Renationalisation key risk for United Utilities

The potential renationalisation of the water sector has been listed as a current “key area” of risk and uncertainty for United Utilities.

In its financial results for the year ended 31 March 2019 published today (23 May) the water company highlighted that in the event of renationalisation the business could be acquired “below fair value”.

Further details of Labour’s plans to bring water and energy networks back into public ownership have emerged in the last few weeks. Under the proposals the companies could be sold for a fraction of their market value.

Brexit and potential changes to the regulatory regime were also cited by United Utilities as key risks, issues and uncertainties, along with further market reform including upstream competition in water resources and bioresources.

Additional markets in the future, the potential for the introduction of domestic competition, final determination of PR19 and associated tougher regulatory targets were also listed.

Speaking to Utility Week, Steve Mogford, chief executive of United Utilities said: “The renationalisation debate will be sorted in the political arena – there’s not a lot you can do.

“The best thing we can do is to run the company in a way so that customers appreciate the service and our behaviour is responsible, not only for our customers but also our employees and shareholders.”

He said in the 30 years since privatisation the North West has seen improvements to public health and the environment.

“Britain used to be considered the ‘dirty man’ of Europe because of the state of our rivers and now we have wildlife returning and people enjoying our beaches.

“We need to continue to deliver that and behave responsibly.”

Mogford added: “Interestingly customers are not really talking about renationalisation. Instead they want to know about their bills and how much they are going to cost.

“Customers are also increasingly interested in climate change and the environment.”

United Utilities said it regularly engages in relevant government and regulatory consultations which may affect policy and regulation in the industry as well as consulting with the opposition.

The company will invest an extra £100 million this year to facilitate a “flying start” to the next regulatory period [2020-2025].

All three of the listed water companies – United Utilities, Severn Trent and Pennon, which owns South West Water – were given fast track status when Ofwat published its initial assessment of business plans for PR19. Draft determinations for the three companies were issued on 11 April.

Mogford told Utility Week that the water company is taking a “responsible approach” by sharing its outperformance with customers and reinvesting for tough targets to help combat issues such as leakage and pollution.

Underlying operating profit increased to £684.8 million from £645.1 million a year earlier.

Mogford said he was pleased with another strong year for the company and the “significant transformation” it has made in recent years and its turnaround from PR14.

He told Utility Week the company’s customer satisfaction levels is of importance to him.  “Satisfaction wasn’t a word previously associated with United Utilities,” he said.

“Ofwat’s fast-track assessment of our 2020-2025 business plan – that achieved the highest grades for the sector – reflects the quality of our future plans and the performance improvements we have already delivered.

“We are increasing our additional investment by another £100 million, to total £350 million, to accelerate the delivery of further performance improvements and facilitate a flying start to the next regulatory period. We are well placed for the remainder of the current regulatory period and beyond as we maintain our focus on providing great service to customers and creating long-term value for all of our stakeholders,” he said in a statement published with the financial results.