British Gas shares plummet – CEO’s salary soars

“The boss of Centrica [formerly British Gas] is fighting for his job as investors lose faith in his leadership.

Iain Conn has been chief executive of the British Gas owner since 2015 – picking up £11.1 million in pay along the way.

But the FTSE 100 group’s shares have tumbled 60 per cent on his watch and are at their lowest level since 1999.

The father-of-three’s position is seen as particularly vulnerable since the arrival of Charles Berry, who succeeded Rick Haythornthwaite as chairman in February. …

Conn has also attracted the ire of retail investors who have seen the value of their savings plummet from 279p a share when he took over in 2015 to 109.05p at the close of business yesterday.

The slump has slashed Centrica’s value from £15.9 billion to £6.2 billion.

The backlash among shareholders comes a week after it emerged that Conn, 56, enjoyed a 44 per cent pay rise to £2.4million in 2018.

The rise of £740,000 covered a year when British Gas hiked bills for millions of families and saw 742,000 customers leave. …

Centrica this month announced another 500 jobs are at risk – 400 of which are based in Glasgow –- as part of the company’s plan to cut 2,000 jobs this year. It has axed 7,700 jobs since 2015.

Centrica declined to comment last night. …”

https://www.thisismoney.co.uk/money/markets/article-6925171/British-Gas-boss-fights-job-Iain-Conn-fire-shares-hit-20-year-low.html

Much cheaper water bills in south west – thanks to Jeremy Corbyn!

Threatened with nationalisation, South West Water cuts bills by 15% – interesting!

“Under threat of nationalisation from a putative Jeremy Corbyn-led Labour government, Britain’s three listed water companies have agreed to the largest cuts in customer bills since privatisation by Margaret Thatcher 30 years ago.

The reductions will mean that households in the West Country will pay 15 per cent less at 2019 prices over the next five years. In the northwest of England, bills will fall by 11 per cent before inflation.

While the inflation link in water charges will mean bills will fall by less, new penalties for missing environmental and operational targets could mean suppliers having to cut household charges by even more as a means of compensating their communities.

Of the 17 water companies in England and Wales, three have made a fast-track agreement with Ofwat, the regulator, to set customer charges from April 2020 to March 2025.

The other 14 suppliers have been given a must-do-better notice by Ofwat. Having been told by the regulator to resubmit their plans and make them more ambitious, the 14 will be told by Ofwat in July whether their revised proposals are acceptable.

As there is no competition in the supply of water to households, the 17 suppliers are all local monopolies and as such are tightly regulated by Ofwat. However, critics of the regulatory regime, including MPs on both sides of the House of Commons, have argued that Ofwat has for too long allowed suppliers to put up prices without investing enough in, for instance, stopping leaks, which in some areas lead to 25 per cent of the treated water in the mains system going missing.

The three suppliers who have been fast-tracked by Ofwat for presenting credible business plans for the 2020-25 price review are, coincidentally, the three remaining stock market-quoted water companies: United Utilities, formerly known as North West Water, which serves 3 million homes from Cheshire to the Scottish border; Severn Trent, which serves 4.3 million customers in the Midlands; and South West Water, which supplies 1.8 million people in the West Country and is a subsidiary of Pennon Group.

Household customers of South West Water have long had the largest bills in the country. Ofwat has agreed with the group that those bills will fall before inflation by 15 per cent, or £77, from this year’s £527 average to £450.

However, South West Water has also agreed with Ofwat that if it does not clean up its act with the Environment Agency — it is the most regularly fined for pollution incidents — then it could face further cuts to the charges it makes.

United Utilities has agreed to a £49, or 11 per cent, cut in bills over the next five years but has been told it will have to cut charges more if it does not hit targets to reduce its leaks by 20 per cent.

Severn Trent is to cut bills by 5 per cent, or £16, over the five years. It has committed to more than halving the average time its customers are without water every year or face penalties.

