Weekend press: Government to end ‘prepayment premium’

The government is to end the “prepayment premium” by picking up the additional costs of the meters from suppliers. Also in Utility Week’s latest round-up of the weekend papers, Ofwat seeks new powers to block excessive dividends to shareholders and Thames Water appoints financial advisors to help tackle its mountain of debt.

Extra costs for customers on prepayment meters to be scrapped in budget

Prepayment meter customers will no longer be charged more to receive their energy under reforms to be announced in the budget.

The chancellor is to end the “prepayment premium” from July, saving more than four million households £45 a year on their energy bills, according to the Treasury.

Households on the pay-as-you-go meters, who are typically low income, currently pay more on average than direct debit customers because of firms managing the meters passing on costs to users.

Jeremy Hunt said: “It is clearly unfair that those on prepayment meters pay more than others. We are going to put an end to that.”

The chancellor added: “From July four million households won’t pay more than those on direct debits. We’ve already cut energy bills by almost half this winter, and this latest reform is proof again that we’re always on the side of families.”

The Treasury estimates the change will cost the taxpayer £200m.

Prepayment meters have been in the spotlight after some energy suppliers were caught breaking into the homes of people struggling to pay their bills to forcibly install them.

An investigation by The Times revealed how vulnerable customers – including disabled and mentally ill people – were being forced by British Gas on to the pay-as-you-go meters, or have their gas switched off.

Firms were subsequently banned from installing prepayment energy meters under warrant, but that moratorium is due to expire at the end of March.

Grant Shapps, the energy secretary, said: “While actions I’ve pushed for have meant forced installations are on pause, warrants aren’t being waved through and Ofgem is toughening up its reviews, our changes will make sure families aren’t penalised simply for how they heat their home.”

The Guardian

British Gas debt agents made third of all applications to force-fit prepay meters

The debt collection agency that force-fitted prepayment meters for vulnerable British Gas customers made a third of all warrant of entry applications in England and Wales last year, the Guardian can reveal.

Arvato Financial Solutions, a company used by the energy supplier to pursue debts, made 122,536 applications to gain entry into homes last year – and had just 11 rejected.

Last month Arvato was found to have ignored signs that British Gas customers were vulnerable and force-fitted prepayment meters, according to an investigation by the Times. British Gas then suspended its work with Arvato and the practice of fitting meters under warrant has temporarily been banned.

Amid sky-high household bills, charities and campaigners condemned the practice, arguing that it has left millions of households cut off from heat and power, and unable to top up their meter.

Data from the Ministry of Justice (MoJ), obtained via a Freedom of Information request, showed that just 1% of the 371,081 applications made by private companies were rejected in 2022.

Magistrates have been accused of simply rubber-stamping applications for the warrants after it emerged that a handful of courts were batch-processing hundreds of warrants in just minutes.

The MoJ data showed that a cluster of courts – mainly Portsmouth, Leeds, Birmingham, Croydon and Basildon in Essex – were processing huge volumes of warrants of entry for homes across the country.

The figures showed that Portsmouth approved 117,546 warrants in 2022, followed by Birmingham with 41,322 and Basildon with 39,927. Penny Mordaunt, leader of the House of Commons and MP for Portsmouth North, has pledged to investigate the process.

Magistrates were ordered to stop issuing warrants allowing energy firms to force-fit prepayment meters in England and Wales. A ban on forced installations from energy regulator Ofgem ends on 31 March, by which time a review of the treatment of vulnerable customers should have concluded.

Energy firms often use debt collection agencies to apply for the warrants and provide warrant officers, who accompany its engineers to fit the meters.

Energy suppliers E.ON and EDF received 22,427 and 15,563 approvals respectively.

The government has been criticised for being too slow to act on the matter. The Guardian revealed that more than 30,000 entry warrants were awarded in January despite calls in mid-December for suppliers to halt installations to prevent vulnerable households from going without heat and power.

The Guardian

Ofwat seeks new powers to force water companies to clean up rivers by blocking billions in investors payouts

The water industry regulator Ofwat is seeking new powers from the Government to clamp down on billions in cash payouts to investors as it seeks to force greater investment into environment improvements, i can reveal.

