Utility Week

UTILITY WEEK | 16TH - 22ND FEBRUARY 2018 | 11 Policy & Regulation This week Labour: 'zero cost' to renationalise utilities Shadow chancellor says a Labour government would swap company shares for government bonds John McDonnell has claimed that renationalising the utilities could be achieved at zero cost to the taxpayer. Interviewed on Saturday 10 February on BBC Radio 4's Today programme, the shadow chancellor of the exchequer said a future Labour government would bring the utilities back into public ownership by swapping shares in the companies for government bonds. "This would give a steady and consistent income guaranteed for the future and is a cost-free way of bringing it into public ownership." McDonnell said the upfront cost of buying back water and energy companies could be paid back from the profits the publicly owned companies made. He said: "You borrow to buy an asset and when that asset produces profits it will cover your borrowing costs. Even if interest rates went up you would still be able to cover your costs." McDonnell claimed lower prices could be delivered by ending the payments of dividends to shareholders. The following day, Labour published an analysis of water companies' accounts, which showed they have paid out more than £13.5 billion in dividends since 2010, nearly equating to their pre-tax profits over the same period. According to Labour, annual dividend payments by the same firms during this period have jumped up by around 11 per cent, while average household water bills have risen by around 8 per cent. DB GAS Ofgem: hydrogen poses challenges Repurposing the gas distribution network to carry hydrogen poses "significant" technical challenges and costs, Ofgem has warned. In its response to the National Infrastructure Assess- ment published in October 2017, the energy regulator outlines the challenges and costs involved in decarbonising the heat network by reducing use of natural gas. Ofgem says retrofitting the network involves "significant" technical challenges, citing as two examples the replacement of iron mains and many household appliances. It also says there are questions over safety, whether customers will accept hydrogen and the best way to produce it. The regulator also flags up barriers to other decarbonisation options such as the high capital costs involved in electrifying existing heating systems. ENERGY Price cap a 'result of feeble response' MPs have branded as "feeble" the energy sector's response to the threat of a price cap, which they said it has brought upon itself. The Business, Energy and Industrial Strategy (BEIS) select committee published its report on the government's dra bill to cap standard variable tariffs (SVTs), following a request by the business secretary to scru- tinise the legislation before it is tabled in Parliament. The MPs label steps taken by companies such as Eon, which has promised to phase out SVTs for customers who take smart meters, as "insufficient to address the scale of the problem". "Suppliers most at fault did not take repeated warnings from the government seriously enough: we were underwhelmed by the feeble steps announced by some of the big six in the hope to avoid a cap." ENERGY Safeguard tariff hike will hit vulnerable More than four million house- holds will see their energy bills rise by around £58 a year aer Ofgem announced it was hiking the safeguard tariff – a price cap aimed at protecting vulnerable and prepayment customers. The tariff was extended to almost one million vulnerable customers on 2 February, taking the total number protected to five million. But those already on the tariff will now pay more. This is because the regulator has now said it will increase the level of its safeguard tariff from 1 April, meaning the average dual fuel bill will rise from £1,031 to £1,089 a year. It said this is due to "higher wholesale and regula- tory gas and electricity costs". McDonnell: 'lower prices could be delivered' Political Agenda David Blackman "Hopes that a cap could be staved off have diminished" It looks like energy companies' calculations must firmly shi to when and not if an energy price cap will be introduced following a report by the House of Com- mons' business select committee this week. The committee published the results of its pre-legislative scru- tiny into the government's dra bill to introduce a hard cap on standard variable tariffs (SVTs). It gave short shri to the measures undertaken by some of the big six utilities, such as More broadly, this week's report by the select committee narrows the likelihood that the bill will be reversed or signifi- cantly watered down by the opposition when it is formally tabled in Parliament. Having largely been given a clean bill of health by the cross- party committee, which is chaired by a Labour MP, the opposi- tion will have less room to play party games with energy bills. Just don't expect the anti-utility rhetoric to be dialled down. Centrica's pledge to scrap SVTs, which it branded as "feeble". A piece of good news for energy firms is that the commit- tee backed the government's proposal to make the cap a tem- porary one. However, the MPs rejected a push by the energy utilities for a right of appeal to the Competition and Markets Authority against the level of the cap, which the committee believed companies would just use as a delaying tactic. And hopes that the cap could be staved off next winter have diminished following the call by the committee for the legisla- tion to be fast-tracked for Royal Assent by this summer.

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