Centrica plc - Responsibility - Energy for a low carbon world

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Glossary

A

Absolute emissions

The total of our scope 1 and scope 2 emissions, as defined under the Greenhouse Gas Protocol

ACS - Nationally Accredited Certification Scheme

Nationally Accredited Certification Scheme for Gas Businesses and Individual Gas Fitting Operatives. Any person or business wishing to do gas work has to prove their competence, after which they have also to register with the Gas Safe Register^TM which from 1 April 2009, has replaced the CORGI gas registration scheme in Great Britain.

Additionality

If an action leads to a genuine reduction in emissions, over and above business as usual, the benefit to the environment will be 'additional'. However, if an emissions reduction project would have happened anyway then no real difference to emissions would be made as a result and it couldn't be considered 'additional'. For example, if a consumer buys renewable energy which was going to be produced anyway, or invests in a carbon-offset project which was already going to happen, then the consumer is not helping to reduce emissions.

Debates over the additionality of projects are important to ensure that environmental claims make a genuine difference to emissions. Without this concept people might believe that they are benefiting the environment through their actions when actually they have no impact.

We offer two tariffs, Future Energy and Future Energy Plus, which are certified as creating an additional benefit to the environment by the Green Energy Supply Certification Scheme.

Assets

Everything a firm owns.

Auditor

An independent firm or person who checks the accounts against agreed standards.

B

Bad debts: Amount owed to a firm by a customer that won't be recovered.
Baseload: Baseload power is the minimum amount of power required to meet the demands based on reasonable expectations of customer requirements.
bcf: bcf stands for billions of cubic feet of gas. The UK consumes over 3000bcf every year in homes, businesses and power stations.
Borrowings: Bank overdrafts, loans and bonds issued in sterling and other major currencies with maturity dates between 2012 and 2033.
Biomass: Biomass is anything derived from plant or animal matter and includes agricultural, forestry wastes/residues and energy crops. It is either burnt as fuel or combustible oils are extracted from it.
Biomethane: Biomethane is a mixture of gases (predominantly methane) that are sourced from organic material, such as cattle slurry, food and household waste. Also known as biogas, it is produced by a process called anaerobic digestion, where bacteria breaks down the organic material. Biomethane from all sources will make a contribution to decarbonising the gas grid by delivering renewable heat to households through the existing gas network and central heating boilers. According to a study by National Grid, it could account for at least 15% of the domestic gas market by 2020.
Bought ledger: Contains records about purchases.

C

Capital

The money invested into a firm by shareholders.

Carbon capture and storage (CCS)

Carbon capture

This is the removal of CO₂ from fossil fuels either before or after combustion.
Carbon storage

Sometimes called carbon sequestration, this is the long-term storage of carbon or CO₂. In nature, large forests and oceans act as carbon 'sinks' and help to remove carbon dioxide from the atmosphere. Artificial sequestration, such as injecting CO₂ into geological formations (often under the seabed), requires technology such as carbon capture and storage.

Estimates suggest that carbon capture and storage could reduce carbon emissions by 80-90% from a power station. Carbon capture and storage can be referred to as CCS.

Carbon credit

A credit or permit from a greenhouse gas emissions reduction scheme, such as emissions trading, Joint Implementation (JI) or Clean Development Mechanism (CDM). See carbon trading.

Carbon Emissions Reduction Target (CERT)

This is an obligation on the major energy suppliers to improve domestic energy efficiency, which replaced the Energy Efficiency Commitment (EEC). Suppliers have to deliver twice the energy savings under CERT as they did under EEC. The main objective of CERT is carbon reduction to tackle climate change but there is also a focus on delivering energy efficiency measures to low-income customers. Microgeneration and measures to encourage behaviour change are included within the scope of CERT, which runs from 2008-2011. The CERT Obligation was recently extended until December 2012, which increased the carbon targets by a further 20%, and put in place minimum sub targets for installing insulation, and to target measures to the most vulnerable households.

Carbon footprint

A carbon footprint is a measure of greenhouse gas emissions, usually expressed in carbon dioxide units. You can calculate the carbon footprint of a product, an individual or an organisation, for a single activity or over a period of time.

Carbon intensity

Carbon intensity measures the volume of carbon dioxide emitted per unit of electricity generated. This allows you to compare the efficiency of two differently sized companies doing similar things, which a carbon footprint comparison would not.

We calculate our carbon intensity based on the average annual emissions from all wholly owned power generation assets and all other power generation assets from which Centrica is entitled to output under site-specific contracts.

