Utility Week

UTILITY WEEK | 1ST - 7TH MARCH 2019 | 11 continued overleaf asked if renationalisation would encourage respondents to vote Labour. Thirty-four per cent replied yes, with just 11 per cent say- ing it would make them less likely. However, things are far from clear cut – with 55 per cent of those questioned revealing it would make no difference either way. So, what could all this mean in prac- tice? Might other options – including "rein- vented" privatised companies with a more social focus on sharing rewards and greater transparency – be real contenders for public hearts and minds in the future? And what could the actual details of some of these models look like? Labour's vision Broadening ownership and control in the economy lie very much at the heart of Labour's proposals for the renationalisation of monopoly water and energy companies. "It's time to shi† the balance of power in our country," McDonnell announced to the party's annual gathering in Liverpool in September. A package of measures would see water reorganised under Regional Water Authori- ties, which would include councillors, workers, customers and those with environ- mental interests. Executive positions would be re-advertised and salaries "dramatically reduced". Shareholders in existing private companies would be bought out with bonds "cost neutral" to the taxpayer, and profit margins aided by the relatively low cost of borrowing for such companies would be shared with consumers. Denouncing as a "scandal" a "dysfunc- tional" industry that had paid out £18 bil- lion in dividends, even as bills meanwhile rose 40 per cent, McDonnell said "surpluses would be reinvested in water infrastructure and staff or used to cut bills". A "public and community" unit in the Treasury would see its public ownership programme through. Yet the shadow chancellor was at pains to point out that this would not be a return to the nationalisation model of the past. "We don't want to take power away from faceless directors only to centralise it all in a White- hall office, to swap one remote manager for another," he said, revealing the launch of "a large-scale consultation on democracy in our public services". Labour's position has dismayed some commentators, who fear that it will hit investment, stoke labour disputes and result in poor service. Some Conservatives say employee ownership represents "yet another tax rise". Meanwhile, the director general of the Is mutualisation the future for water? W ater companies have not had an easy ride recently. The government has criticised their financial structure and the high dividend payments they have made. Ofwat has sought to address this latter point through the PR19 process, which requires water companies with high levels of debt to share the financial gains with customers (instead of tak- ing out debt and using the money to pay dividends to shareholders, which MPs accused them of doing). Against this backdrop, there was a debate in Westminster Hall on 22 Janu- ary 2019 to consider the future of the water industry in England and Wales. It was called by Labour's Gareth Thomas, the MP for Harrow West and chair of the Co-operative Party. His position was that the privatised water industry in England and Wales is not working, because in reality there is little competition and weak regula- tion. His suggestion was to move to a mutual model, similar to Glas Cymru [see page 12], with democratic public ownership by consumers and employees. This would involve form- ing consumer and employee trusts, which could then use bond issues to buy out equity investors' stakes, with legislation to embed the not-for-profit principle and an asset lock to prevent future demutualisation. Glas Cymru is a company limited by guarantee, which was formed in 2000 to acquire Dwr Cymru Welsh Water from Western Power Distribu- tion (which had bought its previous incarnation, Hyder, when it had got into financial difficulties). It financed the purchase of Welsh Water through a £1.9 billion bond issue, thought to be the largest ever non-government backed sterling corporate bond issue. Unlike the English water compa- nies, it has no shareholders and any financial surpluses are either paid back to customers through rebates on bills or (in recent years) reinvested in projects such as flood prevention measures and support for vulnerable customers. The main advantage of this model is the ability to access cheap finance. Given the party that Thomas rep- resents, the proposal is perhaps not surprising. Some MPs in the debate went further and called for water companies to be taken into state own- ership, citing publicly owned Scottish Water's performance as an example of why this is beneficial. Of course, the Glas Cymru model potentially avoids one of the major obstacles to nationalisation: govern- ment having to find the capital to buy out existing shareholders. Glas Cymru is entirely financed in the capital mar- kets, with no government support. Even Conservative MPs seemed amenable to mutualisation. Richard Benyon, Conservative MP for Newbury and chair of the UK Water Partner- ship, said: "We should encourage companies to look at employee share ownership schemes." That whole con- cept of finding ways to democratise capital is a huge, rich seam that we could collectively work on." Water companies are getting on board with this. South West Water in its latest business plan has proposed an element of mutual shareholding as part of its wider ownership base. So the future of water companies may well be mutual, but what seems certain is that they need to be seen to be more accountable to their custom- ers – and the current PR19 process is encouraging this. Rona Bar-Isaac is a partner in the Energy & Utilities team at Addleshaw Goddard specialising in UK and EU competition and regulatory law. This is an abridged version of Rona's column. Read the full article at: utilityweek.co.uk Opinion Rona Bar-Isaac Partner, Addleshaw Goddard

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