Utility Week

UTILITY WEEK | 13TH - 19TH DECEMBER 2019 | 13 Election 2019 Review the price cap On 1 January 2020, the default energy price cap will have been in place for exactly one year. It was brought in to protect vulnerable customers but it has met strong opposition from some sections of the industry. With the big six suppliers citing the cap as a factor behind falling profits, Utility Week urges the next government to bring about a rigorous, independent review of the cap, as outlined in our manifesto. A legislative "sunset clause" stipulates the energy price cap will end in 2023, which means the incoming government will preside over its removal. It can be removed before then, but part of Ofgem's criteria for assess- ing whether market conditions are sufficient for its removal before 2023 is whether a well- functioning competitive process is in place – and herein lies the problem. As Alan Whitehead, Labour shadow minister for energy and climate change, has previously pointed out to Utility Week, what Ofgem may think is a resumption of a fair market may be influenced by how it perceives its own work. Several amendments providing detail on how Ofgem can assess the market were pro- posed at committee level during the passage of the bill through parliament. All but one were rejected. "Part of our aim of trying to put those amendments in at the time the legislation passed was to get some sort of objective handle on this," says Whitehead. "I think it demonstrates that actually we are in a pretty unsatisfactory position as far as how that procedure is going to work to bring the price cap to an end if that is what is wanted." The law states that Ofgem will make an annual report on the competitiveness of the energy market, which will be presented to the government, who will consider whether the market is competitive enough for the price cap to be scrapped before 2023. This means effectively that Ofgem will be marking its own homework because there is little in the price cap legislation to guide its decision. Sara Vaughan, Eon's political and regula- tory affairs director, sums up the industry's concern. "An average of one company per month crashed out of the market in 2018, leaving behind £200 million in unpaid bills which the rest of us had to pick up," she says. "Other players, even long-established ones, are bowing out voluntarily because they just can't see a profitable future." AJ McDonnell: we'll take on 'fat cats' in first 100 days Labour's headline-grabbing pledge to renationalise utilities, railways and broadband have been widely panned as expensive and old- fashioned, but they nonetheless have resonated with the public and Labour clearly thinks they are a vote winner. In the weekend before the election and with Labour behind in the polls, shadow chancellor John McDonnell was doubling down on the renationalisation programme, promising to make it part of Labour's agenda for its first 100 days of government. McDonnell also dismissed the threat of companies tak- ing legal action against any attempt to pay below market prices for companies, accusing the "privatisation fat cats" of "scaremongering". In the past fortnight, both National Grid and SSE have shi–ed operations into offshore companies to protect them- selves against any asset-grab, but McDonnell said Labour would pursue its programme because it was the right thing to do. He said: "Getting rid of the dividends, the overpaid manage- ment and the financial speculators isn't just the right thing to do. It doesn't just return the essentials of life to people's hands. It will save you money as soon as Labour gets into government and makes it happen." AJ Nationalisation 'could harm UK's global standing' Labour's plans to renationalise parts of the utilities sector risk sparking diplomatic repercussions if overseas investors receive less than the market value of their assets, a report by an influ- ential thinktank has warned. The study, published by the Institute for Fiscal Studies (IFS), also looks at the impacts of Labour's nationalisation proposals on net zero proposals. It says: "Reorganising the ownership and structure of these industries, while simultaneously achieving the ambitious tar- gets that have been set (for instance the rapid decarbonisation of the electricity and gas grids), risks years of disruption." And it is "unclear" what more transfer of ownership could achieve as opposed to changing the existing regulatory frame- work. The report says: "These are, a–er all, all industries sub- ject to significant regulatory control and it is unclear which of Labour's stated objectives could not be achieved via changes to the current system of regulation." It says the cost to companies is "uncertain", given that many of them are privately owned but would run "at the very least, to many tens of billions of pounds". "Many of the privately held companies are foreign-owned. Paying less than their full market value would risk harming the UK's reputation and standing with other countries. "There are additional risks of legal consequences to the expropriation of private assets in this way and, given the preva- lence of foreign ownership in many of these companies, possi- bly diplomatic consequences too." It says it will be difficult to untangle the UK and overseas assets of companies such as National Grid and SSE, if they are nationalised. DB See legal comment on nationalisation, p14 Utility Week's Election 2019 Manifesto • Empower utilities to deliver net zero by 2050 • Help utilities to forge a new social contract with the public • Protect investment in the delivery of lifeline services • Foster innova- tion to stimulate a thriving green economy

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