Carbon offsetting

Carbon offsetting involves calculating a carbon footprint and then investing in a project that reduces greenhouse gases emissions into the atmosphere by an equivalent amount. To be effective, an offset must be additional (See Additionality).

Carbon Reduction Commitment

The CRC Energy Efficiency Scheme is a mandatory scheme to improve energy efficiency and therefore cut CO₂ emissions in large public and private sector organisations. These organisations are responsible for around 10% of the UK's CO₂ emissions. The scheme features a range of reputational, behavioural and financial drivers which aim to encourage organisations to develop energy management strategies that promote a better understanding of energy usage. The scheme is mandatory and expected to cover 4,000-5,000 organisations.

Carbon trading

Carbon trading controls carbon emissions by putting a limit on total emissions from certain activities or sectors. This puts a price on carbon and creates a market whereby participants can trade their carbon allowances. Allowances are initially allocated, perhaps through a free distribution or through an auction. The carbon price provides an economic incentive to reduce emissions and allows for any reductions to take place at the lowest cost across the scheme. The limit on total emissions is adjusted periodically (See Carbon Credit).

Cash book

A record of a firm's cash and bank accounts.

Clean coal technologies (CCTs)

Clean coal technologies (CCTs) make using coal as a power source more environmentally satisfactory. There are significantly higher greenhouse gas emissions for each unit of electricity produced by coal-fired generation than there are for alternative methods of generation. CCTs involve reducing the carbon emissions per unit of energy generated from coal.

Clean Development Mechanism

The Clean Development Mechanism (CDM) is defined within the Kyoto Protocol. The CDM rewards with Certified Emission Reductions (CER) investments in projects that reduce emissions in developing countries; each CER is each equivalent to one tonne of CO₂. These CERs can then be used by industrialised nations to meet their emissions targets under the Kyoto Protocol. The CDM is governed by the UN's CDM Executive Board (CDM EB), which makes sure that accredited projects deliver real and enduring emissions reductions. Operators covered by the European Union Emissions Trading Scheme (EU ETS) can use a limited number of CERs for their annual compliance with the Scheme.

Climate Change Agreement

This is an agreement between the Government and a business user in an energy-intensive industry, where the user commits to reducing energy usage or carbon emissions in return for paying a lower Climate Change Levy.

Climate Change Levy

The Climate Change Levy (CCL) was introduced by the Government in 2001 as part of its commitment under the Kyoto Protocol to tax non-domestic energy use. The CCL aims to promote energy efficiency and reduce greenhouse gas emissions. Businesses that have Climate Change Agreements with the Government get an 80% reduction on the levy. Other exemptions from the CCL include renewable electricity sold under a renewable source contract and energy sold to charities for certain activities. Gas and electricity suppliers are responsible for charging CCL to their business customers and then paying the Government.

Combined cycle gas turbine (CCGT)

A combined cycle gas turbine uses a gas turbine generator to generate electricity and waste heat in the exhaust is recovered and is used to make steam to generate additional electricity via a steam turbine; this last step enhances the efficiency of electricity generation. All our gas-fired power stations are CCGT plants.

Combined heat and power (CHP)

Combined heat and power (CHP) is a technology that generates electricity and heat at the same time. This is different to conventional power stations, where the heat produced is wasted.

Commodity prices

The prices of raw materials and primary products for example wholesale gas.

Community Energy Saving Programme (CESP)

The Community Energy Saving Programme (CESP) isa joint funded initiative between government, energy suppliers and power generators that targets households in areas of low income in order to improve standards of energy efficiency and reduce fuel bills. The CESP obligation period runs from 1 October 2009 to 31 December 2012 and will play an important role for gas and electricity generators in meeting their carbon emissions target. The programme is delivered through community-based partnerships between Local Authorities, community groups, and energy companies in a house-by-house approach to ensure energy-efficiency measures are best suited to an individual property or area. Within the UK, there are 4,500 areas eligible for CESP and the programme will deliver an expected total of £350 million worth of energy efficiency measures over the next three years, saving nearly 2.9m tonnes of CO₂ and an average of up to £300 in energy bills per house.

CORGI

See Gas Safe Register^TM

Cost of sales

Total cost of buying goods for resale.

Counterparty

One of the opposing parties involved in a transaction.

Credit rating

A rating from an independent institution that assess creditworthiness or the credit risk, and provides credit ratings that are publicly available and used by investors as well as analysts as a guide for investment decisions in regard to relative credit standing or strength. (examples of credit rating agencies, Standard & Poor's and Moody's Investor Service).

