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06 Apr 2020
UK Utilities: Legitimacy, legitimacy, legitimacy
Centrica plc (CNA:LON), 129 | Drax Group plc (DRX:LON), 525 | Good Energy Group PLC (GOOD:LON), 255 | Iberdrola (IBE:BME), 0 | Iberdrola SA (IBE:MCE), 0 | National Grid plc (NG:LON), 0 | Pennon Group Plc (PNN:LON), 0 | Severn Trent Plc (SVT:LON), 0 | SSE plc (SSE:LON), 0 | United Utilities Group PLC (UU:LON), 0
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UK Utilities: Legitimacy, legitimacy, legitimacy
Centrica plc (CNA:LON), 129 | Drax Group plc (DRX:LON), 525 | Good Energy Group PLC (GOOD:LON), 255 | Iberdrola (IBE:BME), 0 | Iberdrola SA (IBE:MCE), 0 | National Grid plc (NG:LON), 0 | Pennon Group Plc (PNN:LON), 0 | Severn Trent Plc (SVT:LON), 0 | SSE plc (SSE:LON), 0 | United Utilities Group PLC (UU:LON), 0
- Published:
06 Apr 2020 -
Author:
Martin Young | Marc Elliott -
Pages:
3
We have previously commented that the double whammy of falling volumes and rising bad debts will see an under-recovery of revenues at an industry level, and that all actors on the value chain will be impacted, irrespective of their regulatory and remuneration frameworks.
We called upon government/regulators/industry to urgently work together to find a solution that not only provides continuity of essential service provision, but also preserves regulatory integrity. We also questioned whether dividends could be at risk.
We hear and understand clearly that in network utilities, a sizeable part of the shareholder base comprises pension funds, charities, and individuals, many of whom are attracted by the dividend paying credentials of the individual stocks.
But, according to the Sunday Times, the water companies, through the trade body Water UK, have lobbied Ofwat for a financial bailout in the form of a higher return, and leniency on ODI penalties. This follows a request from the energy industry for a £100m a month loan scheme, which according to The Daily Telegraph has been rebuffed by ministers.
These are unprecedented times, but one word continually springs to mind, and that is legitimacy. With Labour’s new leader, Sir Keir Starmer, supportive of common ownership of energy and water, the nationalisation debate will raise its head at some stage, and sustaining legitimacy today and legitimacy tomorrow, is paramount for the longer-term positioning of private utilities.
There will be tough decisions for boards to take, and the viewpoints of all stakeholders will need to be heard, but if there are industry-specific bailouts, we struggle to see business as usual for dividends. Legitimacy, legitimacy, legitimacy.