“Households could foot the bill for new nuclear plants”

Ministers are set to unveil a controversial new method for funding nuclear power stations and carbon-capture projects — one that heaps cost and risk onto consumers.

The business department is expected to publish a consultation this week on regulated asset base (RAB) financing in the nuclear sector. It is a method used by water companies and Heathrow airport, allowing them to begin charging households years before a project has been built.

French giant EDF wants to pioneer the financing model at its proposed Sizewell C power plant in Suffolk. EDF is building the £20bn Hinkley Point C station in Somerset, but argues that it cannot afford to build any future plants in the UK without a new financing approach.

Ministers are wrestling with how to meet the UK’s power needs, with ageing coal and nuclear stations set to close. However, government plans to publish a full energy white paper this week seem to have been dashed by concerns over how to pay for the programme, and the change in Tory leader. The white paper is now expected in the autumn.”

Source: Sunday Times (pay wall)

Environment Agency severely criticises water companies about pollution risks

Water companies – you know, those privatised companies (with monopolies in their areas) that hand massive bonuses and dividends to their (often foreign) owners and shareholders.

From the report:

“… “This report shows that:

• with one exception, none of the companies are performing at the level the environment needs

• rather than improving, the performance of most companies has deteriorated, reversing the trend of gradual improvement since we introduced the EPA in 2011

• serious pollution incidents which damage the local environment, threaten wildlife and in the worst cases put the public at risk, have increased

This report is about 2018, but I am sad to say we are not seeing dramatic improvements in 2019. As a result we will toughen our regulatory approach!”

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/815129/Water_company_performance_report_2018.pdf

Water, water everywhere, but ne’er a drop to drink …

“The owners of Britain’s water companies received almost £5 billion in dividends over the past five years, according to analysis by a union campaigning for renationalisation.

The GMB union said shareholders had “pocketed eye-watering sums” from the privatised water industry, which it called an “abject failure”, including a further £1.4 billion in the form of interest on loans.

Industry returns are in the spotlight after Labour vowed to renationalise the industry and after Southern Water was fined a record £126 million in penalties last week after systematically covering up sewage leaks over seven years.

There are 17 water companies in England and Wales. Three are listed — Severn Trent, United Utilities and South West Water, part of Pennon Group — and the rest privately owned.

The GMB analysis calculates £4.7 billion in dividends were paid out to shareholders between 2014 and 2018, including more than £800 million last year. It counted a further £264 million in other payouts such as share buybacks. It said owners of the water companies had also received £1.4 billion in interest on loans and had accrued a further £520 million in interest, giving a total of almost £6.9 billion it said shareholders had made.

Tim Roache, general secretary of the GMB, said: “If you needed a poster child for abject failure, the privatisation of the water industry is it. Bills up 40 per cent above inflation, billions of litres of water lost in leaks as families face hose-pipe bans and all the while shareholders are trousering billions in profit.”

A spokesman for Water UK, the industry’s representative body, said: “Privatisation of the water and sewerage industry has achieved a great deal over the last 30 years — nearly £160 billion of investment, a healthier environment, better water quality and improved service to customers.

“Customers are now five times less likely to suffer from supply interruptions, eight times less likely to suffer from sewer flooding and 100 times less likely to have low water pressure than when the industry was in government hands. Nationalisation would risk turning back the clock to the days when service and quality failures were far more common, and cash-strapped governments wouldn’t pay for the improvements needed.”

Mr Roache called it a “complete disgrace” and urged the government to do “something about it”.”

Source: The Times (pay wall)

“Calls for compensation after regulator error causes £24.1 billion hike in everyday bills”

Owl cannot believe this was accidental.

“Regulators have allowed water, energy, broadband and telephone networks to overcharge customers by £24.1 billion over the past fifteen years, according to stark new figures from Citizens Advice.

The news comes after research found an initial investigation that unearthed £7.5bn of overcharging for connection to key services was just ‘the tip of the iceberg’.