Currency fluctuations

The ongoing changes between the relative value of the currency issued by one country when compared to a different currency. Currency fluctuations may appear as both upward and downward movements. Our profitability could be adversely affected because of currency fluctuations against pounds sterling, which is the reporting currency of the Group. Our main exposure is in US and Canadian dollars and euros.

Current ratio

It is the ratio of a company's current assets to current liabilities. It is a general indication of the solvency of a company, the adequacy of its working capital, and its ability to meet day-to-day calls upon it.

D

Depreciation

Loss of value of assets through wear and tear.

Derivative financial instruments

A mechanism, such as an option, futures contract, or swap, of which the criteria and value are determined by those of an underlying asset such as a stock, currency, or commodity. Derivatives are used extensively in the hedging of financial and treasury risks.

Distributed generation

This refers to electricity generation, usually on a relatively small scale, that is connected to the distribution networks rather than directly to the national transmission systems. At a community level this could include combined heat and power (CHP generation). At a domestic level, this could include solar panels.

Diversify

Moving into another area of business.

Dividend cover

Dividend cover takes into account all aspects of trading, tax and finance, from the ordinary shareholders' point of view. Dividend cover can also be calculated using cash flow in place of profit.

dividend cover =

Profit attributable to shareholders
divided by: Dividends

Dividend yield

This measure shows shareholders how much income they receive in relation to the current share price. Analysts will sometimes predict dividend growth and calculate a prospective dividend yield.

dividend yield =

Gross dividend per share
divided by: Share price

Dividends

Share of profits paid to shareholders twice yearly as an interim dividend and a final dividend.

E

Earnings per share (EPS)

This is an important ratio, signalling the growth in earnings attributable to the ordinary shareholders for each share they hold. It must be disclosed at the bottom of the profit and loss account for listed companies such as Centrica.

EPS =

Profit after tax
divided by: Weighted average ordinary shares in issue

Economies of scale

These result in the company benefiting from a reduction in the average cost per unit.

Emissions reduction units (ERUs)

ERUs are credits awarded to emission reducing projects that take place under the Joint Implementation (JI) Scheme of the Kyoto Protocol. JI projects operate in a similar manner to those under the Clean Development Mechanism but take place in developed countries.

Emissions trading (EU ETS)

The EU Emissions Trading Scheme (ETS) is a form of carbon trading using carbon allowances. The scheme covers approximately 11,000 power generation and industrial manufacturing plants across the EU, limiting the total amount of carbon dioxide emissions allowed. Each site must submit an allowance for every tonne of carbon dioxide emitted. We are a major trader in the scheme, which began in January 2005.

We are a strong supporter of the ETS and believe it remains the cornerstone mechanism for reducing emissions across the EU.

Energy Performance Certificate (EPCs)

Energy Performance Certificates (EPCs) give information on how to make your home more energy efficient and reduce carbon dioxide emissions. The certificate provides an energy efficiency rating for the property on a scale of A to G, with A being the most efficient with lower running costs and G being the least efficient with higher running costs. EPCs also contain a recommendation report with suggestions to reduce energy use and carbon dioxide emissions. Since 4 January 2009 all homes in the UK that are built, sold or rented require an EPC.

Energy Ombudsman

The energy Ombudsman is an independent organisation set up to resolve disputes and disagreements between energy companies and their domestic and small business customers. The Ombudsman becomes involved in complaints in the following situations: 1) 8 weeks have passed after a complaint to an energy company has been made and it has not been sufficiently addressed; 2) the company has issued a final letter to say it will no longer be handling the complaint; 3) there have been difficulties in contacting the energy company and registering a complaint. For more information, see the energy Ombudsman website.

Energy Services Directive (ESD)

The Energy Services Directive aims to promote energy efficiency in the UK by developing a market for energy services and delivering energy efficiency programmes and measures to energy end users. The Directive's full name is the EC Directive on Energy End Use Efficiency and Energy Services. The ESD focuses on market actors and institutions rather than specific technologies or measures. It applies to providers of energy efficiency measures, energy distributors, distribution system operators and retail energy sales companies; and all energy users except those involved with the EU carbon emissions trading scheme.

