eBook Labour Energy Price Cap
eBook: The Labour Energy Price Cap and Utility Intervention
The Labour Energy Price Cap and Utility Intervention
1 | UTILITY WEEK | June 2017
eBook: The Labour Energy Price Cap and Utility Intervention
Contents Introduction: The spectre of renationalisation returns The big beasts of British politics have taken aim squarely at the energy market. Both the Labour party and the Conservatives have promised to cap prices to prevent “abusive” billing of customers. The impact of these promises on investor confidence and the poise of the larger companies is marked, while smaller suppliers and newcomers to the market are waiting for the outcome of the election before pressing ahead with their plans. Labour not only plans a stricter energy price cap than the Conservatives, but also has more radical plans to shake up the utilities sector – namely renationalisation. This comes in the form of state-owned regional energy suppli-
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ers, returning energy grids to public ownership “over time”, and to “replace our dysfunctional water system with a network of regional publicly-owned companies”. In recent weeks, the Tories’ 20-point lead has begun to erode in the polls, and while a Labour victory remains unlikely, the party is gaining momentum heading up to 8 June. Here, Utility Week surveys what we know so far about Labour’s intentions for price regulation and market intervention. The following content collates Utility Week’s recent analysis, opinion contributions and news relating to Labour’s price cap pledge and renationalisation plans.
Analysis, Opinion and News from the pages of Utility Week Page Analysis 3 Lobby: the general election marks the return of the Big Two 4 What is the cost of renationalisation? 4 Manifestos: tough and tougher Opinion 5 Political Agenda: Forget the price cap 5 An energy price cap would be needless tinkering in a functioning market News 6 Labour’s energy plans ‘unworkable’, warns consultant 6 Labour considering ‘limited’ energy cap 6 General election ‘a good thing’ for water 07 Water sector hits back at Labour’s nationalisation plans 8 Labour plans to renationalise UK water sector 8 Labour would return energy to public ownership
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eBook: The Labour Energy Price Cap and Utility Intervention
1. Analysis 31 May 2017
Lobby: the general election marks the return of the Big Two Utility Week reviews that state of the polls and considers the cost of renationalising the industry as utilities nervously await 8 June’s election. The decades-long trend of increasing political plurality has snapped back fiercely in this election to a straight battle between the two big beasts. It’s long been conventional wisdom in political circles that the two-party system’s day is over. The evidence of recent elections indicates that modern society’s increasing diversity can no longer be contained within the walls of the traditional two main parties. However, so far 2017 has seen the ancien régime reinforced with a vengeance. We’re a long way from the peak of the two-party system’s dominance in 1950 when Labour and the Conservatives secured 98 per cent of the vote between them. But if current polls are replicated on election day, Labour and the Tories will grab 78.8 per cent of the total. This would represent the biggest combined vote share for the two biggest parties since 1979 when Margaret Thatcher won the first of her three general election victories. Of course, this year’s contest is looking like a much less even contest than 1979 when a consistent 7 per cent separated Thatcher’s party from Jim Callaghan’s Labour. A YouGov poll last weekend put the Tories just 5 percentage points ahead of Labour, and the weekend following the botched launch of the Conservative manifesto saw the party’s lead at 9 per cent according to a Survation poll, but these two are outliers. The average puts the Conservatives a mile out in front. It’s a different story in Scotland, of course, where a very different two-party race is emerging with the Conservatives supplanting Labour as the main opposition to the Scottish Nationalist Party. South of the border, energy policy has had a higher profile than
usual in the campaign. Conservative support hit its seven-day average peak of 47 per cent in the week following the publication of Theresa May’s Sun column in which she pledged to cap standard variable tariffs. Crucially, the policy appears to have helped bolster Conservative support among the working class voters it was clearly targeted at. Among the C2DE group, the Tories were outpolling Labour by 12 per cent. Part of the reduced poll lead is a recovery in the Labour vote. The party’s support troughed at 25.9 per cent on the weekend following May’s general election announcement, according to a seven-day average poll tracker carried out by the Britain Elects website. But Labour’s pledge to bring chunks of the utilities back into public ownership has not proved to be the voter turn-off conventional wisdom suggested. In the week following the leaking of the party’s manifesto, which first revealed that Labour was planning to renationalise parts of the national grid, the party’s average polling levels put on more than 3 points to reach a 12-month peak of 31.8 per cent. Both main parties have picked up support from the minor parties. The Liberal Democrats’ attempt to wrap themselves in the European Union flag hasn’t worked and the party has dipped from 10 per cent at the beginning of the campaign to 8 per cent today. If repeated on election day, this result would see the party going backwards on the 8.5 per cent it recorded in 2015. The Greens have also been crowded out of the debate, seeing their 4.7 per cent vote share at the 2015 election nearly cut in half to 2.5 per cent, according to Britain Elects However, Ukip has been the biggest loser. During the past month, the party’s poll share has cratered to 4.8 per cent from nearly oneeighth of the vote in 2015. While two-party politics may be staging a revival, the current polls indicate that there is still only one game in town. The key battles that look set to determine utilities’ fate over the next five years are likely to be determined within the Conservative party rather than at the ballot box next week. 31 May 2017
What is the cost of renationalisation? The 2017 Labour party manifesto has echoes of its equally radical 1983 predecessor, famously dubbed “the longest suicide note in history”. While various renationalisation proposals are advocated – some of which are quite popular – both National Grid and the privatised water companies are now in Labour’s sights. The costs of implementing such a policy would be massive, although utility share valuations would undoubtedly plummet prior to any actual implementation. Of course, opinion polls give the Labour party minimal chance of prevailing on 8 June, so its manifesto commitments will be seen by some as academic. Nonetheless, if the polls turn against the Conservative party in the next two weeks, utility share prices would come under sustained pressure. On page 20 of its manifesto, Labour states its aim to “take energy back into public ownership”. More specifically, there is a commitment to “ensure that national and regional grid infrastructure is brought into public ownership over time”. Initially, tougher financial regulation, along with other measures, would probably precede any actual renationalisation. Interestingly, the Labour party is focusing on energy grids, a sector where National Grid is unquestionably the key player. A substantial part of its current £37.6 billion capitalisation arises from its US activities, but its core business remains its extensive UK electricity and gas networks. If a future Labour government sought to acquire a 51 per cent
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majority stake in National Grid’s UK operations, the cost – allowing for a heavily depressed share price – would probably lie within the range of £8 billion to £12 billion. The Labour manifesto has also pledged – rather surprisingly – to “replace our dysfunctional water system with a network of regional publicly-owned companies”. The benefits of such an expensive policy are not immediately apparent. However, if a 51 per cent majority stake were acquired in the three quoted stocks, Severn Trent, United Utilities and Pennon (exViridor), the cost would probably be within the range of £5 to £7 billion. The remaining water companies are not UK-listed. Determining a comparable valuation for them is difficult, although their ongoing regulatory asset value would no doubt serve as a base calculation figure. In assessing the projected renationalisation costs, key assumptions need to be made about the market’s response to a highly unlikely Labour party victory and, if so, which of its many expensive commitments would actually be implemented. It is perhaps relevant that on the day after the 1992 general election, when the Conservative party secured a narrow – and somewhat unexpected – majority, quoted water stocks rose on average by 18 per cent. The controversial Railtrack renationalisation in 2002 also provides a valuation precedent. For many, however, the general election result is already a given so that possible renationalisation of key utility players is little more than a contingency risk. But if new opinion polls show the large gap between the two leading parties narrowing sharply, holders of utility stocks have every reason to become very nervous. Author: Nigel Hawkins, director, Nigel Hawkins Associates 24 May 2017
Manifestos: tough and tougher The two main parties’ manifestos reveal an arms race of market intervention in the utilities sector. David Blackman pores over the detail. The general election manifestos are out. And for the utility sector at least, the outcome of the next election looks like it will be a “Nightmare on Downing Street”. The two big parties vying for government have used their manifestos to indulge in an auction on who can crack down hardest on energy companies. Early in her premiership, Theresa May signalled that she had the utilities in her sights. And last week’s manifesto confirmed this with a pledge that the Conservatives would “extend” the existing cap on prepayment meter bills to “more customers on the poorest value tariffs”. For good measure, the Tory manifesto says that micro-businesses would also see their energy bills capped. The clampdown on energy prices is part of a wider land grab by the Conservatives of Labour’s traditional political turf, and appears calculated to win over traditional supporters of their opponent who feel alienated by the party’s recent hard left turn. By planting their flag on Labour territory, first mapped out with Ed Miliband’s promise to freeze energy bills at the 2015 general election, the Tories have dared the opposition to go further. Jeremy Corbyn’s Labour has duly obliged by promising to introduce an “immediate” emergency price cap to keep average dual fuel household energy bills below £1,000. The cap would remain in place during Carolyn Fairbairn, CBI what the opposition describes as a “transition to a fairer system”.
