Weekend press: Thames facing £40m fine over dividend payment 

Thames Water is reportedly facing a fine of more than £40 million for paying out a dividend to shareholders despite its poor performance, whilst a major pension fund comes under pressure from its members for its decision to invest in the troubled water company. Also in the latest round-up of the weekend newspapers, energy secretary Claire Countinho takes aim at Labour’s net zero plans and the boss of Rolls-Royce warns that the election threatens Britain’s ‘first mover advantage for mini-nuclear plants.  

Ofwat hits ailing Thames Water with £40m fine over dividend payment 

Britain’s biggest water company has been told it faces a fine of more than £40m over the payment of a shareholder dividend in spite of its poor performance. 

Sky News has learnt that Ofwat notified Thames Water last month that it was minded to impose the penalty for breaching rules on the payment of dividends. 

The development will pile further pressure on Thames Water as it limps towards a potential temporary nationalisation under a debt mountain of more than £15bn. 

The fine being considered by Ofwat is notable because it is larger than the £37.5m payout made to shareholders last autumn, according to a Thames Water insider. 

The company has the right to appeal over the proposed fine before a final decision is made, and the timing of the general election on 4 July means that a final ruling is now unlikely until after that date. 

Ofwat has already postponed its draft determinations on the five-year spending and investment plans of Britain’s privately owned water companies until after the election. 

It had been due to issue its initial decisions on 12 June. 

Its final determinations, which are expected in December, will shape investors’ decisions about whether they can commit capital to fund the companies over the following half-decade. 

Thames Water has been plunged into the biggest crisis in its history by its shareholders’ judgement that the company has become “uninvestible” as a consequence of the regulatory framework set by Ofwat. 

The company, which serves more than 15 million customers across London and south-east England, counts sovereign wealth funds and pension funds from Australia, Canada, China and Britain among its shareholders. 

This week, the Financial Times reported that Ofwat was considering the introduction of a “recovery regime” for financially troubled water companies to enable them to survive. 

This would entail reducing future financial penalties for water leaks and pollution – both of which have stained Thames Water’s reputation in recent years. 

Ofwat has refused to comment on the report. 

Last month, Sky News revealed that representatives of Thames Water’s multinational syndicate of shareholders were quitting as directors of its corporate entities after refusing to inject the billions of pounds of funding required to bail it out. 

The payment of the controversial dividend from Thames Water Utilities Limited, the operating business, to Kemble Water and its affiliates, is understood to have fallen foul of rules overseen by the regulator, which aim to avoid rewarding shareholders during periods of poor performance. 

Ofwat’s intention to take action against Thames Water over the dividend payment was reported last month but without any indication of the likely size of a penalty. 

Thames Water refused to comment this weekend on the specifics of the proposed fine, but has previously said: “We take our licence obligations very seriously, including those relating to the declaration and payment of dividends.” 

Sky News  

Major UK pension scheme under pressure over Thames Water stake  

One of the UK’s biggest pension funds is under pressure from its members to explain its decision to invest in Thames Water, the troubled utility facing the threat of renationalisation.  

The Universities Superannuation Scheme owns a 20 per cent stake in Thames Water that is in effect worthless after Omers, the Canadian pension fund that is the utility’s largest shareholder, wrote down the value of its stake to zero two weeks ago.  

This has prompted anger among the university staff who are members of USS and keen to protect the value of their retirement scheme.  

“We have asked (USS) about the original decision-making process [to invest in Thames Water] but they won’t tell us anything except that the decision went through their normal checks process,” said a spokesperson for UCU, the University and College Union, which represents USS members.  

“We will continue to push on this… but I suspect we will get the same defensive sidestepping response.”  

Thames Water, Britain’s largest water utility with 16mn customers, is struggling with an £18bn debt pile and has enough cash to last until next May.  

The government is on standby for a temporary renationalisation under its special administration regime process. Thames Water’s nine shareholders, including USS and Omers, have already declared the company is “uninvestable” and that they are willing to withdraw from the business and take an estimated £5bn loss.  

Bernard Casey, a retired pensions economist and academic and member of USS, estimates the pension fund will be forced to write off around £1bn or about 1.3 per cent of its £75.5bn of assets.   

“USS was not exercising financial or environmental oversight despite having people on the board and in stark contradiction to what it proclaims,” he said.  

Although USS currently has a surplus of around £7.4bn, Casey said it could easily go into deficit again, in which case it would require extra contributions from universities, a number of which are already cash-strapped.  

USS, which manages pensions for more than 500,000 current and retired university workers, first invested in Thames Water in 2017 after its previous owners, led by Australian asset manager Macquarie, sold out.  