The main requirements of the Directive are:

national indicative energy savings target of 9% by 2017
public sector to fulfil an exemplary role in meeting the target
to place obligations on energy suppliers and distributors to promote energy efficiency
requirements on metering and billing to allow consumers to make better informed decisions about their energy use

Energy Retailers Association (ERA

The ERA was formed in 2003 and represents the major electricity and gas suppliers in the domestic market in Great Britain. All the main energy suppliers, operating in the residential market, in Great Britain are members of the association.

The ERA works closely with government, NGOs, charities and other organisations in England, Scotland and Wales to ensure a coordinated approach to dealing with the key issues affecting our industry and the British consumer.

For further details - www.energy-retail.org.uk

Equity assets

Shareholdings held in stock market listed companies.

Equity share

Equity share refers to the proportion which Centrica owns. For example, we may take 100% of power from a facility but only own 50% it. That would make our equity share 50% and our offtake 100%.

Essentials

Essentials is the name we give to the package of support measures available to our vulnerable customers. The programme includes a discounted tariff and offers benefits assessments and access to free impartial debt advice, energy efficiency products and a range of extra help from our charity partners. Customers can also access free insulation. Further details are available on the British Gas website.

Expenditure

Costs flowing out of the firm.

F

Factoring: A method of financing in the recovery of debts.
Feed-in tariffs: A feed-in tariff (FIT) is a payment via energy suppliers to people who generate their own electricity through microgeneration technologies such as solar panels and wind turbines. It is intended to help finance the cost of small-scale, locally-generated power. See the Department for Energy and Climate Change website for more information.
Fixed rates: Interest rates on loans fixed for the period of the loan.
Fuel cells: Fuel cells produce heat and electricity from hydrogen and air. Since the fuel cell relies on chemistry and not combustion, emissions from this type of a system are much smaller than emissions from the cleanest fuel combustion processes. These can be used for stationary power generation (microCHP), transport (replacing the internal combustion engine) and portable power (replacing batteries in mobile phones).
Fuel Mix Disclosure (FMD): Fuel Mix Disclosure (FMD) regulations oblige all UK suppliers to calculate and publish the fuel source (eg coal, gas, nuclear, wind) and indicative CO₂ emissions of all the electricity they supply between 1 April and 31 March. This includes electricity generated by the supplier and electricity bought from other generators, either through contracts or in the marketplace. It is different to the proportion (mix) of energy sources that we use to generate electricity ourselves.
Fuel poverty: The common definition of a fuel poor household is one which has to spend more than 10% of household income to achieve adequate heating (21 degrees Celsius in the living room and 18 degrees Celsius in other occupied rooms).

G

Gas Safe Register^TM

Gas Safe Register^TM has replaced CORGI in Great Britain and the Isle of Man. See also ACS

By law, anyone carrying out work on gas installations and appliances must be on the Gas Safe Register^TM. All British Gas engineers are on the Gas Safe Register^TM and all registered engineers carry an ID card.

Gearing

The ratio of a company's share capital to its debt.

Green tariffs

We have signed upto Ofgem's Green Energy Supply Guidelines which define a Green Tariff as one that delivers an minimum additional environmental benefit as well matching a customers' usage with electricity from renewable sources. This raises the standard of industry products, ensures genuine benefits for the environment and provides transparent and consistent information to reduce consumer confusion around tariff labelling.

We offer two tariffs, Future Energy and Future Energy Plus, which are certified as creating an additional benefit to the environment by the Green Energy Supply Guidelines.

Gross profit margin

Total profit made in a year as a percentage of sales. This ratio is deemed to be an important indicator of profitability, and comparisons can be made against companies selling similar items.

Since gross profit is defined as 'turnover minus cost of sales' this ratio will move if the relationship between these two variables changes. This could be due to changes in selling price, unit costs or product mix (where gross margins vary between different markets). The published information can only provide a superficial guide. Analysts will seek to further analyse this ratio into appropriate market segments.

Gross margin =

Gross profit
divided by: Turnover

H

Hedging

Any technique designed to reduce or eliminate financial risk, (the effect of fluctuations in the price of credit, foreign exchange or commodities on an organisation's profits, corporate value, investments, or liabilities). For example, taking two positions that will offset each other if prices change, using Hedging instruments such as forward contracts, forward rate agreement (FRA), swaps, futures, and options.

Higher heating value (HHV)

The higher heating value (also known as the gross calorific value or gross energy) of a fuel is defined as the amount of heat released by a specified quantity (initially at 25 ^oC) once it is combusted and the products have returned to a temperature of 25 ^oC.