To emphasise its radical credentials, Labour threw in a pledge to return energy grids to public ownership “over time” by allowing the publicly-owned local companies to purchase regional infrastructure. The manifesto also included regaining control of energy supply networks by altering the national and regional network operator licence conditions. Labour’s nationalisation plans have left employers “shocked”, according to the CBI. The business umbrella body’s director general, Carolyn Fairbairn, says: “Major interventions or structural changes to open markets could have unintended consequences, hitting investor confidence and dampening consumer willingness to shop around for the best deal, in the case of the energy market.” However, given the Conservative poll lead, the greatest concerns are reserved for the Tory price cap plan, given that it is much more likely to be implemented. Some observers have drawn comfort from the ambiguous phrasing of the price cap policy in the manifesto, with its talk about extending safeguards to “more” customers. This has raised hopes that the government will not introduce the kind of blanket price intervention that May’s recent Sun column indicated was on the cards. And there is no repeat of earlier promises to cut standard variable tariffs by £100. There is also a nod in the manifesto towards the continuing importance of competition, which says the government will support initiatives to make the switching process easier and more reliable in the retail energy market. Utility Week understands that the ambiguous wording of the price cap pledge reflects continuing tensions within the government over how to proceed with the cap. May and her policy chief, Nick Timothy, have both publicly backed government intervention on pricing levels, but more free market voices in the Cabinet oppose this stance A Conservative source says: “An absolute cap would distort the market and big suppliers will congregate around that level.” Greg Jackson, chief executive of Octopus Energy, says a fixed cap would be too blunt an instrument: “If wholesale prices drop, consumers aren’t provided with any benefit. If they rise, you could end up wn ith a perverse situation where all companies are supplying consumers at a loss. Any form of cap needs to be flexible.” One way of meeting the Conservative manifesto proposal could be to pick up Citizens Advice’s proposal to limit price caps to those vulnerable enough to qualify for the Warm Homes Discount. Jackson believes the wording of the Conservative manifesto also leaves the door open for the idea of a relative price cap championed by Conservative backbencher John Penrose in the run-up to the general election. “It’s so important that the industry comes up with a good solution for the government. For those that want more transparency and competition in the market, this is a massive opportunity,” he says. “We now need to work constructively with the big six on the best solution,” says the Tory source. The government’s mooted review of energy costs provides an opportunity for these tensions to be teased out away from the febrile environment of a general election campaign. There is also potentially scope to introduce into the mix other factors such as greater support for energy efficiency, which may more successfully bring down bills in the longer term. However, Jackson urges the government not to use the review to kick rising energy prices into the long grass. “I hope government will have a quick but thorough analysis rather than a long drawn out investigation, so that consumers don’t have to wait,” he says.
“Major interventions or structural changes to open markets could have unintended consequences.”
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2. Opinion 22 May 2017
Political Agenda: Forget the price cap Forget about the price cap, it’s a coherent energy strategy we need to be talking about. The about-turns in British politics are happening at a dizzying pace. Nowhere is this the case more than in the area of utilities. Energy price caps, an idea branded as Marxist meddling by exprime minister David Cameron when they were mooted by Labour a couple of years ago, looked set to be one of the main pledges in his own party’s manifesto when Utility Week went to press this week. Not to be outdone by what many see as shameless Tory crossdressing, Labour’s now genuinely hard left-wing leadership went one step further by proposing that default tariffs should be kept below £1,000. On issues from enhanced workers’ rights to building more social housing, the Tories are moving into the centre ground of politics that Labour’s leadership seems happy to surrender. Pledges such as the energy cap enable the Tories to distance themselves from the uncaring image that dissuaded many from voting for them in recent years. Every party needs to differentiate itself from its opposition. New Labour performed the same trick in the late nineties and early noughties, pushing the Conservatives into increasingly fringe rightwing positions. The same is happening now in reverse, with Labour piling on commitments to restore public ownership across large areas that were privatised, adding water companies to the list this week. Cynics on Labour’s right wing mutter that the leadership has drawn up the manifesto with an eye on mobilising supporters for the contest that matters to them: control of the party. Author: David Blackman 17 May
Opinion: an energy price cap would be needless tinkering in a functioning market Intervention in the energy market would be retrograde and counterproductive, argues Stephen Murray
bills. A laudable aim. But the headline proposed solution – a cap on prices – is doomed. Here’s why. Ofgem, the energy regulator which would assume responsibility for pricing the domestic supply market under the next government, commissioned an extensive report into the energy industry in 2014 from the Competitions and Markets Authority (CMA). The report, published last year, found that energy companies are NOT making excessive profits (particularly in residential supply) and that price intervention is NOT in the best interests of the market. What it did find is that the main problem with the energy market is the lack of switching by domestic consumers: 56 per cent of respondents to the survey said they “had never switched supplier, did not know it was possible, or did not know if they had done so”. The CMA concluded that for “most domestic customers on standard variable tariffs (SVT), detriment will be reduced as soon as they engage [in the market] effectively.” Energy firms are routinely accused of overcharging their customers. We’re repeatedly told the energy market is “broken”. But if we change the syntax from “overcharging” to “overpaying”, and from “broken” to “lacking consumer engagement”, we shift the emphasis onto consumers, and give them the power to confront the big six behemoths. Given the facts – significant price differentials between SVT and fixed-rate deals, 50 competing providers, hassle-free 17-day switching – it’s self-evident that investing time, resource and money on raising consumer awareness of switching would bring huge consumer benefit. A future government could explore many initiatives without tinkering in the free market: • implement the CMA’s recommendations, published a year ago, including prompting customers to engage, thus raising switching volumes and boosting competition; • extend awareness campaigns, such as Go Energy Shopping, that achieved uplifts in customer switching; • remove the erroneous perception of “hassle” and “not worth it” that clouds the energy switching market; • support initiatives such as midata and the smart meter rollout to empower customers to understand their own energy usage. Beware unintended consequences It bears repeating: the energy switching market isn’t broken, regardless of what politicians say. We have multiple suppliers, great choice, tariff innovation and significant savings. These are available today for the vast majority of UK households, at amounts two and three times the suggested £100 cap. Put another way, there are currently over 70 available tariffs that would save the average UK household more than £100. And there’s the broader issue – does market intervention actually work? Experience suggests it would lead to a fall in competition, with prices settling at a higher level than in a free market. A price cap would almost certainly mean that cheap deals would disappear, prejudicing those who have already engaged in the market by forcing them to pay more. There are also practical considerations. It has been proposed, for example, that Ofgem should set the cap with reference to wholesale prices. Good luck with that: wholesale prices jumped 50 per cent in six months last year, yet some suppliers increased prices earlier this year, some lowered and some froze them. How would Ofgem manage this minefield of choosing just ONE approach and number to “peg” prices against?