In 2017 Citizens Advice found Ofgem made errors in setting price controls for energy networks, resulting in energy customers being overcharged £7.5 billion over an 8-year period. After the charity highlighted these concerns, three energy network companies returned a total of £287m to consumers.

But now the charity has found the same errors have been made by Ofgem over a much longer period and by regulators in other markets including water, broadband and phone networks.

This research shows misjudgements by the regulators Ofgem, Ofwat and Ofcom on key decisions have meant customers have been paying far too much for the pipes and wires that connect their homes to essential services over the last 15 years.

These sectors include companies that face little, or no, competition to drive down the price they can charge their customers. Instead, regulators tell the network companies how much they can charge by setting a price control. Customers then pay the charges for these networks as part of their water, energy, broadband and phone bills.

These overpayments partly occurred because regulators made forecasting errors. They predicted that costs, such as debt, would be higher than they became. Regulators also over-estimated how risky these businesses were for investors.

Citizens Advice is now calling for both widespread compensation and a fundamental change in the way these calculations are made.

Instead of forecasting costs, regulators should use available market data to calculate costs and adjust their estimates of investment risk, it argues. This would avoid consumers paying too much in future.

While several energy and water companies have taken steps to return some money to customers, Citizens Advice is calling for all firms to provide a voluntary rebate to their customers. If they don’t, the government should step in.

“Regulator error has meant customers have been charged too much by energy, broadband and phone networks for far too long,” says Gillian Guy, chief executive of Citizens Advice.

“At a time when so many people are struggling to pay their essential bills, regulators need to do more to protect customers from unfair prices. They have started to take steps in the right direction but it is vital they continue to learn from their past mistakes when finalising their next price controls.

“Companies need to play their part in putting this multi-billion pound blunder right. They must compensate customers where they have been paying over the odds. If they don’t government needs to intervene.”

In a statement responding to the research, the energy regulator Ofgem said: “Ofgem remains determined to drive the best deal possible for consumers. Overall, energy network regulation has delivered for consumers, with £100 billion invested, power cuts halved, record customer satisfaction and reduced costs.

“While we do not agree with Citizens Advice’s estimate of excess profits, we welcome their report and recommendations. We will continue to work closely with them and wider stakeholders to apply lessons learnt from previous price controls for the next price control period (RIIO2).”

Last week Ofgem confirmed its methodology for calculating their next set of price controls, including a lower return on equity of 4.3 per cent and a lower allowed return on debt. This would lead to customers’ bills being reduced by £6 billion over five years from 2021, calculations it says Citizens Advice supports.

Meanwhile, households were warned they could be hit with average annual energy bill rise of almost £210, or 20 per cent, as 60 fixed dual fuel energy tariffs come to an end this week according to switching service weflip, charities have called for immediate action to better support energy customers in vulnerable circumstances.

An independent report published this week says urgent action is required by all energy companies, regulators and government as well as price comparison websites – with support from consumer groups and charities – to better identify customers in vulnerable circumstances and improve the help and support given to them.

Joanna Elson, chief executive of the Money Advice Trust, who served as a member of the Commission for Customers in Vulnerable Circumstances, which produced the report, said the charity is increasingly hearing from people struggling to meet everyday household costs.

“This report puts the energy industry firmly under the spotlight. Significant work is needed to improve support for energy customers in vulnerable circumstances. As the report notes, there is good practice out there, but this support is inconsistent and varies greatly across the sector.

“Training frontline staff to identify customers in vulnerable circumstances is a crucial first step, while actions such as committing to not use High Court Enforcement Officers, can also make a big difference for the most vulnerable.

“There is also an important role for the third sector to play alongside suppliers through greater partnership working. This could be through signposting to debt or energy saving advice, and helping people access financial help and other essential costs.”

https://www.independent.co.uk/money/spend-save/regulator-error-24-billion-energy-broadband-telephone-connection-costs-a8937546.html

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