The higher heating value takes into account the latent heat of vaporisation of water in the combustion products, and is useful in calculating heating values for fuels where condensation of the reaction products is practical (eg, in a gas-fired boiler used for space heat). In other words, HHV assumes all the water component is in liquid state at the end of combustion (in product of combustion).

Hire-purchase

Buying equipment through financing.

I

Income

Money from sales, or revenue flowing into the firm.

Incorporated

A firm with a separate legal existence.

Integrated Gasification Combined Cycle (IGCC)

IGCC plants initially turn the feedstock into gas, which is then passed through a conventional combined cycle set up. IGCCs can be designed to use a range of raw fuel inputs, including coal, oil products and wastes.

Interest cover

The ratio below is used to demonstrate how easily the company can service any debt it may have by showing how many times its profit exceeds the interest charge. In particular, when used along-side a review of how much the company has borrowed from banks, this ratio can highlight the company's exposure to fluctuations in interest rates. It is also possible that an 'interest cover' ratio may be calculated for cash flow, to see whether a company is generating enough cash to pay its interest costs.

Interest cover =

Profit before interest for period
divided by: Interest charge for the period

Interest rates

The percentage charged by a bank or other financial organisation for borrowing money or earned by placing money on deposit.

Intergovernmental Panel on Climate Change (IPCC)

Founded in 1988, the IPCC is a scientific intergovernmental body founded by the World Meteorological Organisation (WMO) and the United Nations Environment Programme (UNEP). It aims to provide an objective source of information about climate change to policy-makers by assessing the latest scientific, technical and socio-economic literature worldwide on the human causes of climate change. It is open to all member countries of WMO and UNEP and scientists from around the globe contribute to its work as authors, contributors and reviewers.

Internal carbon footprint

We use the term 'internal carbon footprint' to describe the carbon emissions from our property energy use, company vehicles and business travel. The target does not cover emissions from power generation or oil and gas production, the reporting and management of which we treat separately. Our internal targets concentrate instead on those areas where the majority of our employees have the ability to influence results. This is important for engagement purposes and enables us to benchmark our operational performance against the majority of other businesses. The internal carbon footprint includes all in-scope assets and activities associated with the businesses within Centrica as at 31 December 2007, together with organic growth.

ISO 14001

ISO 14001 is an internationally accepted standard for establishing an effective Environmental Management System (EMS). It aims to balance the need for profitability with best practice in terms of protecting the environment.

J

Joint implementation (JI): Joint Implementation is a Kyoto Protocol mechanism under which industrialised countries can invest in projects to cut emissions in other industrialised countries. This could include, for example, replacing an old coal-fired power plant with a cleaner gas-fired one. Reductions achieved under JI projects are awarded emissions reduction units (ERUs), which can be traded in the European Emissions Trading Scheme.

K

Kyoto Protocol: The Kyoto Protocol adopted on 11 December 1997 is an international agreement where participating nations have agreed to reduce their greenhouse gas emissions over the five-year period 2008-2012 from 1990 levels. Under the Kyoto Protocol, the European Union adopted a collective 8% reduction target, which due to the Burden Sharing Agreement translates into a 12.5% reduction target for the UK. All industrialised nations signed the Protocol but the United States has not ratified it, and Australia only did so with a change of government in late 2007. In addition to making absolute domestic carbon cuts, the Kyoto Protocol allows the use of flexible mechanisms to meet targets. These include Emissions Trading (ET), Clean Development Mechanism (CDM) and Joint Implementation (JI). International discussions are now focusing on how to tackle greenhouse gas emissions after the current Kyoto period ends in 2012.

L

Leading and lagging indicators

Leading indicators measure activities, while lagging indicators measure outcomes. For example, the number of training workshops held would be a leading indicator and the number of incidents recorded would be a lagging indicator.

Leasing

Renting equipment through financing.

Levy Exemption Certificate (LEC)

A Levy Exemption Certificate (LEC) is issued by Ofgem to accredited power stations for each megawatt hour of renewable source electricity that they generate. All business customers need to pay a climate change levy for electricity they use. However, they can get an exemption if the electricity comes from a renewable source. Business customers who wish to purchase electricity generated from renewable sources can enter into a renewable source contract with their electricity supplier. LECs act as proof that an equivalent amount of electricity has been generated according to the terms of the contract. That's why electricity sold with LECs comes at a premium.

If an electricity supplier cannot generate enough renewable source electricity, it can purchase LECs from other suppliers to meet its obligations. Suppliers must periodically notify Ofgem of the LECs they have allocated to the renewable source electricity supplied to business customers. LECs are used to show exemption from the Climate Change Levy.