Energy has become a political football. Both Conservatives and Labour are promising radical reforms in a bid to cut consumers’ 5 | UTILITY WEEK | June 2017
eBook: The Labour Energy Price Cap and Utility Intervention
24 May 2017
Labour considering ‘limited’ energy cap
3. News 7th June 2017
Labour’s energy plans ‘unworkable’, warns consultant The manifesto of the Labour party, which is threatening to overtake the Conservatives according to some opinion polls, states that it would “regain control” of energy supply networks by altering national and regional network operators’ license conditions. Last month, Labour’s energy spokesman, Alan Whitehead, told Utility Week that the party is exploring moves to rail franchise-style network licences that would have an expiry date. Under the current licensing regime introduced by the 1989 Electricity Act and entrenched by the 2000 Utilities Act, Whitehead there are no cut off dates for network operating licenses. Whitehead said Labour would explore introducing termination points for network licences akin to those used in train franchises where companies bid to run a section of the rail network for a set period of time. But Ryan Thomson, a partner at consultants Baringa Partners, said that Labour’s plans were “unworkable” and would increase funding costs He said: “Funding costs would increase straightaway because the funding one can attract for these assets at the moment are very, very low.” Thomson said that in order for Labour’s plans to work, there would need to be a split between operations and the ownership of the physical assets like wires and cables. This would be akin to arrangements on the railways where train operating companies, which hold rail franchises, lease rolling stock rather than owning it themselves. He said that such an arrangement would increase the complexity of arrangements and queried whether the licensee or the asset owners would be responsible for their maintenance.
Labour is exploring moves to rail franchise-style time network licenses and a “limited” cap on household bills, the party’s energy spokesman has told Utility Week. Alan Whitehead, in an interview conducted during the pause in campaigning following Monday night’s terrorist attack in Manchester, fleshed out details of Labour’s energy manifesto. The document states that an incoming Labour government would “regain control” of energy supply networks by altering national and regional network operators’ license conditions. Under the current licensing regime introduced by the 1989 Electricity Act and entrenched by the 2000 Utilities Act, Whitehead said there are no cut off dates for network operating licences. Whitehead, who is battling to retain his marginal Southampton constituency, said Labour would explore introducing termination points for network licences akin to those used in train franchises where companies bid to run a section of the rail network for a set period of time. “You would look at terms of licences under the act and whether they could be terminated similar to the rail franchises.” Altering the licensing regime would enable Labour to gain greater control over networks while sidestepping a potentially costly buyback of infrastructure from the existing network companies which could then lease their assets to the licence holders. “The idea that you would pay a huge amount of cash isn’t necessarily part of the model.” He said that the introduction of a licensing regime would support Labour’s ambition to decentralise the power network because it would enable council or other not for profit energy companies to take over the right to run local distribution networks. Whitehead also told Utility Week that Labour, if elected to government would introduce a “looser” cap than the limits mooted in the Conservative manifesto. Labour says it would immediately introduce an emergency price cap to keep average dual annual fuel household energy bill below £1,000 during the transition to a “fairer system”. Whitehead said that any cap introduced by Labour would be “temporary”. While this was in place, he said Labour would introduce reforms designed to “reset” the market. These would include the introduction of more transparent trading arrangement like the Nordpool system that operates across Scandinavia. The level of the cap, which would allow a few percentage points leeway on top of a recommended figure, would also take account wholesale costs, said Whitehead. “Once reset, the market would probably have a cap on it but a looser cap in terms of different operating market conditions.” Author: David Blackman 19 May 2017
General election ‘a good thing’ for water The snap general election on 8 June is a “good thing” for the water sector, because it should bring certainty, according to the chief executive of Southern Water. “I am hopeful that we will get more certainty quicker,” Ian McAulay told Utility Week. “If we do, I think the election is a good thing, on balance.” “The one thing that helps business to operate well is certainty, and that’s what we’re looking for,” he added. “We’re looking for good direction and certainty of direction. The changes that we’re seeing are broadly positive. We have to try and get the certainty into things now in terms of how is policy going to translate, are there going to be significant changes?” Prime minister Theresa May announced in mid-April that a gen-
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eBook: The Labour Energy Price Cap and Utility Intervention
eral election would be held on 8 June. Most of the focus in the runup to the election has been on the energy sector, as the Conservative manifesto included measures to cap energy prices, and the Labour manifesto included plans to return the energy networks to public ownership. The Labour party also said it will renationalise the water sector if it gets into power, creating nine new public bodies to run the water and sewerage system in England. In response to the proposals, the water industry defended its privatisation, claiming water bills would be 30 per cent higher if it had remained under public ownership. The Liberal Democrats did not mention the water sector in their manifesto. However, the party told Utility Week it is against water renationalisation. “There are genuine problems of affordability and ensuring we have sustainable levels of supply, but these need targeted government intervention in the market, directing the regulator to help companies deliver better, affordable services,” a spokesperson said. “The fault lies in a Conservative government who won’t regulate the market effectively. We support government intervening in the water market to ensure companies help customers save water and thus saving consumers money.” Author: Lois Vallely 16 May 2017
Grid to return to public ownership under Labour The Labour party’s manifesto, published this morning, contains a pledge that Labour would bring national and regional grid infrastructure into public ownership “over time”. To help bring this about, the manifesto states that Labour would legislate to permit publicly-owned local companies to purchase the regional grid infrastructure. The party’s commitment to public ownership goes beyond the wording in last week’s leaked manifesto in which Labour pledged to take back “control” by central government of the grid. Labour has also pledged to regain control of energy supply
networks by altering the National and Regional Network Operator licence conditions. The manifesto says Labour wants to take energy back into public ownership in order to deliver renewable energy, make bills more affordable for customers and restore democratic control Investing in publicly-owned energy provision will support Labour’s industrial strategy by helping businesses to reduce their power bills, says the manifesto. The manifesto also contains a fresh pledge by Labour to support tidal lagoons to help deliver its target that 60 per cent of the UK’s energy is generated from low carbon or renewable sources by 2030. Labour has dropped a pledge to establish a new local energy taskforce to provide help and advice for local people and businesses that want to set up community energy co-operatives. And there is no mention of the leaked manifesto’s commitment that renewable energy projects would be a priority for the party’s proposed £250 million National Investment Bank. The official manifesto restates Labour’s commitment to insulate four million homes. Homeowners would be offered interest-free loans to install insulation, energy efficiency standards for rented homes would be upgraded and the Landlord Energy Savings Allowance re-established. But there is no mention in the final document of stamp duty reliefs to incentivise energy efficiency works as proposed in the leaked draft. The final manifesto also confirms that Labour would introduce an “immediate” emergency price cap to keep average dual annual fuel household energy bill below £1,000 during the transition to a “fairer system”. And it confirms that Labour would continue to support new nuclear projects and ban fracking. Responding to the manifesto, the onshore oil and gas industry association UKOOG said Labour’s pledge to ban fracking would undermine the party’s wider commitment to ensure the UK’s energy security. Ken Cronin, chief executive of UKOOG, said: “The Labour party’s position has changed dramatically in two years and shows a misunderstanding of how we use energy in this country. The only solution to our pressing energy needs is a balanced mix of nuclear, renewables and gas – produced here in this country, creating tax revenues and skilled jobs.” Author: David Blackman 16 May 2017
