• Feedback

    Close

    Feedback – what do you think of this report?

  • Print
  • Share

    Close

    Share

    Share this page

    Share to…

  • Notes

    Close

    Notes for this page

    Notes

    Max characters: 1000

     
  • Downloads
  • Glossary

    Close

    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 RegisterTM 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 a green tariff, Sustainable Energy, which is 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 one of the oldest sources of renewable energy; it is biological material that is derived from living or recently living organisms. For power generation, this is generally plant-based material such as timber based products in various forms or fast growing energy crops (e.g. willow, poplar and Miscanthus).

    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.

    British Gas Energy Trust

    The British Gas Energy Trust, which incorporates the Scottish Gas Energy Trust, is an independent Charitable Trust established by British Gas in 2004. The Trust receives funding solely from British Gas but operates independently, providing British Gas customers as well as the wider public with help in paying energy and other household bills as well as assistance in applying for grants. The Trust also funds voluntary sector organisations to provide money and fuel debt services.

    Further details can be found at: www.britishgasenergytrust.org.uk

    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)

    The CERT scheme ended in December 2012 and was an obligation on the major energy suppliers to improve domestic energy efficiency, which replaced the Energy Efficiency Commitment (EEC). Suppliers were required to deliver twice the energy savings under CERT as they did under EEC. The main objective of CERT was to achieve carbon reductions in order to tackle climate change but there was also a focus on delivering energy efficiency measures to low-income customers and to encourage behavioural change. The scheme originally ran from 2008-2011, but was extended until December 2012. This extension 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. At the end of the scheme in 2012, British Gas narrowly missed the target by a shortfall of 1% which was subsequently delivered in early January. In January 2013, CERT was replaced by the UK Government's Energy Company Obligation (ECO) and the Green Deal, which focus on vulnerable customers.

    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 (CRC)

    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.

    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)

    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 (CDM)

    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 as part of 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 (CCL)

    CCL was introduced by the Government in 2001 following the Kyoto Protocol, as part of its commitment to tax non-domestic energy use. The CCL aims to promote energy efficiency and reduce greenhouse gas emissions. From April 2013, businesses that have Climate Change Agreements with the Government can start claiming CCL discount at the revised rate of 90% for electricity and 65% for other fuels. 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 CESP obligation ran from 1 October 2009 and concluded in December 2012. The scheme was a joint funded initiative between Government, energy suppliers and power generators that targeted households in areas of social deprivation to improve energy efficiency and reduce fuel bills. The programme was 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. At the end of 2012, British Gas had delivered 3.5 million tonnes of lifetime carbon savings under CESP but due to bad weather, missed the CESP target and will complete the shortfall in 2013. In January 2013, CESP was replaced by the UK Government's Energy Company Obligation (ECO) and Green Deal (see Energy company obligation and Green Deal).

    CORGI

    See Gas Safe RegisterTM

    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.

    Customer-Led Network Revolution (CLNR)

    Established in 2011, the CLNR is the UK's largest smart grid project of which British Gas is one of four lead partners. The £54m project established by the UK energy regulator Ofgem, will help electricity customers across the country to reduce their carbon emissions over a three year period and will assess the affect of low carbon and microgeneration technologies on the electricity grid in order to ascertain how key challenges can be overcome to support the development of smart grid technology and assist in creating a low economy.

    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
    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
    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
    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 tradable credits awarded to emission reducing projects that take place under the Joint Implementation (JI) project. JI projects operate in a similar manner to those under the Clean Development Mechanism but take place in developed countries. One Emission Reduction Unit (ERU) equates to an emission reduction of one tonne of CO2 equivalent.

    Emissions trading (EU ETS)

    The EU Emissions Trading Scheme (ETS) began in January 2005 and is a form of carbon trading using carbon allowances. The scheme covers around 45% of all EU emissions and includes 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 and a strong supporter of the ETS as we believe it remains the cornerstone mechanism for reducing emissions across the EU. Phase III of the EU ETS began in 2013 and will run until 2020. During this period, a centralised EU-wide cap on emissions will be set and the 'cap' will decline by at least 1.74% a year, so that emissions in 2020 will be at least 21% below their 2005 level.

