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Policy & Regulation L abour's pledge to bring energy back into public ownership, outlined in the party's leaked manifesto, could prove popular with the public. A poll conducted by the Daily Mirror shows that nearly half (49 per cent) support the policy with around a quarter (24 per cent) opposed. However, with the Conserva- tives maintaining a large lead, according to the latest polls, the opposition's proposals are likely to be of interest only to students of doomed election manifestos. The energy sector seems to have made this calcula- tion, judging by the volume of responses to the two parties' proposals. While the Tories' mooted cap provoked a flood of responses, Labour's more radi- cal package generated barely a murmur. The bulk of the big six have fallen solidly into line behind the stance adopted by Energy UK, which has warned that the Tories' cap won't deliver the savings the government wants to achieve. Rather than a broad-brush intervention across the whole of the market, help should be focused on those who really need it, says the energy trade body. Capping prices will also mean companies have less scope to undercut the headline standard variable tariffs (SVTs), which will kill off competition in the market, ultimately resulting in the perverse consequence of higher prices. This script is backed up by the comparison websites, which of course have a vested interest in encouraging switch- ing. They also back the big energy companies' argument that the proposed remedies in last summer's Competition and Markets Authority retail energy market report, which focused on encouraging customers to switch, should be given more time to work. A note from the utilities equity research team at Barclays suggests that margins will be squeezed at the big six but that they will remain profit- able. Barclays calculates that margins on an Ebit (earnings before interest and taxes) basis of 2-3 per cent are feasible (see graphs, right). For Centrica and SSE, mar- gins would drop from 4 per cent to 3 per cent and 2.5 per cent, respectively. Provided both com- panies can make efficiencies, margins will recover to 4-4.5 per cent by 2023, Barclays forecasts. But lower margins will mean less cash available for invest- ment in the low-carbon energy infrastructure to replace the coal-burning stations that the government is still committed to phasing out. Nevertheless, having stuck her colours so firmly to the mast on price caps and despite Tory grassroots grumblings that a Conservative government has no business controlling prices, May is unlikely to be for turning. David Blackman POLL TRACKER, 2-8 MAY 2017 Source: UKpollingreport.co.uk "Energy firms can only lobby for the least worst option." Analysis 60% 50% 40% 30% 20% 10% 0% 02 05 17 03 05 17 04 05 17 05 05 17 06 05 17 07 05 17 08 05 17 Conservative Labour Lib-Dem Ukip Green SSE, FULL YEAR (TO MAR 2017) SPLIT OF NOPAT CENTRICA, FULL YEAR 2016 (TO DEC) SPLIT OF NOPAT SSE, EPS SENSITIVITY TO NON-PPM EBIT MARGINS CENTRICA, EPS SENSITIVITY TO NON-PPM EBIT MARGINS 5% margin 4% margin 3.0% margin, base case 2% margin 1% margin 0% margin 4% margin 3% margin 2.5% margin, base case 2% margin 1% margin 0% margin Renewables and other quasi-regulated generation 21.8% UK domestic retail 42.2% E&P 2.0% E&P 4.6% Other UK and IRE retail and services 23.4% Other 5.0% Other net 7.1% US domestic retail and services 5.6% UK business retail and services 3.9% US business retail and services 13.3% Regulated networks 49.1% Source: Company reports, Barclays Research estimates Source: Company reports, Barclays Research estimates Source: Company reports, Barclays Research estimates Source: Company reports, Barclays Research estimates UK domestic retail 10.8% UK I&C retail 5.3% Other UK & IRE retail and services 5.9% 17p 16p 15p 14p 13p 12p 11p 10p 9p 2017E 2018E 2019E 2020E 2021E 2017E 2018E 2019E 2020E 2021E 160p 155p 150p 145p 140p 135p 130p 125p 120p 115p 12 | 19TH - 25TH MAY 2017 | UTILITY WEEK