Water sector hits back at Labour’s nationalisation plans The water industry has defended its privatisation, claiming water bills would be 30 per cent higher if it had remained under public ownership. “The Labour party appear to have forgotten that the original reason for privatisation was that the public sector had been unable to deliver the required investment for many years,” Wessex Water chief executive Colin Skellett told Utility Week. He said that, at the time of privatisation, the UK was the “dirty man of Europe”, with below-standard drinking water quality, poor bathing water quality and polluted rivers. “As a result of privatisation, more than £130 billion of private capital has been invested resulting in clean beaches, renewed water and sewerage infrastructure and drinking water quality that is among the highest in the world. “According to industry regulator Ofwat, bills would be 30 per cent (or £120) higher if the water industry had remained under public ownership.” Representative group for the sector, Water UK, said the Labour manifesto “does not do justice to the water industry’s record following privatisation”.
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A spokesman said: “The quality of bathing and drinking water is up, and customer satisfaction with water and sewerage services is over 90 per cent. Access to private capital and other sources of funding, repaid through dividends and interest payments, has been key to that record of success.” Economist and former head of Ofwat Ian Byatt told Utility Week the privatisation of the water industry brought a 50 per cent increase in efficiency in the first decade. He said he would be “strongly against” the renationalisation of the sector. Byatt suggested that, currently, rewards for investors are “unnecessarily high” and benefits to customers and the environment “too low”. “Better regulation would be much superior to political decisions such as the Thames Tideway Tunnel,” he said. “What I recommend is greater efficiency,” he added. “As well as more focus on benefits for consumers where capital projects are concerned and capital projects opening to competition.” The Labour party announced plans to renationalise the UK water industry if elected to power after the general election on 8 June. Its manifesto, published 16 May, claimed that water bills have increased 40 per cent since privatisation. It said the party would “replace our dysfunctional water system with a network of regional publicly-owned water companies”. In an interview on BBC, shadow chancellor John McDonnell said the party was “concerned by the way privatisation has operated”. By ending the practice of paying dividends to shareholders, bills would be reduced by around £100 a year per household, according to sources close to the party. McDonnell said there were “a number of different mechanisms” for nationalising the water companies, including an outright purchase. However, he refused to set the price, claiming this would “affect the negotiations”. Author: Lois Vallely 16 May 2017
Labour plans to renationalise UK water sector The Labour party plans to renationalise the UK water industry if elected after the general election on 8 June. The party’s leader, Jeremy Corbyn, said he will unveil a “radical and responsible” plan for government, pledging to change the country and govern “for the many not the few”. According to the BBC, Labour would return the water sector to public hands. The industry was sold under Margaret Thatcher in 1989. Labour proposes to create nine new public bodies to run the water and sewerage system in England. By ending the practice of paying dividends to shareholders, bills would be reduced by around £100 a year per household, according to sources close to the party. A Labour source said: “Under Labour, rather than answering to its shareholders out to make a quick buck at the expense of increasing household bills and worsening service quality, utilities will be accountable to the bill payer, helping ease the burden of those struggling with the cost of living crisis.” Author: Lois Vallely
“Rather than answering making a quick buck at the expense of increasing household bills and worsening service quality, utilities will be accountable to the bill payer.”
11 May 2017
Labour would return energy to public ownership Labour has pledged to take back central government control of the national grid and immediately cap average household energy bills below £1,000, according to its leaked manifesto. The draft manifesto, which was distributed to news organisations last night, says that Labour would take back central government control over what it describes as the “natural monopolies of the transmission and distribution grids”. An incoming Labour administration would also restore Whitehall control over Ofgem’s policy and information functions, says the document. In addition, Labour in power would introduce an “immediate” emergency price cap to ensure that the average dual fuel household energy bill remains below £1,000 per year during the transition to a “fairer system”. Stating that “privatisation has failed to deliver an energy system that delivers for people, businesses or our environment” the manifesto says many people “don’t have time to shop around, they just want reliable and affordable energy”. On ownership, Labour promised to create a network of regional, publicly-owned energy supply companies that would be “locally run” and “democratically accountable”. These companies, of which at least one would be located in each region, would have a remit to tackle fuel poverty, offer cut price tariffs, support community energy projects and put pressure on the larger suppliers to slash their bills. The manifesto, which is due to be officially signed-off later today, proposes the establishment of a new local energy taskforce will provide help and advice for local people and businesses to start up community energy co-operatives. On supply, ensuring that 60 per cent of the UK’s energy is generated from low carbon or renewable sources by 2030 will be top of the priority list for the party’s proposed National Investment Bank should it gain an unexpected victory in the general election. Meanwhile, tackling climate change is described as “non-negotiable”. The manifesto pledges support for future nuclear projects, which it says will continue to be part of the UK energy supply mix under a Labour government. But it also says that Labour would ban fracking if it returns to power. Regarding energy efficiency, Labour promises to insulate four million homes as an “infrastructure priority” and to ensure new build properties are built to a zero carbon standard, which was scrapped by the Conservative government in 2015. To encourage greater energy efficiency, homeowners will be offered stamp duty incentives and 0 per cent loans to improve their properties. In the private rented sector, Labour will improve existing energy efficiency regulations. Author: David Blackman
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The Labour Energy Price Cap and Utility Intervention
1 | UTILITY WEEK | June 2017
eBook: The Labour Energy Price Cap and Utility Intervention
Contents Introduction: The spectre of renationalisation returns The big beasts of British politics have taken aim squarely at the energy market. Both the Labour party and the Conservatives have promised to cap prices to prevent “abusive” billing of customers. The impact of these promises on investor confidence and the poise of the larger companies is marked, while smaller suppliers and newcomers to the market are waiting for the outcome of the election before pressing ahead with their plans. Labour not only plans a stricter energy price cap than the Conservatives, but also has more radical plans to shake up the utilities sector – namely renationalisation. This comes in the form of state-owned regional energy suppli-
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ers, returning energy grids to public ownership “over time”, and to “replace our dysfunctional water system with a network of regional publicly-owned companies”. In recent weeks, the Tories’ 20-point lead has begun to erode in the polls, and while a Labour victory remains unlikely, the party is gaining momentum heading up to 8 June. Here, Utility Week surveys what we know so far about Labour’s intentions for price regulation and market intervention. The following content collates Utility Week’s recent analysis, opinion contributions and news relating to Labour’s price cap pledge and renationalisation plans.
