Renationalisation of the water sector would take us “from a frying pan into a very hot fire” an MP who is a longstanding champion of a better deal for consumers from utilities has said.
John Penrose, the Conservative MP for Weston-Super-Mare, told Utility Week the travails of Thames Water did not mean renationalisation of water companies was a good idea.
“That would not be a step forward,” he said. “The situation needs reform, but the answer is not to rush back to the 1970s.”
Penrose said it would be impossible for the water sector to attract the investment it needs were it to be renationalised. “Given the scale and speed of investment required in water and electricity networks, you need private investment, especially when you consider the state of the government’s balance sheet in the wake of three major economic shocks in the last 14 years.”
He added the situation some water companies find themselves in would have been exacerbated by nationalisation. “There has been a huge amount of investment in privatised utilities. If we had been relying on politicians to make those investments, they wouldn’t have been made terribly efficiently.
“The situation would be worse had politicians been in charge.”
Penrose said a “cheaper, quicker, tougher” regulatory regime was required. Investors needed to know there were long-term objectives so that “regulatory goalposts don’t move during the life of the asset”.
He added: “The important thing is not the number of regulatory periods but whether the overall regulatory environment is certain. Get that right, and there’s no reason why utilities shouldn’t be capable of bringing in the investment they need.”
He said there was a “commercial and political” conundrum ahead for the water industry if bills rise in the next price review. “I think people will rightly say some of the extra cost should be borne by shareholders, and some of the past investors are no longer around. But if I’m a consumer, why should I be expected to pay for a regulatory failure?”
Penrose added that people in the water industry he had spoken to acknowledged that checks, assessment and maintenance were less “frequent and vigorous than they should have been over the last two decades”. New technologies such as networks of sensors and data analytics would help utilities get a better understanding of their assets and where to invest. “The cost of monitoring the network is probably cheaper today than it was 20 years ago.”
A decade ago, Penrose was the author of a paper entitled We Deserve Better, which championed switching between energy suppliers. He said increased competition in sectors such as electricity, water and telecoms was the way forward when it came to reducing bills. “The best way to support customers is to have an industry that is as competitive as possible.”
He added that some form of social tariff to support the most vulnerable in society was desirable, but should be targeted at people who really need it.
Whether the government provides extra support for consumers this winter should be decided in the Chancellor’s Autumn Statement, he said.
John Penrose MP is one of the contributors to Crunch time for utilities – Addressing the investment conundrum – published with our partner Charles River Associates, which you can download here.