    Energy Company Obligation (ECO)

    In January 2013, ECO took over from the existing obligations made through the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP), which expired in 2012. The ECO requires energy suppliers to improve the insulation of harder to treat properties in the domestic sector and to invest resources in reducing heating costs for vulnerable households. It will therefore continue to support the reduction of energy bills for fuel poor households which will play an important part in the UK meeting its carbon emissions and fuel poverty targets.

    Energy mix

    The Energy mix refers to a composition of energy sources. If for example, an energy company had renewable, coal, gas and oil assets, these sources of energy would form their overall energy mix.

    Energy Performance Certificate (EPCs)

    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 ESD 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-uk.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. Following the launch of the government's Warm Home Discount Scheme (WHD) in 2011, this programme is now closed to new applicants and existing essentials customers transferred onto the mandatory WHD scheme, subject to eligibility. The programme included 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.

    Fair Billing Charter

    Launched in 2011, the Fair Billing Charter is designed to support UK small businesses by making improvements in accurate billing a priority. The Charter details the rights and responsibilities of both the customer and British Gas and advises business customers on how to be more 'energy conscious' in their fuel consumption and whether they are being billed correctly.

    Further details can be found at: http://www.britishgas.co.uk/blog/articles/british-gas-launches-fair-billing-commitment-for-businesses-2

    Feed-in Tariff (FIT)

    A 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 Ofgem's website for more information and latest rates: http://www.ofgem.gov.uk/Sustainability/Environment/fits/tariff-tables/Pages/index.aspx

    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)

    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).

    Fuel Poverty Advisory Group (FPAG)

    FPAG is comprised of senior representatives from organisations such as the energy industry, charities and consumer bodies. The core role of FPAG is to examine, monitor and report the effectiveness of current policies in reducing fuel poverty and to encourage the need for greater co-ordination and partnerships to tackle fuel poverty.

    Further details can be found at: http://www.decc.gov.uk/en/content/cms/about/partners/public_bodies/fpag/fpag.aspx

    G

    Gas Safe RegisterTM

    Gas Safe RegisterTM 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 RegisterTM. All British Gas engineers are on the Gas Safe RegisterTM and all registered engineers carry an ID card.

    Gearing

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

    Green Deal

    Introduced in January 2013, the Green Deal together with the Energy Company Obligation will replace the Carbon Emissions Reduction Target (CERT) and the Community Energy Saving Programme (CESP), which ended in December 2012. The Green Deal will enable domestic and commercial customers to invest in energy efficiency improvements, which qualify under the initiative, for no upfront outlay by spreading the cost through instalments on their energy bills. British Gas has been an early supporter of the Green Deal and took place in a trial of the Green Deal programme in July 2011, with the launch of the Home Energy Plan. This enabled British Gas customers who paid by direct debit to take out low cost loans to invest in energy saving measures. From the pilot, British Gas gained valuable insights about how the Green Deal might operate, including the types of energy efficiency measures that customers prefer and how to simplify the scheme to encourage participation.

    Green Tariff

    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.

    Our Sustainable Energy tariff is certified as creating an additional benefit to the environment by the Green Energy Supply Certification Scheme, and matches each unit of electricity you buy with a unit of 100% British renewable energy.

    Grid

    The 'grid' refers to the electric grid, which is a network of transmission lines, transformers and more that delivers electricity from power plants to homes and businesses.

    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
    Turnover

    H

    Hedging

    Hedging occurs when a significant proportion of gas supply is bought in advance of consumption in order to guarantee future supplies of energy and to help manage price volatility.

    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 HHV (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.

    Home Energy Plan

    For further information on the Home Energy Plan, please refer back to the Green Deal definition.

    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
    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 (GHG) emissions from 1990 levels. The first commitment period spanned five-years between 2008-2012 from 1990 levels. All industrialised nations signed the Protocol but Australia only did so with a change of government in 2007, while the United States did not ratify it. Under the Kyoto Protocol, the European Union achieved the collective 5% reduction target, with the UK exceeding this by securing a 6% reduction in GHG. 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). During the second commitment period which will run between 2013-2020, nations will aim to reduce GHG emissions by at least 18% below 1990 levels; however, the composition of Parties in the second commitment period is different from the first. A revised list of GHG will also be reported during this period.