Analysis, Opinion and News from the pages of Utility Week Page Analysis 3 Lobby: the general election marks the return of the Big Two 4 What is the cost of renationalisation? 4 Manifestos: tough and tougher Opinion 5 Political Agenda: Forget the price cap 5 An energy price cap would be needless tinkering in a functioning market News 6 Labour’s energy plans ‘unworkable’, warns consultant 6 Labour considering ‘limited’ energy cap 6 General election ‘a good thing’ for water 07 Water sector hits back at Labour’s nationalisation plans 8 Labour plans to renationalise UK water sector 8 Labour would return energy to public ownership
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eBook: The Labour Energy Price Cap and Utility Intervention
1. Analysis 31 May 2017
Lobby: the general election marks the return of the Big Two Utility Week reviews that state of the polls and considers the cost of renationalising the industry as utilities nervously await 8 June’s election. The decades-long trend of increasing political plurality has snapped back fiercely in this election to a straight battle between the two big beasts. It’s long been conventional wisdom in political circles that the two-party system’s day is over. The evidence of recent elections indicates that modern society’s increasing diversity can no longer be contained within the walls of the traditional two main parties. However, so far 2017 has seen the ancien régime reinforced with a vengeance. We’re a long way from the peak of the two-party system’s dominance in 1950 when Labour and the Conservatives secured 98 per cent of the vote between them. But if current polls are replicated on election day, Labour and the Tories will grab 78.8 per cent of the total. This would represent the biggest combined vote share for the two biggest parties since 1979 when Margaret Thatcher won the first of her three general election victories. Of course, this year’s contest is looking like a much less even contest than 1979 when a consistent 7 per cent separated Thatcher’s party from Jim Callaghan’s Labour. A YouGov poll last weekend put the Tories just 5 percentage points ahead of Labour, and the weekend following the botched launch of the Conservative manifesto saw the party’s lead at 9 per cent according to a Survation poll, but these two are outliers. The average puts the Conservatives a mile out in front. It’s a different story in Scotland, of course, where a very different two-party race is emerging with the Conservatives supplanting Labour as the main opposition to the Scottish Nationalist Party. South of the border, energy policy has had a higher profile than
usual in the campaign. Conservative support hit its seven-day average peak of 47 per cent in the week following the publication of Theresa May’s Sun column in which she pledged to cap standard variable tariffs. Crucially, the policy appears to have helped bolster Conservative support among the working class voters it was clearly targeted at. Among the C2DE group, the Tories were outpolling Labour by 12 per cent. Part of the reduced poll lead is a recovery in the Labour vote. The party’s support troughed at 25.9 per cent on the weekend following May’s general election announcement, according to a seven-day average poll tracker carried out by the Britain Elects website. But Labour’s pledge to bring chunks of the utilities back into public ownership has not proved to be the voter turn-off conventional wisdom suggested. In the week following the leaking of the party’s manifesto, which first revealed that Labour was planning to renationalise parts of the national grid, the party’s average polling levels put on more than 3 points to reach a 12-month peak of 31.8 per cent. Both main parties have picked up support from the minor parties. The Liberal Democrats’ attempt to wrap themselves in the European Union flag hasn’t worked and the party has dipped from 10 per cent at the beginning of the campaign to 8 per cent today. If repeated on election day, this result would see the party going backwards on the 8.5 per cent it recorded in 2015. The Greens have also been crowded out of the debate, seeing their 4.7 per cent vote share at the 2015 election nearly cut in half to 2.5 per cent, according to Britain Elects However, Ukip has been the biggest loser. During the past month, the party’s poll share has cratered to 4.8 per cent from nearly oneeighth of the vote in 2015. While two-party politics may be staging a revival, the current polls indicate that there is still only one game in town. The key battles that look set to determine utilities’ fate over the next five years are likely to be determined within the Conservative party rather than at the ballot box next week. 31 May 2017
What is the cost of renationalisation? The 2017 Labour party manifesto has echoes of its equally radical 1983 predecessor, famously dubbed “the longest suicide note in history”. While various renationalisation proposals are advocated – some of which are quite popular – both National Grid and the privatised water companies are now in Labour’s sights. The costs of implementing such a policy would be massive, although utility share valuations would undoubtedly plummet prior to any actual implementation. Of course, opinion polls give the Labour party minimal chance of prevailing on 8 June, so its manifesto commitments will be seen by some as academic. Nonetheless, if the polls turn against the Conservative party in the next two weeks, utility share prices would come under sustained pressure. On page 20 of its manifesto, Labour states its aim to “take energy back into public ownership”. More specifically, there is a commitment to “ensure that national and regional grid infrastructure is brought into public ownership over time”. Initially, tougher financial regulation, along with other measures, would probably precede any actual renationalisation. Interestingly, the Labour party is focusing on energy grids, a sector where National Grid is unquestionably the key player. A substantial part of its current £37.6 billion capitalisation arises from its US activities, but its core business remains its extensive UK electricity and gas networks. If a future Labour government sought to acquire a 51 per cent
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eBook: The Labour Energy Price Cap and Utility Intervention
majority stake in National Grid’s UK operations, the cost – allowing for a heavily depressed share price – would probably lie within the range of £8 billion to £12 billion. The Labour manifesto has also pledged – rather surprisingly – to “replace our dysfunctional water system with a network of regional publicly-owned companies”. The benefits of such an expensive policy are not immediately apparent. However, if a 51 per cent majority stake were acquired in the three quoted stocks, Severn Trent, United Utilities and Pennon (exViridor), the cost would probably be within the range of £5 to £7 billion. The remaining water companies are not UK-listed. Determining a comparable valuation for them is difficult, although their ongoing regulatory asset value would no doubt serve as a base calculation figure. In assessing the projected renationalisation costs, key assumptions need to be made about the market’s response to a highly unlikely Labour party victory and, if so, which of its many expensive commitments would actually be implemented. It is perhaps relevant that on the day after the 1992 general election, when the Conservative party secured a narrow – and somewhat unexpected – majority, quoted water stocks rose on average by 18 per cent. The controversial Railtrack renationalisation in 2002 also provides a valuation precedent. For many, however, the general election result is already a given so that possible renationalisation of key utility players is little more than a contingency risk. But if new opinion polls show the large gap between the two leading parties narrowing sharply, holders of utility stocks have every reason to become very nervous. Author: Nigel Hawkins, director, Nigel Hawkins Associates 24 May 2017
Manifestos: tough and tougher The two main parties’ manifestos reveal an arms race of market intervention in the utilities sector. David Blackman pores over the detail. The general election manifestos are out. And for the utility sector at least, the outcome of the next election looks like it will be a “Nightmare on Downing Street”. The two big parties vying for government have used their manifestos to indulge in an auction on who can crack down hardest on energy companies. Early in her premiership, Theresa May signalled that she had the utilities in her sights. And last week’s manifesto confirmed this with a pledge that the Conservatives would “extend” the existing cap on prepayment meter bills to “more customers on the poorest value tariffs”. For good measure, the Tory manifesto says that micro-businesses would also see their energy bills capped. The clampdown on energy prices is part of a wider land grab by the Conservatives of Labour’s traditional political turf, and appears calculated to win over traditional supporters of their opponent who feel alienated by the party’s recent hard left turn. By planting their flag on Labour territory, first mapped out with Ed Miliband’s promise to freeze energy bills at the 2015 general election, the Tories have dared the opposition to go further. Jeremy Corbyn’s Labour has duly obliged by promising to introduce an “immediate” emergency price cap to keep average dual fuel household energy bills below £1,000. The cap would remain in place during Carolyn Fairbairn, CBI what the opposition describes as a “transition to a fairer system”.
