts, because it was once the state-owned supplier.

“There are some customers and politicians who still yearn for the old model. What they forget is what we’ve achieved. Fiercer competition has delivered lower prices and we’ve delivered choice. None of that would be there if we were nationalised.” Contrary to what some may aspire to, “we can’t put the clock back. We’re now in an international market and the sums of capital required are huge. We need foreign capital, foreign investors, to meet that challenge.”

People “forget how far we’ve come. We know what our job is, to make the service as best as we can while delivering energy at the lowest possible cost. Even as recently as 2006 there were 16 million exceptions [where the bill has to be checked or authorised by a human and can’t be processed automatically] and people complained they could not get through on the phone. We’ve come a long way since then, we’re now much more efficient.”

At the CBI conference last November, Mr Laidlaw sprang a surprise when he announced he would not be taking his annual bonus, which could have been worth around £1.7m.

“I wasn’t doing it for personal acclaim,” he says. “The pay of the CEO had become an emotive issue. It was distracting from what we call the ‘trilemma’, of having secure supplies of energy at affordable prices while meeting climate change objectives.” If, by forfeiting his bonus, he could get people to focus on these issues rather than his pay, then his step was worthwhile.

“In the US, [executive pay] is not even raised. In the UK, it’s not a very edifying debate we’re having, especially as we’re trying to get our companies to compete on the world stage. In the US, entrepreneurs and big business are celebrated and supported; in the UK there is scepticism, which can be unhelpful.”

What about the opprobrium surrounding his old school – Eton – and his manor house?

He grimaces. “I took the job knowing it was a high-profile job. Where it crosses the line is when it affects my family [he and his wife, Debbie, have four children]. They’re entitled to their privacy.”

He pulls a face. His job “is always going to be controversial; I guess it’s become more controversial. Ironically, it’s not because bills are going up 2 to 3 per cent a year. The increase is actually lower than inflation, but the difference is that household incomes have been going down. Energy is a growing portion of household expenditure – and politicians are wanting to cash in on that.”

He is frustrated by Labour leader Ed Miliband’s prices freeze and break-up call. “It was a surprise to us, because he’s been Energy Secretary and knows the issues. He’s highly intelligent but economically flawed.

“We’ve had conversations with him. He has a view that the markets don’t work and he wishes to control them. But the price of gas is set internationally. No matter how much he wishes to control it, he can’t. It’s as though Miliband wants to take us back to the days of the nationalised British Gas, when it was a monopoly buyer from the North Sea and set the price. Those days are over.”

Investors, Mr Laidlaw says, will turn away. “If they can’t get a return from investing in our energy market they will go elsewhere.”

Is that a threat? He shrugs. “No, just the way it is.” We desperately need their backing for new power stations, he repeats, for reducing our reliance on imported fuels.

Is he fed up? There has been what looks like well-informed speculation in the press that this year will be his last.

“Every day I look forward to trying to solve the equation of running Centrica and trying to do the right thing, because we’ve got fantastic people here and they do not deserve it.” He pauses. “You know, all the controversy does is to create a greater sense of loyalty among all of us to this business.”

Nevertheless, is he leaving? “Chief executives can stay too long in their jobs. From time to time management teams needs refurbishing.”

So that’s a yes, then? “When the right time comes I will seek to make an orderly succession.” He beams. “And I’m not there yet.”

Source: http://www.independent.co.uk/news/business/analysis-and-features/sam-laidlaw-on-british-gass-trilemma-and-why-he-mentioned-blackouts-9222764.html