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Centrica sees BE stake reducing price volatility

British Gas owner Centrica's plans to buy a 25% stake in nuclear operator British Energy from EDF should reduce its exposure to volatile wholesale power prices, Centrica's CEO said.

Centrica, Britain's largest supplier of power to households, has signed a memorandum of understanding with EDF to buy the stake for Ł3 billion ($5.6 billion) if the state-owned French firm completes its proposed British Energy acquisition. “It means we (would) have much less volatility in our electricity price, which has to be good for our (domestic) customers,” Chief Executive Sam Laidlaw told Reuters in a telephone interview.

He added Centrica would raise the percentage of energy that it generates from its own resources “from the low-thirties to the mid-forties.” British Energy supplies around 20% of Britain's electricity through its eight nuclear power stations.

Centrica has suffered from a lack of gas and electricity supplies for its 16 million customers, forcing it to buy from external markets. The wholesale gas price has soared in line with the price of oil, leading to higher bills for customers.

The group said in July it would raise gas and electricity prices by 35% and 9% respectively. It reported first-half operating profit of nearly Ł1 billion, down 20% from the previous year.

Laidlaw said Centrica and EDF were still in talks over the 25% stake and hoped to reach an agreement “in a few months,” although the regulatory approval process could take longer.

“We're working as fast as we can, but the regulatory processes don't always happen that speedily,” he said.

Centrica's deal would be funded through debt and equity.

Under the terms of the proposed deal between EDF and Centrica, the French power group would keep control of British Energy. EDF would be responsible for running all British Energy's power stations, Centrica said in its statement.

Centrica would also be able to take part in EDF's nuclear new build program in the UK on a 75/25 split respectively between EDF and Centrica, with EDF leading the developments and being responsible for building and running the new plants. (Reuters)