Utility Week

8 | 1ST - 7TH FEBRUARY 2019 | UTILITY WEEK A UtilityWeek c ampaign price approach was pursued, as would the UK pension funds that have investments in thesector. "It sets a potentially dangerous precedent with an impact on long-term investment decisions in the UK if there is a concern that assets e ectively can be taken away at below market price," he says. One of McDonnell's key defences of pub- lic ownership is that the government would recoup the pro ts from providing services like water and energy rather than see them siphoned o into the pockets of sharehold- ers. These revenues would in turn pay for the borrowing needed to bring utilities back into public ownership. But it could be optimistic to rely on these revenues, given the potential for utility prices to become politicised under public control, says Corfe. "If it becomes very politi- cally diƒ cult to increase water prices, that would undermine the nancial viability of the sector in the long run. "When you have nationalisation, you have the risk of price signals being politicised." And utilities would have to compete for the scarce attention and resources of poli- cymakers, with potentially damaging con- sequences for long-term investment in the sector. "Water is less of a vote winner than areas like policing and health," argues Corfe. "One of the key reasons for privatisation is that the water sector was plagued by years of underinvestment. We are potentially return- ing to that situation where water is over- looked because of demands to spend public money elsewhere." Ed Gill, head of public a airs at the ENA, agrees: "We would be moving from price controls, which are a very e ective lever for policy, to a system where arguably there is more competition for attention. Decision- makers will only have so much bandwidth to deal with issues." As for networks, the potential disrup- tion resulting from the threat of nationali- sation could arrive at a potentially "pivotal" moment, just when networks need to be upgraded to cope with greater decentrali- sation of generation and uptake of electric vehicles. "This is advanced stu and deci- sions are being made now about how we are going to do it," says Gill. A new narrative However, utilities need to make a "step change" in countering the nationalisation narrative, argues Corfe. Utility Week's survey showing that around half of consumers trust their utility suppliers and are satis ed with the job they are doing may be reassuring for the sector, he says: "One of the responses of the sector to the nationalisation debate is to talk about how well they are performing and how customer satisfaction levels are high." But these apparently reassuring ndings point to a deeper problem, Corfe says: "Con- sumers seem to be genuinely satis ed with the prices they are paying but they would still rather the sector be nationalised. The sector needs to doing more to counter that whole nationalisation narrative. He says water in particular needs to think creatively about how it o ers a fair deal to consumers. "If you are a short-termist business you might have very high pro t margins, but if the long-term risk is an increase in the chances of being nationalised, perhaps the more enlightened view is to accommodate a lower rate of return in the future. If that takes the heat out of the nationalisation debate it could be worth it in the future." The Social Market Foundation is explor- ing tari reform, such as a progressive pric- ing regime, which would see customers enjoying a free allocation of water and only having to start paying once usage passes a certain point. "They can be more creative about tari s and show that they are help- ing people on lower incomes who spend a higher percentage of their income on water. Tari reform could go a long way to assure people that the privatised model is the way forward," he says. This is the kind of imaginative thinking that utilities need if they want to halt the public ownership bandwagon. Labour's Clear Water The opposition outlined its plans for the water industry, which it says will be brought back into public ownership before energy, in a document entitled "Clear Water" last autumn. • Ownership of regional suppliers transferred to new Regional Water Authorities (RWAs) with safeguard to prevent reprivatisation. • Ofwat to be scrapped with regulation of the industry transferred to a new National Water Agency, responsible for policing economic and performance standards. • Each RWA board to contain elected repre- sentatives of the region's local councils, the industry's three biggest trade unions, and an environmental and a consumer representative. • RWA boards to hold monthly public meetings broadcast live on the internet and all papers published. • Current owners to exchange shares for bonds with deductions for pension fund deƒ cits, "asset stripping since privatisation" and subsidies received since privatisation. • Water companies to be self-ƒ nancing from user charges and debt except for occasional government grants awarded for speciƒ c public interest projects, such as Transport for London. continued from previous page "We would be moving from price controls, which are a very eff ective lever for policy, to a system where arguably there is more competition for attention. Decision-makers will only have so much bandwidth to deal with issues." Scott Corfe, chief economist, Social Market Foundation Next week: Our New Deal for Utilities campaign looks at what companies should be doing to change the way they're viewed by the public.

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