Under Ofwat’s rules, bills will go up every year in line with CPIH, the consumer price index that includes housing costs, now running at 1.8 per cent.

The suppliers’ charges will get final clearance in December. David Black, the Ofwat director in charge of the process, said: “Our draft decisions for these companies show that investment in service and infrastructure can go hand in hand with more affordable bills.”

Source: The Times (pay wall)

Two more utility franchises cost taxpayers dear – very, very dear


VIRGIN EAST COAST

The East Coast rail franchise will be terminated three years early, avoiding the embarrassment of another private firm handing back the keys to the government but potentially forfeiting hundreds of millions in premiums due to the Treasury.

Under a rail strategy announced by the transport secretary, Chris Grayling, a new partnership model will replace the franchise contract of Virgin Trains East Coast (Vtec).

The train operator, a joint venture led by Stagecoach with Sir Richard Branson’s Virgin Group, had pledged to pay £3.3bn to run the service until 2023 when it was reprivatised in 2015 after six years in public hands.

Instead, Vtec is likely to pay a fraction of that sum, with the bulk of payments due in the final years of the franchise.

The firm signalled that it also expects its payments for the next three years to be cut. In the first full year of operation, it paid £204m. Shares in Stagecoach jumped 12% on the news.

Andy MacDonald, the shadow transport secretary, told the Commons that the strategy announcement was “a total smokescreen”. He said: “The real issue is that the East Coast franchise has failed again and the taxpayer will bail it out.”

Pointing to the share price rise, he said: “Markets don’t lie. The secretary of state has let Stagecoach off the hook for hundreds of millions of pounds. He’s tough on everyone except the private sector.”

GREAT WESTERN RAILWAY

More questions were raised by a separate decision to give First Group another contract to run Great Western Railway (GWR) up to 2024 after it was controversially allowed to continue running the service, despite dodging £800m due to the government in an original contract.

The franchise, which runs commuter services into London Paddington and long-distance trains to Wales and the south-west, is likely to be broken up, under plans published by the DfT. The biggest commuter franchise, Govia, which operates the Thameslink, Great Northern and troubled Southern services, will also be broken up.

DfT will extend First’s current GWR franchise contract by another year, to April 2020, and then give a direct award for two more years, with an option to double the tenure.

First has run the trains during the botched upgrade of the route by Network Rail, which has seen costs overrun to almost treble the original budget and stretches of the electrification project abandoned to save money.”

https://www.theguardian.com/uk-news/2017/nov/29/east-coast-rail-franchise-terminated-three-years-early-virgin-trains

Two (of many) privatised water scandals

1. SOUTH WEST WATER

“A water firm has been slammed for handing more money to its owners than it spent on upgrading equipment.

South West Water paid a £213.1million dividend to its parent group Pennon last year, while investing £190million in drinking and wastewater operations.

Research group Corporate Watch said that over past ten years, it has paid £1.7billion to its owner and banks, and invested £1.4billion on upgrades.
Last December the firm was fined £1.7million by the regulator Ofwat for missing pollution targets.

Its minor spills increased from 222 to 252 during 2016, according to is latest annual report. The firm says 82m litres of water leak a day, within its target of 84m litres. …

http://www.thisismoney.co.uk/money/markets/article-5086339/South-West-Water-paid-owner-upgrading.html

THAMES WATER

Enough has been written about a Conservative government that knows its electoral success depends on Britain remaining a property-owning democracy, yet offers nothing beyond token gestures to stop the young being priced out of home ownership. Enough, too, has been said about graduates being overcharged, pensioners soaking up the largesse of the tax and benefit systems, the failure to upgrade infrastructure, the obesity crisis, and all the other problems that can’t be tackled because of half-thought-through Tory prejudices.

Allow me instead to concentrate on the scandal of the privatised water industry. Journalists and academics have been banging on for what feels like an age about an ‘organised rip-off’, to use the words of the usually sedate Financial Times. Few took notice, and that should not surprise you. Causes can appear marginal for years. Politicians see no need to address them. Then, with no warning to those who haven’t been paying attention, they explode.