It is understood that one outcome of Ofwat’s review of the industry that began last summer is that it will seek new controls to limit excessive dividends paid to investors by England’s nine water and sewage companies.

The move comes as Ofwat becomes increasingly concerned over the level of debt and the cost of servicing lending with interest payments and dividends to shareholders.

An Ofwat source told i: “In raising finance through debt and equity investors companies have to offer a return. But that return needs to be appropriate – and we are seeking new powers to block some dividend payments.”

Recently, Ofwat revealed that water companies are falling behind on their investment plans, leaving promised service improvements behind schedule or undelivered. These include improvements to sewage treatment works, improvements to storm tank capacity and reducing leaks.

Both Ofwat and the Environment Agency – which prosecutes companies for environmental breaches – have been criticised for lacking the teeth to punish water companies for sewage discharges in rivers and coastal areas, as well as failing to repair water leaks from its aging pipe network.

Between 2016 and the end of 2021 water companies pumped raw sewage into Britain’s seas and rivers for more than 9.4 million hours according to Environment Agency figures, the equivalent of 1,076 years.

The latest figures available from Ofwat also show that water companies in England and Wales lost more than one trillion litres of water via leaks during 2021.

The companies lost an average of 2.9 billion litres of water a day, equating to 1.05 trillion litres over the year or the volume or more than three and a half times the volume of Lake Windermere.

The Ofwat source added: “We have been very clear that water companies’ environmental performance has not been good enough and that they must improve.

“Recently, we secured commitments from companies to take urgent action to reduce sewage discharges, with four wastewater companies committing to a 40 per cent reduction against the sector average by 2025.

“We and other regulators will be monitoring them closely to make sure they make these improvements. Through our enforcement powers, our price review process, our annual reporting and more we will continue to ensure that improvements are sustained.”

A spokesman for industry lobby group Water UK said: “Water companies strongly agree with the urgent need for action to protect and enhance the environment, including our rivers and seas.

“Water companies want to invest, it is in their interests to do so, and are set to build on what is already the highest-ever level of investment in the English water sector with a further £70bn from now to 2050 to eliminate harm from storm overflows, transform rivers and seas, and increase water supplies with new reservoirs and national water transfer schemes.

“This – combined with enhanced environmental spending to be set out at the next price review – will start to transform our natural world in the way we all want to see.”

i

Thames Water braced for crunch talks over £14bn debt-pile

Thames Water is facing crunch talks over its finances amid mounting concerns about its ability to service a debt mountain which stands at more than £14bn.

Sky News has learnt that Thames Water, which is privately owned and employs about 7,000 people, has in the last few weeks hired Rothschild, the investment bank, and the law firm Slaughter & May to explore financing options for the company.

The appointment of the advisers has taken place against a backdrop of growing public and political fury about the company’s dire record at preventing leaks and raw sewage discharges.

Thames Water serves nearly a quarter of Britain’s population, with 15m customers across London and the Thames Valley.

Industry sources said the government and Ofwat, the industry regulator, were aware of growing concerns about its financial position.

A Thames Water spokesperson said: “It’s normal course of business to appoint advisors to support the funding of our investment programme.”

Sarah Bentley, who joined as chief executive in 2020, is overseeing an eight-year plan to transform the company’s operating and financial performance.

Ms Bentley recently declared that she was “heartbroken” about the company’s historical failings, blaming “decades of underinvestment”.

It has been fined numerous times, and is facing a deluge of regulatory probes.

In 2021, it was hit with a £4m penalty for allowing untreated sewage to escape into a river and park, while in August 2021, it was ordered to pay £11m for overcharging thousands of customers.

The range of financing options to Thames Water’s board – which is chaired by the former SSE chief Ian Marchant – beyond seeking new equity investors or attempting to raise additional debt was unclear this weekend.

Nearly £1.4bn of the company’s bonds mature by the end of next year, with Ofwat price controls meaning water companies have little scope to generate additional income.

Sky News

Ofgem is forced to pay consultants millions of pounds to sort out the collapse of gas and electricity suppliers after households were left to foot £3 billion bill when firms went bust

The UK’s energy regulator is being forced to pay consultants millions of pounds to help clear up the mess left by the collapse of gas and electricity suppliers.