Liabilities

Everything a firm owes.

Limited liability

Owners are not personally liable for debts.

Liquefied Natural Gas (LNG)

When natural gas is cooled to a temperature of approximately -160 degrees Celsius at atmospheric pressure it condenses to a liquid called liquefied natural gas (LNG). This liquid takes up 600 times less the volume of the gas, making it possible to transport in container ships. Natural gas is composed primarily of methane (typically, at least 90%).

Liquefied Petroleum Gas (LPG)

LPG is a gas, usually propane or butane, that is derived from oil and put under pressure so that it is in liquid form. It is often used to power portable cooking stoves or heaters and to fuel some types of vehicle, eg some specially adapted road vehicles and forklift trucks.

Liquid assets ratio

The ability to meet short-term debts without selling stock.

Liquidity ratio =

Current assets
divided by: Current liabilities

Liquidity

A firm's ability to meet short-term debts.

Low carbon buildings programme (LCBP)

Launched in 2006, the Low Carbon Buildings Programme (LCBP) is a UK Government programme that provides grant funding towards the cost of installing microgeneration and other low carbon technologies at certain types of properties. LCBP is currently in the process of being phased-out with replacement of grant funding being made through the Government's Feed-in-Tariff (FIT) scheme and the proposed Renewable Heat Incentive (RHI) scheme.

Low carbon economy

Addresses the global challenges of diminishing fossil fuel reserves, climate change, environmental management and finite natural resources serving an expanding world population. To achieve a low carbon economy there needs to be a transition to the following:

Energy should be produced using low carbon energy sources and methods - renewable and alternative energy sources, fuels and sequestration
All resources (in particular energy) should be used efficiently - more efficient energy conservation devices, combined heat and power
Wherever practical local needs should be served by local production - food materials, energy
All waste should be minimised - reduce, reuse, recycle
There is high awareness and compliance with environmental and social responsibility initiatives - industry, commerce and individuals.

M

Marked-up price: The price after the company has added its own profit margin on to the cost of the goods.
Microgeneration: Microgeneration refers to the production of heat and/or electricity on a small scale. Solar panels and microCHP boilers are examples of microgeneration.
Micro combined heat and power units (Micro-CHP): Usually fuelled on gas, although some can burn a range of other fuels, they produce power and heat from a single fuel source. A typical domestic sized micro-CHP unit will deliver the same comfort levels as a modern boiler, whilst reducing the emissions of a typical house by 25% or 1.5 tonne of CO₂ per year.

N

Nationally Accredited Certification Scheme

See ACS

Net profit

The profit that is left after all expenses and deductions have been made.

Net profit margin

Total profit minus cost made in a year as a percentage of sales. Since operating profit equates to 'gross profit minus operating costs' this ratio goes beyond gross margin to consider the impact of 'other expenses' as well. In addition to changes in volumes, selling price, unit costs or product mix, fluctuations in 'operating costs' will also affect this ratio.

Net margin is a key indicator of trading or operational performance.

Net margin =

Operating profit
divided by: Turnover

Net Promoter Score

The net promoter score measures customers' responses to the question 'How likely would you be to recommend us as an energy supplier to a friend or relative (0-10)?' The score is calculated by the percentage of customers defined as promoters (scoring 9-10) minus the percentage defined as detractors (0-6). Net promoter scores are collected through customer feedback forms and telephone interviews conducted by a third party supplier.

O

Office of the Gas and Electricity Markets (Ofgem)

Ofgem is the Office of the Gas and Electricity Markets. Protecting consumers is their first priority by promoting competition, wherever appropriate, and regulating the companies which run the gas and electricity networks.

For further information, see www.ofgem.gov.uk

Offshoring

Offshoring refers to outsourcing to another country.

Offtake

Offtake refers to the amount of electricity Centrica takes from a power station. For example, we may take 100% of power from a facility but only own 50% of it. Our offtake would be 100%, whereas our equity share would be 50%.

Outsourcing

Subcontracting a service such as in-house catering, back office functions such as accounting or HR services, to a third-party company. The decision to outsource is often made in the interest of lowering cost, making better use of time and gaining advantages from companies with specialist skills.

Overdraft

A predetermined credit limit from a bank.

P

Power purchase agreement (PPA)

This is where we have a fixed arrangement to buy power from another energy supplier.

Price/earnings (P/E) ratio

Measure that compares the earnings per share of a company to the market price of the company's shares. The earnings would normally be for a 12-month period. The share price would be for a particular day and thus it would not match the earnings period unless it were an average for that period.