Last week Michael Robinson of the BBC presented a superb documentary on what Thames Water had done to London and the southeast. Most infamously, the company poured 1.4 billion litres of sewage into the Thames near Marlow alone, destroying fish and fouling the home lives of river-side residents. The residents were also its customers. Not that Thames Water seemed to care. Water is a private monopoly. Why should it bother itself about the feelings of people who had nowhere else to go? After hearing how managers ignored warnings from workers about persistent equipment failures, Judge Francis Sheridan encapsulated their attitude when he said that the company had presided over ‘a shocking and disgraceful state of affairs’.

As shocking is the way that the former owners of Thames, the Australian bank Macquarie, was able to pass its costs on to the public. Macquarie took on £2.8 billion of debt to buy the company; it then loaded £2 billion of Cayman Islands debt on to Thames Water and its customers, despite giving assurances to the water regulator Ofwat that it would do no such thing. Macquarie has taken its profits. According to Martin Blaiklock, an infrastructure consultant, its investors received returns of 15 to 19 per cent over 11 years — twice the expected level. All it has left behind is a £2 billion debt and a very bad smell.

Now Thames Water is owned by a Kuwaiti investment fund and a Canadian pension fund. Its managers talk the soothing language of customer service and corporate responsibility. But when pressed by the BBC to say that they would not seek to imitate Macquarie and extract rapacious returns from a captive market, they refused to answer the question.

What interest do Kuwaiti and Canadian investment funds, Australian banks and Cayman Islands financiers have in ensuring the quality and affordability of our water? The hopeless regulators have no answers. Since Margaret Thatcher privatised English water companies in 1989, six out of the nine have pulled themselves off the stock market, meaning they do not have to release to their shareholders information that the regulators can scrutinise.

They promised to bring efficiency. Instead they have brought unsustainable levels of debt that, one way or another, the public will have to redeem. Researchers at Greenwich University say that in the past decade, the nine companies have made £18.8 billion of post-tax profits. Far from using the money to make the water system better, they have paid out £18.1 billion in dividends, and financed investment through loading £42 billion of debt on to consumers.

The university estimates the English are paying £2.3 billion more a year in water and sewerage bills than if the utility companies had remained in state ownership. These costs might have been bearable in good times, but as the Brexit-induced fall in the pound pushes real wages back down again, the prices of water, gas and electricity are bound to be political issues. Customers may not be overly keen to subsidise shareholders and lavishly overpaid managers.

I am not surprised that the Conservatives haven’t joined Labour in demanding the renationalisation of the water industry. It would cost about £70 billion, and in any case, Tories don’t nationalise. But why, after the Macquarie shambles, aren’t ministers and the regulators saying that secretive private equity and Middle East funds should not be allowed to control utilities? Why have they allowed Macquarie to move to the National Grid’s gas division? Ofwat is huffing that it has got tough, but it imposes no penalties on managers who break their commitments. After loading Thames Water with debt and flooding the Thames Valley with excrement, its then boss, the unimprovably named Martin Baggs, bagged a 60 per cent pay rise in 2015.

Conservatives claim to believe in the free market. If they did, they would view monopolies as Adam Smith viewed them — as conspiracies against the public interest. They would not care whether the monopolies were public or private. Both give consumers no choice. Both can put their customers’ interests last. But to the Tory mind, a distinction without a difference makes all the difference.

Because water companies are private monopolies, politicians and regulators back away from confronting them with the necessary anger and vigour. If a nationalised industry behaved as Thames Water has, they would be outraged. As it is, the mere fact that the monopolies are private is enough to persuade politicians to stand aside and let a scandal grow. No one will be more surprised than them when it explodes.”

https://www.spectator.co.uk/2017/09/even-the-tories-should-admit-that-its-time-to-renationalise-the-water-companies/