UTILITY WEEK | MAY 2023 |
5
KNOWLEDGE WORTH KEEPING
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Are utilities profi ting
from a one-sided bet?
This month's magazine features a special report by our insights editor Tom
Grimwood on the issue of water company gearing and whether a link can be
made between ownership, debt levels and operating performance.
No pretence is made that this is an entirely new issue – long-time readers of
Utility Week will be very familiar with the ongoing battle between regulator and
regulated over • nancial resilience and the role debt plays in that.
However, as the report points out, the debate is now being conducted against
a very di• erent backdrop. Water companies, which have become used to • ying
under the radar of public opinion, have in recent years found scrutiny inten-
sifying. This is most notable on environmental issues but the debate about
responsible • nancial stewardship of utilities also appears to be gaining traction.
Our online weekend press round-ups now regularly feature contrasts between
water executive bonuses/payouts to shareholders and a company's performance
in areas such as pollution.
A more considered opinion comes from professor Robin Mason, an Ofwat
adviser, who shared his concerns that water companies (and for that matter
energy networks) are bene• tting from a "one-sided bet", partly due to the regu-
lators' fears of company failures.
It was disappointing that during the research for this report, none of the
water companies we approached for comment spoke to us on the record, while
the sector's trade body, Water UK, also declined to add any new comments into
the debate.
Clearly, there is a credible defence for water companies being large borrow-
ers. A lot of their spending is on extremely long-term investments that will not
be paid o• for decades. Raising all of this capital from equity investors would be
impractical and ine' cient.
However, this does not mean scrutiny of their • nancial arrangements is
unwarranted. Over the coming decades water supplies and infrastructure will
come under increasing pressure from climate change, while companies must
• nd the solutions, and the funding, to meet public and political expectations
on the state of our waterways. In short, there is a huge amount of uncertainty,
and it is right to ask whether that risk will ultimately be borne by investors or by
customers.
I can understand why water companies are reluctant to mount a spirited
defence against their critics. But on both • nancial resilience and environmental
protection, the sector can show progress is being made, even if there is a long
way to go. Saying this publicly won't make the bad headlines go away but it at
least allows the sector to be part of the conversation, not just the subject of it.
James Wallin, editor, jameswallin@fav-house.com
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Content director: Jane Gray,
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Insights editor
Tom Grimwood,
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News editor
Rob Horgan
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Senior reporter
Adam John
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Water correspondent
Ruth Williams,
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Policy correspondent
David Blackman,
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Guidehouse
Strategic grid investment now is
money well spent for the future
https://bit.ly/3ZcqkJ2
Automa
Taking control of methane
emissions
https://bit.ly/402J5Q9
Letter from the Editor
James Wallin
Semtech
Standardisation across utilities
https://bit.ly/3luZNZC
