UPDATE 2-Centrica warns on 2014 earnings, puts UK gas plants up for sale

Thu May 8, 2014 5:18am EDT

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(Adds background, analyst comment, updates share price)

By Karolin Schaps

LONDON May 8 (Reuters) - Britain's Centrica warned 2014 earnings would be lower than expected and said it would put its three biggest gas-fired power plants up for sale, the latest European utility to take a hit from loss-making power stations and a mild winter.

The group, which owns the UK's largest energy supplier British Gas, also said it expected to leave its residential prices unchanged this year, stopping short of replicating a pledge by competitor SSE to freeze prices.

Low energy demand due to mild winter weather and losses from its gas-fired power stations prompted the company to reduce its outlook for full-year earnings per share by around 10 percent to 22-23 pence.

The interim management announcement took the market by surprise as it arrived four days early and sent Centrica's shares 2.6 percent lower by 0834 GMT, one of the top losers on Britain's blue-chip FTSE 100 index.

"While earnings are anticipated to fall in 2014, we expect an improvement in 2015, assuming more normal weather conditions and reflecting the prospects for underlying growth," Chief Executive Sam Laidlaw said.

Centrica's struggle to make money from its conventional power plants and low energy demand mirror problems across Europe's utilities sector.

Germany's RWE reported a record loss due to harsh competition from renewable energy, while E.ON and Italy's Enel cut dividends as they announced further power plant closures.

Centrica said it was seeking investors for the three power plants at Langage, Killingholme and Humber, worth around 500 million pounds ($850 million) and accounting for the majority of the utility's conventional generation capacity at 2.7 gigawatts.

Centrica is looking at a number of options to attract investors to the plants, ranging from leasing agreements to outright sales, chief financial officer Nick Luff said.

The company plans to focus on small-scale gas plants that can operate more flexibly to respond to sudden changes in supply and demand caused by renewable energy generation.

"A profit warning is never good news, but it will perhaps highlight that UK energy supply is not just a 'money for old rope' business," Whitman Howard analyst Angelos Anastasiou said.

Centrica and other big UK energy suppliers face a potential sector probe by Britain's Competition and Markets Authority after regulator Ofgem recommended the body investigate possible anti-competitive behaviour.

Britain's "Big Six" energy suppliers, which have a 95 percent market share, are often accused by bill payers of benefiting from their monopoly position as prices have risen sharply in recent years.

Centrica has lost 180,000 customers since the same time last year, with smaller players gaining prominence.

"Competition remains fierce, particularly from smaller suppliers who are currently benefiting from an exemption from some environmental obligations," Centrica said.

The company also announced on Thursday it was selling a 40 percent stake in its Canadian natural gas business to joint-venture partner Qatar Petroleum International for around $200 million. ($1 = 0.5894 British pound) (Editing by Paul Sandle, Kate Holton and Dale Hudson)

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