This ratio can be used to gauge the perceptions of the market to holding shares in particular companies. The higher the P/E ratio, the more popular the share. P/E ratios are often quoted alongside share prices in the national newspapers.

Price/earnings ratio =

Share price
divided by: Earnings per share

Profitability

A firm's income relative to expenditure. Profit before tax can be defined as 'operating profit minus losses on fixed asset sales plus net interest income'. This ratio therefore builds upon 'net margin' by also considering the impact of non-trading items on a business's profitability.

A declining figure in any of these three ratios suggests that potentially there is a problem. However, the reason for the decline must be ascertained through detailed analysis of all relevant aspects of the business before any conclusions can be drawn.

Profitability =

Profit before tax
divided by: Turnover

R

Recordable injury rate

Recordable rate includes lost time cases, restricted work cases and medical treatment cases.

Renewable Energy Guarantees of Origin (REGOs)

REGOs are electronic certificates attached to electricity produced from renewable sources across the EU. They were introduced in 2003 in response to the Renewables Directive, which aims to increase the amount of electricity generated in European Member States from renewable energy sources. The Directive requires Member States to issue a Guarantee of Origin, on request, for electricity produced from renewable energy sources.

In 2005 a new standard licence condition was introduced into electricity supply licences, obliging electricity suppliers to give their customers details of the mix of fuels used to produce the electricity supplied to them. Suppliers must show this on bills. REGOs (in some countries they are called Guarantees of Origin - GoOs) are issued in the UK as evidence that the electricity is generated from a 'renewable source', with one REGO representing one kilowatt/hour of electricity.

Renewable Heat Incentive (RHI)

The Renewable Heat Incentive (RHI) is a subsidy for the supply of renewable heat. It will provide appropriate support for technologies such as biomass boilers and combined heat and power (CHP) from 2011 for the commercial and industrial sector and 2012 for the domestic sector. The UK Government is committed to deliver 15% of total energy from renewables by 2020. Renewable heat is expected to grow significantly, from less than 1% of the market today to 12% by 2020 in the latest Government scenario.

Renewables Obligation (RO)

The Renewables Obligation (RO) is the main government market mechanism to support renewable energy. The Obligation requires licensed electricity suppliers to source a specific and annually increasing percentage of the electricity they supply from renewable sources. It was introduced in 2002 and provides a substantial market incentive for all eligible forms of renewable energy.

Renewables Obligation Certificates (ROCs)

Renewables Obligation Certificates (ROCs) are awarded to eligible renewable generators for each MWh of electricity generated. ROCs confirm that the power has come from renewable sources - for example, a wind farm. These certificates can then be sold to suppliers, in order to fulfil their Renewables Obligation (RO). Suppliers can either present enough certificates to cover the required percentage of their output, or they can pay a 'buyout' price for any shortfall. All proceeds from buyout payments are recycled to suppliers in proportion to the number of ROCs they present. The buyout price is set each year by Ofgem, and in 2010-2011stands at £36.99 per ROC (Source: Ofgem, Feb 2010, 'The Renewables Obligation Buy-out Price and Mutualisation 2010-2011)'. ROCs have increased the profitability of renewable energy generation as the certificates have an additional value over and above the price of electricity itself.

Renewable Source Contract

This is a contract where an electricity supplier agrees to supply electricity generated from renewable sources to a business customer. The contract contains a renewable source declaration. Renewable source electricity is exempt from the Climate Change Levy provided certain conditions are met.

Renewable Source Declaration

This is a declaration made by suppliers that, in each averaging period, the amount of electricity supplied is not greater than the amount of renewable source electricity acquired or generated. It is one of the conditions for exemption from the climate change levy that a renewable source declaration is contained in each renewable source contract.

Renewable Source Electricity

This is electricity generated from sources of energy other than fossil fuel and nuclear. Wind energy, small-scale hydro, tidal, wave and photovoltaics are all included. Supply of renewable source electricity under a renewable source contract is exempt from the Climate Change Levy (provided certain conditions are met).

Reserves

Unused cash that a firm has available.

Retained profits

Withheld dividend payments to shareholders.

Return on capital employed (ROCE)

Percentage earnings on capital invested in the business by the shareholders. This measure is used to estimate the return the company has achieved on the assets it uses. The calculation uses average capital employed over a period (usually the financial year), attributable to funds provided by the shareholders. Average capital employed excludes interest bearing borrowings and cash deposits.

