Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/830679
UTILITY WEEK | 2ND - 8TH JUNE 2017 | 13 Policy & Regulation Policy & Regulation But Labour's pledge to bring chunks of the utilities back into public ownership has not proved to be the voter turn-off conven- tional wisdom suggested. In the week fol- lowing the leaking of the party's manifesto, which first revealed that Labour was plan- ning to renationalise parts of the national grid, the party's average polling levels put on more than 3 points to reach a 12-month peak of 31.8 per cent. Both main parties have picked up sup- port from the minor parties. The Liberal Democrats' attempt to wrap themselves in the European Union flag hasn't worked and the party has dipped from 10 per cent at the beginning of the campaign to 8 per cent today. If repeated on election day, this result would see the party going backwards on the 8.5 per cent it recorded in 2015. The Greens have also been crowded out of the debate, seeing their 4.7 per cent vote share at the 2015 election nearly cut in half to 2.5 per cent, according to Britain Elects However, UKIP has been the biggest loser. During the past month, the party's poll share has cratered to 4.8 per cent from nearly one- eighth of the vote in 2015. While two-party politics may be staging a revival, the current polls indicate that there is still only one game in town. The key bat- tles that look set to determine utilities' fate over the next five years are likely to be deter- mined within the Conservative Party rather than at the ballot box next week. T he 2017 Labour party manifesto has echoes of its equally radi- cal 1983 predecessor, famously dubbed "the longest suicide note in history". While various renationalisation proposals are advocated – some of which are quite popular – both National Grid and the privatised water companies are now in Labour's sights. The costs of implementing such a policy would be massive, although utility share valuations would undoubtedly plummet prior to any actual implementation. Of course, opinion polls give the Labour party minimal chance of prevailing on 8 June, so its manifesto commitments will be seen by some as academic. Nonetheless, if the polls turn against the Conservative party in the next two weeks, utility share prices would come under sustained pressure. On page 20 of its manifesto, Labour states its aim to "take energy back into public ownership". More specifically, there is a commit- ment to "ensure that national and regional grid infrastructure is brought into public ownership over time". Initially, tougher financial regulation, along with other measures, would probably precede any actual renationalisation. Interest- ingly, the Labour party is focusing on energy grids, a sector where National Grid is unquestionably the key player. A substantial part of its current £37.6 billion capitalisation arises from its US activities, but its core business remains its extensive UK electricity and gas networks. If a future Labour government sought to acquire a 51 per cent majority stake in National Grid's UK operations, the cost – allowing for a heavily depressed share price – would probably lie within the range of £8 billion to £12 billion. The Labour manifesto has also pledged – rather surprisingly – to "replace our dysfunctional water system with a network of regional publicly-owned companies" (p19). The benefits of such an expensive policy are not immediately apparent. However, if a 51 per cent majority stake were acquired in the three quoted stocks, Severn Trent, United Utilities and Pennon (ex Viri- dor), the cost would probably be within the range of £5 to £7 billion. The remaining water companies are not UK-listed. Determining a comparable valuation for them is difficult, although their ongoing regulatory asset value would no doubt serve as a base calculation figure. In assessing the projected renationalisation costs, key assump- tions need to be made about the market's response to a highly unlikely Labour party victory and, if so, which of its many expensive commitments would actually be implemented. It is perhaps relevant that on the day aer the 1992 general elec- tion, when the Conservative party secured a narrow – and somewhat unexpected – majority, quoted water stocks rose on average by 18 per cent. The controversial Railtrack renationalisation in 2002 also pro- vides a valuation precedent. For many, however, the general election result is already a given so that possible renationalisation of key utility players is little more than a contingency risk. But if new opinion polls show the large gap between the two leading parties narrowing sharply, holders of utility stocks have every reason to become very nervous. Opinion Nigel Hawkins, Director, Nigel Hawkins Associates Manchester terror attack – utilities respond The Manchester bombing of a pop concert in which 22 people died brought a halt to general election campaigning as politicians across the divide united in their expressions of sympathy and sorrow, for the victims and their families and friends. The morning aer the attack, Utility Week Live 2017 was opening in Birmingham. Senior utility executives scheduled to speak at the event were also forthcoming in sharing thoughts of compassion. In the opening session of the Keynote conference, UK Power Networks chief executive Basil Scarsella, David Wright, director of transmission owner at National Grid and Bristol Water chief executive Mel Karam all recognised the shocking news. They also observed that the threat of terror incidents has a direct impact on the operations and responsibilities of utility providers. Karam commented: "Unfortunately these days, that's a feature of the uncertain environment that we work in." Wright agreed, calling the attack, and the malware assault on the NHS a week earlier, "a sign of the times". He added: "The security of our infrastructure against incidents like these is part of the transformation we are talking about" – the speakers had been asked to share thoughts with the Keynote audience about the ways in which their organisations were approaching flexibility and transformation in an uncertain environment. The city of Manchester sits at the heart of the Electricity North West electricity distribution license area. Following the attack, the company chief executive Peter Emery told Utility Week: "We are still in shock following Monday's horrific events on our doorstep. "We have enormous pride in our people and the people in our region that we serve. No words can explain our sadness at this time. The support and solidarity from the rest of the country and all over the world has been incredible and our heartfelt condolences and compassion are with those who have been so deeply affected by this tragedy." What is the cost of renationalisation?