    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 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 (see 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
    Current liabilities

    Liquidity

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

    Low carbon buildings programme (LCBP)

    LCBP ran between 2006-2011 and was a UK Government programme that provided grant funding towards the cost of installing microgeneration and other low carbon technologies at certain types of properties. LCBP was phased-out and replaced with grant funding made through the Government's Feed-in-Tariff (FIT) scheme and the 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

    Nest / Nyth

    Nest is the Welsh Government's fuel poverty scheme. It aims to help reduce the number of households in fuel poverty and make Welsh homes warmer and more fuel-efficient. Eligible recipients are those in Wales who are in receipt of a means tested benefit or are living in the hardest-to-heat homes. For more information see http://www.nestwales.org.uk/

    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
    Turnover

    Net Promoter Score (NPS)

    NPS 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). NPS are collected through customer feedback forms and telephone interviews conducted by a third party supplier. NPS for British Gas and Direct Energy are measured differently and are therefore not comparable.

    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
    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
    Turnover

    R

    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 RHI is a subsidy for the supply of renewable heat. From its launch in 2011, it has provided appropriate support for technologies such as biomass boilers and combined heat and power (CHP) for the commercial and industrial sector. The Government plans to expand the existing scheme to cover additional technologies and will also offer an additional domestic scheme for individual households. Final details will be announced in summer 2013 and the schemes will open for payment from spring 2014. The UK Government is committed to deliver 15% of total energy from renewables by 2020, and the RHI will help support this target and those on reducing Greenhouse Gas emissions.

    Renewables Obligation (RO)

    The 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)

    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 2012-2013 the Obligation stands at £40.71 per ROC (Source: Ofgem, Feb 2012, The Renewables Obligation buy-out price and mutualisation ceiling 2012-13). ROCs have increased the profitability of renewable energy generation as the certificates have an additional value over and above the price of electricity itself. The end date of the scheme has now been extended from the 31 March 2027, in England and Wales and Scotland until 31 March 2037, and in Northern Ireland until 31 March 2033.

    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
    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 energy

    Smart energy technologies are designed to make people more aware of their energy consumption and to provide greater control over household costs. An example of smart energy technologies are smart meters, which provide real-time and historical visibility of energy use within the home. For more information, refer to the smart metering definition.

    Smart Grid

    The 'grid' refers to the electric grid, which is a network of transmission lines, transformers and more that delivers electricity from power plants to homes and businesses. With the rise of digital and computerised products, the electric 'grid' has become stretched to capacity and in response, a smart grid is needed to meet growing electric demand. Working along side the electric grid, the Smart Grid will consist of controls, automation, new technologies and equipment to respond digitally, reliably and efficiently to withstand the UK's quickly changing electrical demands.

    Further information can be found at: http://energy.gov/oe/technology-development/smart-grid

    Smart metering

    Smart meters provide real time information on energy consumption to help consumers control and manage their energy use, which can save money and reduce emissions. By 2019, it is expected that every home will have a smart meter. The Government have mandated that all homes must have smart meters installed between 2014-2019.

    In accordance with the Government's supplier-led Central Communications model, 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. At the end of 2012, British Gas leads the industry in the installation of smart meters in homes and businesses. For more information, refer to the smart energy definition.

    Standard assessment procedure (SAP)

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

    T

    Total recordable injury rate (TRIR)

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

    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

    Warm Home Discount (WHD)

    The Warm Home Discount scheme came into effect on 1 April 2011 and as of 8 July 2011, replaced British Gas' Essentials social tariff to new applicants. The is a four year, mandatory, UK Government programme run in conjunction with energy suppliers and aims to provide assistance with energy costs for vulnerable households across England, Scotland, and Wales. The programme is designed to replace all voluntary schemes run by energy companies and our Essentials customers will therefore gradually move onto this scheme. The scheme separates eligible households into two groups - the 'Core' group are the most vulnerable customers who automatically receive discount on their electricity bills while the 'Broader' group consists of a greater number of low-income households living with for instance, long-term illness, disabilities, or has a household member either over the age of 60 or with a child under five years of age. UK energy suppliers are required to spend a combined £276m in 2012/13, rising to £310m by 2014/15 to vulnerable customers through the programme.