ROCE =

Profit before interest and taxes
divided by: Average capital employed

S

Sales ledger

Contains records of customer accounts.

Share capital

Money raised from selling shares to shareholders.

Shareholders

Individual investors who own part of a limited company.

Site-specific power purchase agreement (PPA)

This is where we have a fixed arrangement to buy power from a specific facility such as a wind farm or power station. We take site-specific PPAs into account when calculating our carbon intensity because we know the intensity of the facility from which we purchase the electricity.

Smart metering

By 2020 all existing gas and electricity meters will be replaced with a smart meter that will provide a real-time, accurate, record of the energy used in the household at any given time, how much it is costing and how much carbon it equates to. The UK Government estimates smart meters will lead to an annual reduction of 2.6mtonnes of CO₂ emissions by 2020 (equal to taking 1m cars off the road).

The Government has now confirmed a supplier-led Central Communications model, that is, Centrica and other leading energy companies will have the responsibility for the installation and maintenance of smart meters but a central organisation will provide the communication links. This means smart meters will be rolled out by the energy suppliers and not the energy network operators.

Although we have already begun the deployment of smart meters, now that the Government has given its support to supplier-led central communications, this programme will be greatly accelerated, with an aim for completion in 2016, four years before the Government's own targets.

Standard assessment procedure (SAP)

This is the methodology used for assessing the energy performance of buildings for Energy Performance Certificates (EPCs).

T

Trademarks: The name or other symbol used to identify the goods or services from a particular organisation. A trademark that has been officially registered (Registered Trademark) is identified by the symbol ^'TM' is legally protected and it (or a near copy) can not be use by other organisations.
Triple bottom line: The triple bottom line measures an organisation's success in terms of economic, social and environmental factors.
Turnover: Total revenue or income from sales.

U

UKCS: The United Kingdom continental shelf (UKCS) comprises the areas of seabed and subsoil over which UK exercises sovereign rights of exploration and exploitation of natural resources. It is sometimes used interchangeably with the 'North Sea' but is geographically wider than that. According to UK Oil&Gas, the UKCS has the ability to provide the nation with 40% of its oil and gas demand in 2020 if investment there continues.
United Nations Framework Convention on Climate Change (UNFCCC): The UNFCCC was established in 1992 as the international framework to agree strategies to reduce emissions of greenhouse gases in relation to their impact on global climate. The key agreement of the Convention is the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which was signed 1997. The Kyoto Protocol established a timetable for reductions in the emissions of carbon dioxide, methane, nitrous oxide, CFCs and other radiatively active gases, as well as a framework for increasing the sequestration of carbon by vegetation including forests and agricultural land.

V

Vulnerable customers: A vulnerable customer is defined as one that is unable to safeguard their personal welfare or the personal welfare of other members of the household, for reasons of age, health, disability or severe financial insecurity.

W

Water-stressed: We use a definition provided by the World Business Council for Sustainable Development (WBCSD) which states that water-stress is experienced in regions where water availability does not meet the demands of human populations.
Working capital: The difference between a firm's cash and its short-term debts.

Z

Zero Carbon Home: A zero carbon home is usually thought of as one that produces net zero carbon dioxide emissions in a year. Homes can form part of a low carbon site; they do not have to be built in isolation. Such homes are exempt from stamp duty when they are first bought.
Zonal Appraisal and Planning (ZAP): Zonal Appraisal and Planning is a non-statutory process that represents a strategic approach for identifying wind farm sites within the Zone through consideration of key issues, collection of environmental data across the zone, assessment of cumulative impacts and incorporation of stakeholder views at an earlier stage in development.

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We're committed to a future where Government, energy companies and consumers work together for low carbon generation and reduced consumption

Latest from Centrica News and views

Wind power is a crucial component in our commitment to secure sustainable energy supplies for our customers

20 Jan 12

Wind generation will continue to play an important part in Centrica's generation portfolio - we respond to a new report from the independent social policy think tank Civitas, which has made the claim that windpower is “inordinately expensive and ineffective at cutting CO2 emissions.”

Jeff Oatham

Corporate Responsibility

Stakeholder voices

"That's a drop in the ocean compared with how much money they make."

Read more quotes from our customer focus group

Carbon map

Explore where our carbon emissions occur across our operations and their relative size

What we're doing

Our awards

British Gas has been awarded silver at the World Contact Centre Awards for best contact centre in the world.

They have now won 24 awards for customer service in the past three years.

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