To emphasise its radical credentials, Labour threw in a pledge to return energy grids to public ownership “over time” by allowing the publicly-owned local companies to purchase regional infrastructure. The manifesto also included regaining control of energy supply networks by altering the national and regional network operator licence conditions. Labour’s nationalisation plans have left employers “shocked”, according to the CBI. The business umbrella body’s director general, Carolyn Fairbairn, says: “Major interventions or structural changes to open markets could have unintended consequences, hitting investor confidence and dampening consumer willingness to shop around for the best deal, in the case of the energy market.” However, given the Conservative poll lead, the greatest concerns are reserved for the Tory price cap plan, given that it is much more likely to be implemented. Some observers have drawn comfort from the ambiguous phrasing of the price cap policy in the manifesto, with its talk about extending safeguards to “more” customers. This has raised hopes that the government will not introduce the kind of blanket price intervention that May’s recent Sun column indicated was on the cards. And there is no repeat of earlier promises to cut standard variable tariffs by £100. There is also a nod in the manifesto towards the continuing importance of competition, which says the government will support initiatives to make the switching process easier and more reliable in the retail energy market. Utility Week understands that the ambiguous wording of the price cap pledge reflects continuing tensions within the government over how to proceed with the cap. May and her policy chief, Nick Timothy, have both publicly backed government intervention on pricing levels, but more free market voices in the Cabinet oppose this stance A Conservative source says: “An absolute cap would distort the market and big suppliers will congregate around that level.” Greg Jackson, chief executive of Octopus Energy, says a fixed cap would be too blunt an instrument: “If wholesale prices drop, consumers aren’t provided with any benefit. If they rise, you could end up wn ith a perverse situation where all companies are supplying consumers at a loss. Any form of cap needs to be flexible.” One way of meeting the Conservative manifesto proposal could be to pick up Citizens Advice’s proposal to limit price caps to those vulnerable enough to qualify for the Warm Homes Discount. Jackson believes the wording of the Conservative manifesto also leaves the door open for the idea of a relative price cap championed by Conservative backbencher John Penrose in the run-up to the general election. “It’s so important that the industry comes up with a good solution for the government. For those that want more transparency and competition in the market, this is a massive opportunity,” he says. “We now need to work constructively with the big six on the best solution,” says the Tory source. The government’s mooted review of energy costs provides an opportunity for these tensions to be teased out away from the febrile environment of a general election campaign. There is also potentially scope to introduce into the mix other factors such as greater support for energy efficiency, which may more successfully bring down bills in the longer term. However, Jackson urges the government not to use the review to kick rising energy prices into the long grass. “I hope government will have a quick but thorough analysis rather than a long drawn out investigation, so that consumers don’t have to wait,” he says.
“Major interventions or structural changes to open markets could have unintended consequences.”
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eBook: The Labour Energy Price Cap and Utility Intervention
2. Opinion 22 May 2017
Political Agenda: Forget the price cap Forget about the price cap, it’s a coherent energy strategy we need to be talking about. The about-turns in British politics are happening at a dizzying pace. Nowhere is this the case more than in the area of utilities. Energy price caps, an idea branded as Marxist meddling by exprime minister David Cameron when they were mooted by Labour a couple of years ago, looked set to be one of the main pledges in his own party’s manifesto when Utility Week went to press this week. Not to be outdone by what many see as shameless Tory crossdressing, Labour’s now genuinely hard left-wing leadership went one step further by proposing that default tariffs should be kept below £1,000. On issues from enhanced workers’ rights to building more social housing, the Tories are moving into the centre ground of politics that Labour’s leadership seems happy to surrender. Pledges such as the energy cap enable the Tories to distance themselves from the uncaring image that dissuaded many from voting for them in recent years. Every party needs to differentiate itself from its opposition. New Labour performed the same trick in the late nineties and early noughties, pushing the Conservatives into increasingly fringe rightwing positions. The same is happening now in reverse, with Labour piling on commitments to restore public ownership across large areas that were privatised, adding water companies to the list this week. Cynics on Labour’s right wing mutter that the leadership has drawn up the manifesto with an eye on mobilising supporters for the contest that matters to them: control of the party. Author: David Blackman 17 May
Opinion: an energy price cap would be needless tinkering in a functioning market Intervention in the energy market would be retrograde and counterproductive, argues Stephen Murray
bills. A laudable aim. But the headline proposed solution – a cap on prices – is doomed. Here’s why. Ofgem, the energy regulator which would assume responsibility for pricing the domestic supply market under the next government, commissioned an extensive report into the energy industry in 2014 from the Competitions and Markets Authority (CMA). The report, published last year, found that energy companies are NOT making excessive profits (particularly in residential supply) and that price intervention is NOT in the best interests of the market. What it did find is that the main problem with the energy market is the lack of switching by domestic consumers: 56 per cent of respondents to the survey said they “had never switched supplier, did not know it was possible, or did not know if they had done so”. The CMA concluded that for “most domestic customers on standard variable tariffs (SVT), detriment will be reduced as soon as they engage [in the market] effectively.” Energy firms are routinely accused of overcharging their customers. We’re repeatedly told the energy market is “broken”. But if we change the syntax from “overcharging” to “overpaying”, and from “broken” to “lacking consumer engagement”, we shift the emphasis onto consumers, and give them the power to confront the big six behemoths. Given the facts – significant price differentials between SVT and fixed-rate deals, 50 competing providers, hassle-free 17-day switching – it’s self-evident that investing time, resource and money on raising consumer awareness of switching would bring huge consumer benefit. A future government could explore many initiatives without tinkering in the free market: • implement the CMA’s recommendations, published a year ago, including prompting customers to engage, thus raising switching volumes and boosting competition; • extend awareness campaigns, such as Go Energy Shopping, that achieved uplifts in customer switching; • remove the erroneous perception of “hassle” and “not worth it” that clouds the energy switching market; • support initiatives such as midata and the smart meter rollout to empower customers to understand their own energy usage. Beware unintended consequences It bears repeating: the energy switching market isn’t broken, regardless of what politicians say. We have multiple suppliers, great choice, tariff innovation and significant savings. These are available today for the vast majority of UK households, at amounts two and three times the suggested £100 cap. Put another way, there are currently over 70 available tariffs that would save the average UK household more than £100. And there’s the broader issue – does market intervention actually work? Experience suggests it would lead to a fall in competition, with prices settling at a higher level than in a free market. A price cap would almost certainly mean that cheap deals would disappear, prejudicing those who have already engaged in the market by forcing them to pay more. There are also practical considerations. It has been proposed, for example, that Ofgem should set the cap with reference to wholesale prices. Good luck with that: wholesale prices jumped 50 per cent in six months last year, yet some suppliers increased prices earlier this year, some lowered and some froze them. How would Ofgem manage this minefield of choosing just ONE approach and number to “peg” prices against?
