Fresh election puts spotlight back on renationalisation

The announcement of a general election in December will put the spotlight back on Labour's plans for renationalisation. Firms should be ready to fight their corner, says Utility Week's Jane Gray.

Hearts are in mouths across the utilities sector as the nation steels itself for yet another bout of hubristic political campaigning in the lead up to December’s general election.

In the weeks to come the inevitable soundbites and facile one-upmanship that come with electioneering will seem all the more sordid than ever to industry leaders with a great deal at stake.

For whatever polling positions may suggest today, this is an election with an uncertain outcome and the potential for radical impacts on utility companies of all stripes.

Clearly the two top campaign issues for utilities will be renationalisation and decarbonisation. And while the detail of policy around the latter may end up being most relevant, it’s the former that will induce nail biting.

Labour’s promise to take utilities – including water, energy networks and energy supplies – back into public hands has met with scorn across the sector with trade bodies and some bolder individual companies unpicking the party’s plans, highlighting flaws and pointing to the value that private investment has delivered for consumers and society since the 1990s.

Rhetoric around renationalising the “big six” for instance has prompted many industry commentators to say Labour is demonstrably out of touch with sector developments – or else is wilfully ignoring the recent dissolution of this industry oligarchy. Would Labour really intend to force Ovo Energy into public ownership?

Another quibble is that the process of renationalising companies would be a sinkhole for management time and resources and would therefore be a distraction from the higher purpose of utilities to serve consumers, derailing strategies to put this value back at the heart of industry operations.

More broadly, however, it is Labour’s low valuation of utility assets which induces most fear and fury across boards and executive teams when renationalisation is discussed – the shadow chancellor has suggested paying £14.8bn for the water industry compared to the £73bn estimate of the asset base value made by Ofwat. And with the prospect of a Labour government now potentially just weeks away, it is this risk that companies will be most concerned to mitigate.

Many utilities have been actively planning how they might protect shareholder interests in the relatively unlikely event of a Corbyn government coming to power for some time now.

Speaking to those in the know, Utility Week heard that a number of companies have commissioned independent valuations of their asset bases and sought out legal advice on the best potential routes for contesting sub-value appropriation of assets by a Labour government.

Those that haven’t undertaken such work might want to make an accelerated start.

As well as preparing for renationalisation, utilities might be well advised to consider the ramifications of a Conservative win for the utilities industry landscape. For while Boris is no Bolshevik, it shouldn’t be assumed that a Tory government would necessarily mean continuation of the status quo in all areas of the utilities sector.

Once a Brexit deal is sealed and in delivery, one-nation Conservatives will be on the lookout for domestic issues which can demonstrate their will to champion consumer interests and which can combat populist Labour pledges like renationalisation. Where better to start than the utilities sector, perhaps via a major shakeup of the regulatory apparatus?

One way or another, there’s little doubt, for utilities, everything is in play.