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After years of lobbying, the referral of the big six energy companies – EdF, E.On, RWE, Iberdrola, Centrica and SSE – to the new Competition and Markets Authority (CMA) has been welcomed by some: sector consultants and under-employed energy academics will love it.
But for others, of a more world-weary disposition, it produces a yawn. Up to two years of too-ing and fro-ing, producing mountains of paper, will probably achieve little that is positive.
After all, few of the many referrals to the CMA’s most notable predecessor, the MMC, yielded the panacea that advocates of the latest energy referral cherish.
More seriously, though, the referral provides yet another reason for the £100 billion+ decade-long electricity investment bill to be deferred.
After all, high company debt has already put the brakes on investment. Furthermore, given the Labour Party’s stance on electricity prices, several companies have postponed key investment decisions until after May 2015.
The CMA referral is already deterring investment as both Centrica and SSE have publicly confirmed; the latter has just announced a purge of its off-shore wind projects – a major setback for the Coalition Government that has staked so much political and financial capital on off-shore wind generation.
As for investors, they generally dislike the uncertainty that now permeates the utilities sector. Indeed, some would argue that currently the sector is near to being un-investible.
In fact, the referral only adds to the many negatives that the four overseas ‘big six’ energy companies are facing.
Whether RWE – an unlikely one-time owner of Thames Water – will remain a long-term player in UK utilities is highly questionable. E.On has a raft of alternative generation projects globally, which may offer more sustainable returns.
Whilst Iberdrola’s UK commitment apparently remains undiminished, EdF’s Hinkley C project could also be delayed yet again; in any event, the unprecedented 35-year inflation-adjusted £92.50 per MWh contract price may be undermined by the ongoing EU investigation.
However, it is the two UK-based companies that probably have probably have most to fear.
SSE has already responded by announcing a price freeze until early 2016 – a policy straight out of Ed Miliband’s notebook. It seems bound to reduce margins and to curb dividend growth expectations.
Centrica’s fears revolve around the UK domestic gas market where its share currently exceeds 40%.
Whilst it should be able to negotiate the CMA enquiry and ensure that its UK gas business remains broadly intact, this is not guaranteed.
The ghost of the MMC enquiry into the ownership of UK airports looms large.
Having bought the privatised British Airports Authority (BAA) in 2006, the Ferrovial-led Spanish consortium has been progressively stripped of its key assets – Gatwick, Stansted and Edinburgh airports, at the behest of the MMC, were sold in quick order.
Were similarly aggressive tactics to be employed against Centrica, it might well lose large chunks of its regional gas franchise – Scotland to go perhaps?
Whether any CMA remedies will lead directly to materially lower prices is doubtful but it will undoubtedly delay much-needed sector investment.
Nigel Hawkins (nigelhawkins1010@aol.com) is a Director of Nigel Hawkins Associates which undertakes investment and policy research
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