Energy has become a political football. Both Conservatives and Labour are promising radical reforms in a bid to cut consumers’ 5 | UTILITY WEEK | June 2017
eBook: The Labour Energy Price Cap and Utility Intervention
24 May 2017
Labour considering ‘limited’ energy cap
3. News 7th June 2017
Labour’s energy plans ‘unworkable’, warns consultant The manifesto of the Labour party, which is threatening to overtake the Conservatives according to some opinion polls, states that it would “regain control” of energy supply networks by altering national and regional network operators’ license conditions. Last month, Labour’s energy spokesman, Alan Whitehead, told Utility Week that the party is exploring moves to rail franchise-style network licences that would have an expiry date. Under the current licensing regime introduced by the 1989 Electricity Act and entrenched by the 2000 Utilities Act, Whitehead there are no cut off dates for network operating licenses. Whitehead said Labour would explore introducing termination points for network licences akin to those used in train franchises where companies bid to run a section of the rail network for a set period of time. But Ryan Thomson, a partner at consultants Baringa Partners, said that Labour’s plans were “unworkable” and would increase funding costs He said: “Funding costs would increase straightaway because the funding one can attract for these assets at the moment are very, very low.” Thomson said that in order for Labour’s plans to work, there would need to be a split between operations and the ownership of the physical assets like wires and cables. This would be akin to arrangements on the railways where train operating companies, which hold rail franchises, lease rolling stock rather than owning it themselves. He said that such an arrangement would increase the complexity of arrangements and queried whether the licensee or the asset owners would be responsible for their maintenance.
Labour is exploring moves to rail franchise-style time network licenses and a “limited” cap on household bills, the party’s energy spokesman has told Utility Week. Alan Whitehead, in an interview conducted during the pause in campaigning following Monday night’s terrorist attack in Manchester, fleshed out details of Labour’s energy manifesto. The document states that an incoming Labour government would “regain control” of energy supply networks by altering national and regional network operators’ license conditions. Under the current licensing regime introduced by the 1989 Electricity Act and entrenched by the 2000 Utilities Act, Whitehead said there are no cut off dates for network operating licences. Whitehead, who is battling to retain his marginal Southampton constituency, said Labour would explore introducing termination points for network licences akin to those used in train franchises where companies bid to run a section of the rail network for a set period of time. “You would look at terms of licences under the act and whether they could be terminated similar to the rail franchises.” Altering the licensing regime would enable Labour to gain greater control over networks while sidestepping a potentially costly buyback of infrastructure from the existing network companies which could then lease their assets to the licence holders. “The idea that you would pay a huge amount of cash isn’t necessarily part of the model.” He said that the introduction of a licensing regime would support Labour’s ambition to decentralise the power network because it would enable council or other not for profit energy companies to take over the right to run local distribution networks. Whitehead also told Utility Week that Labour, if elected to government would introduce a “looser” cap than the limits mooted in the Conservative manifesto. Labour says it would immediately introduce an emergency price cap to keep average dual annual fuel household energy bill below £1,000 during the transition to a “fairer system”. Whitehead said that any cap introduced by Labour would be “temporary”. While this was in place, he said Labour would introduce reforms designed to “reset” the market. These would include the introduction of more transparent trading arrangement like the Nordpool system that operates across Scandinavia. The level of the cap, which would allow a few percentage points leeway on top of a recommended figure, would also take account wholesale costs, said Whitehead. “Once reset, the market would probably have a cap on it but a looser cap in terms of different operating market conditions.” Author: David Blackman 19 May 2017
General election ‘a good thing’ for water The snap general election on 8 June is a “good thing” for the water sector, because it should bring certainty, according to the chief executive of Southern Water. “I am hopeful that we will get more certainty quicker,” Ian McAulay told Utility Week. “If we do, I think the election is a good thing, on balance.” “The one thing that helps business to operate well is certainty, and that’s what we’re looking for,” he added. “We’re looking for good direction and certainty of direction. The changes that we’re seeing are broadly positive. We have to try and get the certainty into things now in terms of how is policy going to translate, are there going to be significant changes?” Prime minister Theresa May announced in mid-April that a gen-
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eBook: The Labour Energy Price Cap and Utility Intervention
eral election would be held on 8 June. Most of the focus in the runup to the election has been on the energy sector, as the Conservative manifesto included measures to cap energy prices, and the Labour manifesto included plans to return the energy networks to public ownership. The Labour party also said it will renationalise the water sector if it gets into power, creating nine new public bodies to run the water and sewerage system in England. In response to the proposals, the water industry defended its privatisation, claiming water bills would be 30 per cent higher if it had remained under public ownership. The Liberal Democrats did not mention the water sector in their manifesto. However, the party told Utility Week it is against water renationalisation. “There are genuine problems of affordability and ensuring we have sustainable levels of supply, but these need targeted government intervention in the market, directing the regulator to help companies deliver better, affordable services,” a spokesperson said. “The fault lies in a Conservative government who won’t regulate the market effectively. We support government intervening in the water market to ensure companies help customers save water and thus saving consumers money.” Author: Lois Vallely 16 May 2017
Grid to return to public ownership under Labour The Labour party’s manifesto, published this morning, contains a pledge that Labour would bring national and regional grid infrastructure into public ownership “over time”. To help bring this about, the manifesto states that Labour would legislate to permit publicly-owned local companies to purchase the regional grid infrastructure. The party’s commitment to public ownership goes beyond the wording in last week’s leaked manifesto in which Labour pledged to take back “control” by central government of the grid. Labour has also pledged to regain control of energy supply