Household customers were left to foot a bill of nearly £3 billion when 31 firms went bust during 2021 and 2022, through a levy added to all bills.

Since the start of the crisis, Ofgem has spent £32 million on consultants, according to Tussell, a firm which tracks Government contracts.

Baringa recently landed a six-month deal worth £330,000 to help out with Supplier of Last Resort (SoLR) payments – costs incurred by suppliers who step in when another firm goes bust.

At least 13 other contracts have been given out by the regulator, including to KPMG, which earned almost £2.5 million for five contracts.

These SoLR claims will total around £2.7 billion, the National Audit Office said. The cost of Bulb failing – the biggest of the energy suppliers to go bust – is not yet clear and will be in addition to that.

An executive at a big energy firm told The Mail On Sunday: “Clearly Ofgem don’t have the staff to sort out the mess they have created.”

An Ofgem spokesman said: “The scale of the gas crisis meant Ofgem [needed] to bring experts in quickly. Contracting external experts has let us add skills for a limited period.”

The Daily Mail

My prediction: ministers will slam the brakes on 2030 green targets

Across the Channel, the green automotive dream has collided with realpolitik (writes Oliver Shah). Germany and Italy have decided to oppose an EU scheme to ban the internal combustion engine by 2035, seeking an exemption for cars that run on synthetic fuels. Porsche, owned by Volkswagen, wants to keep using engines in its 911 models. Ferrari, owned by the Agnelli family, has refused to say when it might stop using them in its supercars. A vote due to take place in Brussels last week has been delayed indefinitely.

Almost everywhere you look, green policies are being reviewed as cheques written in the boom years become more expensive to cash amid war in Ukraine and an economic downturn. Climate campaigners scowled last month when BP diluted plans for a 40 per cent cut in oil and gas production by 2030. But its shares bounced and have stayed high.

Almost everywhere, that is, except in Westminster. Ministers are still wedded to ambitious net-zero targets set in the bombastic first-album phase of Boris Johnson’s premiership, when Britain was about to host Cop26. They commit us to banning the sale of new petrol and diesel vehicles by 2030, outlawing the renting of buildings below a certain energy performance threshold, ending the installation of new gas boilers by 2035, and decarbonising all electricity.

At least, they do for now. Because I predict that most of these cliff-edges will be pushed back or fudged to within an inch of losing their meaning.

In a curious mix of statism and libertarianism, ministers issued stark cut-off dates, then largely left it to the market to meet them. It isn’t working: the car industry is drifting offshore; swathes of property will become obsolete; new heating devices probably won’t be ready to replace gas ones; and an absence of baseload generation means renewables won’t completely edge out gas in the electricity system.

…

On real estate, from next month it will be illegal to let buildings with an energy performance certificate (EPC) rating of less than E. Under yet-to-be-confirmed plans, that will tighten to C by 2027 and B by 2030. EPC ratings are flawed tools that don’t properly capture a building’s energy usage, and smarter tenants and landlords are already insisting on the highest environmental standards.

But agents estimate that, as things stand, by 2030 about 80 per cent of all commercial real estate — offices, retail centres etc— will be unlettable. That will have huge implications for owners in capital value destruction and refurbishment costs. It will obviously hit owners of lower-quality “secondary” assets hardest — mostly sleepy pension funds. Many are also grappling with rental declines from the WFH effect.

The EPC rules will apply to residential landlords, too. Expect lots to sell their properties rather than renovate them. Yet more stock will leave the rental market, pushing up rents further.

Speaking of homes, consensus is forming that hydrogen won’t replace gas boilers. A review of 32 scientific studies last year found it was “a lot less efficient and more expensive than alternatives such as heat pumps”. Heat pumps are poorly understood, though, and the UK’s installation programme has been the worst in the world. They accounted for just 2 per cent of heating system sales in 2021, versus 98 per cent in Norway. Getting rid of gas boilers in little more than a decade looks like a stretch, then.

And speaking of energy, yesterday almost 41 per cent of National Grid’s electricity came from gas. The push for renewables is laudable, but if gas is to be phased out, we will need a lot more nuclear to make up the gap when the wind doesn’t blow and the sun doesn’t shine. Hinkley Point and Sizewell are going ahead, but older plants are due to be decommissioned, and there has been little progress on small reactors.

