Utility Week

UTILITY WEEK | DECEMBER 2022 | 15 Pan-utility Cox stressed that his views were his own, not re ec- tive of his former role at the water regulator, or any of his current positions. Southern was on verge of special administration Cox also conceded that Ofwat came "very close" to tak- ing Southern Water into special administration, before opting for a market-based approach under which Macquarie acquired a majority stake in the company last year. Cox co-led the process of the nancial restructure of the water company, which resulted in a £1 billion invest- ment in August 2021. He told the Forum: "I had the privilege of co-leading the regulator's initiative on Southern Water last year – a stark example, in what is meant to be a stable sec- tor, of a very material wipe-out of equity value for poor performance. "While very close to special administration of South- ern Water, in practice we brought about an auction for the control of Southern by a new investor which should ensure much faster progress in improving performance. Moody's described what we did as a virtual special administration by basically bringing a new controlling owner in." Black urges water bosses to talk openly about sewage discharges David Black, the head of Ofwat, expressed concern that water companies are not recognising the gravity of the public anger over sewage discharges and called for chief executives to talk more openly about the issue of com- bined sewer over ows (CSOs). The chief executive said "the story of CSOs" would not be told without company executives explaining to billpayers how the system works, why their use had been acceptable and what work is underway to improve for the future. "I worry the sector is treating sewage pollution as just a bad news story, rather than something that requires clear and radical change now and in the future," Black told delegates. He added that companies and their investors may not "really understand the level of public anger" over the "disconnect between environmental performance and shareholder earnings". Black underlined that Ofwat is modifying company licences to tighten requirements concerning minimum credit ratings for listed companies and the calculation of bonuses and dividends. This followed the regulator raising concerns about the nancial health of Southern, Thames and Yorkshire, all of which have seen shareholders required to inject more money into the businesses. For PR24, Black said investment would be needed to meet ambitious sector targets to drive down emissions by 2030, as well as innovation to address process emissions that are not currently included in the target. "We will set out in the dra˜ methodology how we will fund investment required to make progress on net zero and other areas," Black said. UK uncertainty has sparked 'investor strike' Global investors have become spooked by the level of uncertainty in the UK, according to a panel of experts, including Barclays' Dominic Nash, who suggested an "investor strike" was underway. Nash, head of European utilities for Barclays, said there are too many risk factors at play including how long and how deep the recession will last; what bond yields will rise to, which links to cost of capital; where in ation will go; and the decisions government is mak- ing that directly impact utilities. He suggested there is "broadly a strike" by global investors because of the amount of risk in the UK. This could be countered by the UK currently "looking insanely cheap", however Nash said investors lacked faith that earnings would materialise at the rates suggested. "There's no clarity," he said. "The UK has taken a knock and it will take quite a long time to get con dence back." However, he reassured the room that this is not dis- similar to the picture playing out across Europe, where other countries are facing their own issues but to a lesser extent when compared to the UK. Nash appeared beside Nazmiye Ozkan, professor at Cran eld University, who raised concerns that public perceptions of utility companies are so low that pro - teering will damage any remaining trust. In terms of addressing the current cost of living crisis, she suggested that a windfall tax is acceptable for short-term periods of unforeseen circumstances, but other options should also be considered. She said more demand-side management is needed such as mandatory smart meters for house- holds to help them save energy and money. Special thanks to all the sponsors of the Forum Event partner Co-sponsors Associate sponsors

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