networks by altering the National and Regional Network Operator licence conditions. The manifesto says Labour wants to take energy back into public ownership in order to deliver renewable energy, make bills more affordable for customers and restore democratic control Investing in publicly-owned energy provision will support Labour’s industrial strategy by helping businesses to reduce their power bills, says the manifesto. The manifesto also contains a fresh pledge by Labour to support tidal lagoons to help deliver its target that 60 per cent of the UK’s energy is generated from low carbon or renewable sources by 2030. Labour has dropped a pledge to establish a new local energy taskforce to provide help and advice for local people and businesses that want to set up community energy co-operatives. And there is no mention of the leaked manifesto’s commitment that renewable energy projects would be a priority for the party’s proposed £250 million National Investment Bank. The official manifesto restates Labour’s commitment to insulate four million homes. Homeowners would be offered interest-free loans to install insulation, energy efficiency standards for rented homes would be upgraded and the Landlord Energy Savings Allowance re-established. But there is no mention in the final document of stamp duty reliefs to incentivise energy efficiency works as proposed in the leaked draft. The final manifesto also confirms that Labour would introduce an “immediate” emergency price cap to keep average dual annual fuel household energy bill below £1,000 during the transition to a “fairer system”. And it confirms that Labour would continue to support new nuclear projects and ban fracking. Responding to the manifesto, the onshore oil and gas industry association UKOOG said Labour’s pledge to ban fracking would undermine the party’s wider commitment to ensure the UK’s energy security. Ken Cronin, chief executive of UKOOG, said: “The Labour party’s position has changed dramatically in two years and shows a misunderstanding of how we use energy in this country. The only solution to our pressing energy needs is a balanced mix of nuclear, renewables and gas – produced here in this country, creating tax revenues and skilled jobs.” Author: David Blackman 16 May 2017
Water sector hits back at Labour’s nationalisation plans The water industry has defended its privatisation, claiming water bills would be 30 per cent higher if it had remained under public ownership. “The Labour party appear to have forgotten that the original reason for privatisation was that the public sector had been unable to deliver the required investment for many years,” Wessex Water chief executive Colin Skellett told Utility Week. He said that, at the time of privatisation, the UK was the “dirty man of Europe”, with below-standard drinking water quality, poor bathing water quality and polluted rivers. “As a result of privatisation, more than £130 billion of private capital has been invested resulting in clean beaches, renewed water and sewerage infrastructure and drinking water quality that is among the highest in the world. “According to industry regulator Ofwat, bills would be 30 per cent (or £120) higher if the water industry had remained under public ownership.” Representative group for the sector, Water UK, said the Labour manifesto “does not do justice to the water industry’s record following privatisation”.
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eBook: The Labour Energy Price Cap and Utility Intervention
A spokesman said: “The quality of bathing and drinking water is up, and customer satisfaction with water and sewerage services is over 90 per cent. Access to private capital and other sources of funding, repaid through dividends and interest payments, has been key to that record of success.” Economist and former head of Ofwat Ian Byatt told Utility Week the privatisation of the water industry brought a 50 per cent increase in efficiency in the first decade. He said he would be “strongly against” the renationalisation of the sector. Byatt suggested that, currently, rewards for investors are “unnecessarily high” and benefits to customers and the environment “too low”. “Better regulation would be much superior to political decisions such as the Thames Tideway Tunnel,” he said. “What I recommend is greater efficiency,” he added. “As well as more focus on benefits for consumers where capital projects are concerned and capital projects opening to competition.” The Labour party announced plans to renationalise the UK water industry if elected to power after the general election on 8 June. Its manifesto, published 16 May, claimed that water bills have increased 40 per cent since privatisation. It said the party would “replace our dysfunctional water system with a network of regional publicly-owned water companies”. In an interview on BBC, shadow chancellor John McDonnell said the party was “concerned by the way privatisation has operated”. By ending the practice of paying dividends to shareholders, bills would be reduced by around £100 a year per household, according to sources close to the party. McDonnell said there were “a number of different mechanisms” for nationalising the water companies, including an outright purchase. However, he refused to set the price, claiming this would “affect the negotiations”. Author: Lois Vallely 16 May 2017
Labour plans to renationalise UK water sector The Labour party plans to renationalise the UK water industry if elected after the general election on 8 June. The party’s leader, Jeremy Corbyn, said he will unveil a “radical and responsible” plan for government, pledging to change the country and govern “for the many not the few”. According to the BBC, Labour would return the water sector to public hands. The industry was sold under Margaret Thatcher in 1989. Labour proposes to create nine new public bodies to run the water and sewerage system in England. By ending the practice of paying dividends to shareholders, bills would be reduced by around £100 a year per household, according to sources close to the party. A Labour source said: “Under Labour, rather than answering to its shareholders out to make a quick buck at the expense of increasing household bills and worsening service quality, utilities will be accountable to the bill payer, helping ease the burden of those struggling with the cost of living crisis.” Author: Lois Vallely
“Rather than answering making a quick buck at the expense of increasing household bills and worsening service quality, utilities will be accountable to the bill payer.”
11 May 2017
Labour would return energy to public ownership Labour has pledged to take back central government control of the national grid and immediately cap average household energy bills below £1,000, according to its leaked manifesto. The draft manifesto, which was distributed to news organisations last night, says that Labour would take back central government control over what it describes as the “natural monopolies of the transmission and distribution grids”. An incoming Labour administration would also restore Whitehall control over Ofgem’s policy and information functions, says the document. In addition, Labour in power would introduce an “immediate” emergency price cap to ensure that the average dual fuel household energy bill remains below £1,000 per year during the transition to a “fairer system”. Stating that “privatisation has failed to deliver an energy system that delivers for people, businesses or our environment” the manifesto says many people “don’t have time to shop around, they just want reliable and affordable energy”. On ownership, Labour promised to create a network of regional, publicly-owned energy supply companies that would be “locally run” and “democratically accountable”. These companies, of which at least one would be located in each region, would have a remit to tackle fuel poverty, offer cut price tariffs, support community energy projects and put pressure on the larger suppliers to slash their bills. The manifesto, which is due to be officially signed-off later today, proposes the establishment of a new local energy taskforce will provide help and advice for local people and businesses to start up community energy co-operatives. On supply, ensuring that 60 per cent of the UK’s energy is generated from low carbon or renewable sources by 2030 will be top of the priority list for the party’s proposed National Investment Bank should it gain an unexpected victory in the general election. Meanwhile, tackling climate change is described as “non-negotiable”. The manifesto pledges support for future nuclear projects, which it says will continue to be part of the UK energy supply mix under a Labour government. But it also says that Labour would ban fracking if it returns to power. Regarding energy efficiency, Labour promises to insulate four million homes as an “infrastructure priority” and to ensure new build properties are built to a zero carbon standard, which was scrapped by the Conservative government in 2015. To encourage greater energy efficiency, homeowners will be offered stamp duty incentives and 0 per cent loans to improve their properties. In the private rented sector, Labour will improve existing energy efficiency regulations. Author: David Blackman
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