Most people agree that decarbonising is essential. It shouldn’t be heresy to question whether cliff-edge policies, rather than tax and incentives, are the best way to do it. And if you are going to use cliff-edges, be realistic about making it possible for industry to meet them.

These deadlines, then, are likely to go the way of the EU’s engines vote. It would be embarrassing for the Tories — but it could soon be Labour’s problem.

The Times

Labour planning £8bn Biden-style green energy revolution

The Labour party is planning to put the UK at the head of a worldwide green industrial revolution, with a massive US-style, public-private investment scheme targeted at the most deprived regions.

In an interview with the Observer, Rachel Reeves, the shadow chancellor, who will travel to Washington in May to meet senior Democrats, says a Labour government will follow the model of US president Joe Biden’s hugely ambitious regional recovery plan, using the climate crisis as the catalyst for economic revival.

She says Labour’s new national wealth fund, to be endowed with an initial £8bn of funding from the state but which it is hoped will then pull in private investment, will be given a specific remit to focus on green industrial revival in deprived areas with regional targets to create hundreds of thousands of jobs outside London and the south-east.

Ahead of the spring budget on Wednesday, in which the chancellor, Jeremy Hunt, will be under pressure to prevent an exodus of UK green industries to the US and the EU – both of which are preparing incentives to lure green firms from overseas – both Labour and the Tories are determined to ensure the UK will not be left behind.

Hunt is set to announce a £20bn investment in technology to reduce Britain’s carbon emissions in the budget, as well as plans to boost the nuclear sector with a competition to develop small modular nuclear reactors (SMRs).

Many UK companies, Reeves said, were desperate to invest in areas such as offshore wind, tidal energy, green hydrogen and carbon capture and storage, but feared that without government backing – on a partnership model like that pioneered by Biden in his Inflation Reduction Act – they “would not get off the ground”.

“The Tories are the last people in town believing that the ‘laissez faire’ approach of leaving it all to the market can work. Everyone else recognises that, in a world of such huge change and increased competition between nations for this investment, you have to have this partnership approach,” she said.

“All of this is up for grabs, no-one is doing a lot of this stuff at scale yet. We could be global leaders in some of this. There is a real urgency because growth is so low. This would be real levelling up, where the government has failed. We have got a serious plan and we just want a chance to get on and get started with it.”

…

Labour has already committed to investing £28bn a year – or £224bn over its first eight years in government – on climate measures. Reeves says it will aim to create 450,000 new jobs over a decade from green industrial projects – in which the UK public will have a stake – including 50,000 in the north-west and Yorkshire, and 30,000 in the north-east, the East Midlands, the West Midlands and the east of England.

Reeves is planning to meet key architects of the Inflation Reduction Act (IRA) during her May visit and make a speech from there to “show the UK can deliver global leadership on climate change, on new industries and on the future of economic thinking”.

Biden’s IRA was signed into law in August last year and aims to spur investment in green technology by devoting billions of dollars in subsidies through grants, loans and tax credits to public and private entities. It has a strong focus on electric vehicles and the battery industry.

Since it was announced it has drawn investment into areas such as Michigan, a rust belt state, where Ford has revealed plans to build a $3.5bn electric vehicle battery plant that would create 2,500 jobs. The company explicitly referenced the Biden legislation as being a factor in its decision to locate there instead of Canada or Mexico.

The EU is expected to unveil more details this week of its net-zero industry act, which is also designed to lead to a big acceleration of green technology in EU member states, with recent changes to state aid rules also in the pipeline.

The Institute for Directors recently called for a UK version of the Inflation Reduction Act to “incentivise much-needed green investment” and prevent the UK being left behind.

Reeves said: “The exciting thing about some of the new industries of the future, whether it is floating offshore wind, or carbon capture and storage, or green hydrogen, is that they are going to create good jobs in places outside London and the south-east, in former industrial areas, in coastal communities. We are taking inspiration from president Biden and the US Treasury secretary Janet Yellen.”

The Guardian

Utility Week’s weekend press round-up is a curation of articles in the national newspapers relating to the energy and water sector. The views expressed are not those of Utility Week or Faversham House.