    Further details are available on the British Gas website.

    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.

    Weightman report

    Commissioned by the UK Government, the Weightman report was produced by HM Chief Inspector of Nuclear Installations, Dr Mike Weightman, to asses potential UK implications following the tsunami and nuclear disaster at Fukishima in March 2011. The report was published in October 2011 and gave a clear endorsement of the UK's safety culture and current performance of the UK nuclear industry and confirmed the necessity of new nuclear builds. He made 26 recommendations to the nuclear industry regarding standards.

    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.

    Search glossary

  • Open My Report

    Close

    My Report

    You do not have any pages or notes saved.

    You can create your own list of important report pages and accompanying notes here. You can then print your selected pages and notes, download them as a PDF, or email a list of the pages you've saved.

    To save a page, click the "Add+" button at the top of any report page.

    To add a note to a page, click on the 'Notes' tab and fill out the form. If you want to add another note to the page, simply add it to the same form.

    Your list of saved pages and notes will appear in this window.

On behalf of the Board, I am pleased to present the Remuneration Committee’s Report for 2010 for which we will be seeking approval from shareholders at our Annual General Meeting in May 2011.

The management team has made a great deal of progress towards achieving our strategic goals in what has been a very challenging year, as highlighted in the Chairman’s Statement. The strong financial and operational performance achieved in 2010 and the measurable progress made towards the strategic priorities were achieved by meeting demanding performance objectives. The Remuneration Committee is satisfied that the overall remuneration for the Executive Directors, as set out in the following pages, is appropriate given the performance of the business for the year.

The performance targets for 2011 are similarly challenging and aligned with the delivery of value to shareholders. Taking into account external economic conditions, the Committee has agreed that none of the Executive Directors will receive a salary increase in the 2011 calendar year.

Remuneration principles

In considering remuneration for our senior executives, the Remuneration Committee has used the framework of principles established last year in its review of executive remuneration:

  • Incentives will reinforce key business objectives, promote an ownership culture, and align executive and shareholder interests.
  • Senior executive remuneration levels will be benchmarked and structured to ensure that Centrica’s total remuneration (i.e. including all fixed and variable pay) is competitive.
  • The Remuneration Committee will take into account both best practice and employment conditions throughout Centrica when determining the appropriate structure of executive remuneration.
  • A significant proportion of senior executive remuneration will be delivered through long-term share-based pay.
  • Incentive structures will be simple, transparent and robust, and structured to avoid encouraging excessive risk-taking.
  • Annual incentives will be based on Group, business unit, Health, Safety & Environment and individual performance.
  • Long-term incentives will be aligned with the wider interests of shareholders.
  • Incentive targets may be adjusted at the discretion of the Remuneration Committee to take account of ‘non-performance items’ outside management control that would otherwise distort the measurement of management performance.

Background and themes

Review of executive remuneration

During the year the Committee reviewed our executive remuneration arrangements and considered their alignment with the Group’s strategic priorities. In light of the prevailing economic climate, the Committee concluded that no changes would be made at the present time, but that we would continue to keep the situation under review.

Managing the balance of amount and risk

The Committee asked the Head of Audit & Risk to consider links between risk and remuneration within Centrica. We do not believe the remuneration arrangements encourage excessive risk-taking. We will continue to monitor the situation.

Talent and reward

We have a strong senior management team in place and we are keen to attract and retain high calibre individuals to lead the Group. We will continue to benchmark the remuneration of our senior executives against a UK cross-industry comparator group. We will also take into account international comparators within our industry and the reward structures in place throughout the Group.

Committee membership

Two Non-Executive Directors have been appointed to the Committee since the last Report. Ian Meakins joined during 2010 and Margherita Della Valle joined in January 2011, each following their appointment to the Board.

The Remuneration Committee continues to be committed to ensuring executive remuneration is structured so that it supports the future direction of the business, is aligned to our values and is in the best interests of shareholders.

Helen Alexander
Chairman of the Remuneration Committee
24 February 2011

Helen Alexander

During 2010 the Remuneration Committee kept the Group’s reward strategies under review. 

Helen Alexander
Chairman, Remuneration Committee