It bought a further 8 per cent stake in 2021, bringing its total holding to just under 20 per cent. This was despite mounting problems at Thames Water, including a £20mn fine for sewage pollution in 2017.  

USS had already slashed the value of its stake in Thames Water by almost two-thirds to £364mn for the year ending March 2023, down from £956mn the year before.  

The pension fund declined to say whether it had taken a further write down on its Thames Water holding.  

Its decision to invest in Thames Water had been consistent with its fiduciary, commercial, legal and regulatory responsibilities, USS said, adding that decisions relating to the scheme’s investments were “reserved for the trustee”.  

“We recognise that stakeholders, like members and employers, will have an interest and questions and — when able and where appropriate — we have provided updates to that end.” 

Financial Times 

 Election threatens Britain’s ‘first mover advantage’ in mini-nuclear, warns Rolls boss 

Delays to the rollout of mini-nuclear reactors in the aftermath of the general election threaten to destroy Britain’s “first mover advantage” in the promising market, the boss of Rolls-Royce has warned. 

Tufan Erginbilgic said it was vital that the selection of small nuclear reactor (SMR) designs for state support continued on schedule following a string of previous setbacks. 

Mr Erginbilgic told The Telegraph: “I have always said we need to go fast. 

“The process is already delayed, as you know. So it is important that the election doesn’t delay that further. 

“And when they choose whoever they choose, there should be funding and tangible projects as part of that so that we can go into the execution phase and make progress rather than have another holding pattern.” 

He also called for funding to be awarded quickly and for “tangible” progress to be made on choosing sites for the first prototypes. Labour has signalled its support for SMRs but it is not clear whether the party will prioritise their deployment immediately if it comes to power. 

SMRs are promoted as potentially revolutionary for the nuclear industry and decarbonisation of the electricity grid. Their modular designs allow them to be built in factories and then assembled on site more quickly and cheaply than bigger reactors. 

However, none are yet in service and they are yet to be tested, with several companies racing to become the first to commercialise the technology. 

Rolls executives have previously warned that the company’s SMR business is set to run out of cash at the end of this year and Mr Erginbilgic has warned that a failure by the Government to move quickly could see Britain lose a “first mover advantage”. 

The engineer is in talks with several foreign governments about potential SMR purchases but the company has repeatedly warned that it will struggle to sell them abroad if the technology has not already been backed by the British state. 

He added: “First mover advantage on a new technology is very important. Why? Because if you are the first one going into execution, you will build the supply chain, you will enable the supply chain. 

“The UK has that opportunity, and that means lots of jobs and lots of export opportunities. 

“Because the minute we do that, in the UK, I can assure you, given the conversations we are having, I can get six, seven European countries coming on board with more projects and a couple of Middle Eastern countries.” 

His comments come as Rolls and rivals including GE-Hitachi, Westinghouse, EDF, Holtec and NuScale are preparing to submit their final bids to the design competition, which is being run by Great British Nuclear (GBN). 

The process has already been pushed back, with ministers initially promising winners would be announced by spring 2024 – only to later revise that to the end of the year. 

At the moment, companies have been told to submit their bids no later than early July. 

It is understood that GBN then aims to announce the winners in either November or December. 

However, an industry source on Friday cautioned that Mr Erginbilgic was likely to be partly disappointed, arguing that it was likely GBN would take longer to assign sites to the winners. 

“They will need to talk first about where it is best for them to go and why, because you want the first two builds to go as smoothly as possible,” the source said. 

“That will depend on the detailed thinking the bidders themselves have done about how to install their reactors.” 

A decision on siting was likely to be reached at some point in the first half of 2025, they added. 

A Labour source said the party could not fully commit to the existing timescales without being privy to the same information as the Government. 

But the source said: “Our aim is to move as quickly as possible on this. The country has been waiting for SMRs now for almost a decade, after George Osborne first announced the competition in 2015.” 

The Telegraph 

Energy Secretary Claire Coutinho takes furious aim at Labour’s ‘mad’ net zero plan 

Labour’s net zero plans could leave a generation of oil and gas workers “stranded” before the next generation of jobs is created, Claire Coutinho has warned. 

The Energy Secretary said that Sir Keir Starmer’s goal to convert Britain to clean power by 2030 would leave Britain reliant on Chinese materials. 

Sir Keir has committed to decarbonising the electricity grid by 2030 – five years earlier than the Tories. 

Coutinho said: “Labour’s mad plans to decarbonise the grid in just six years’ time will not only strangle British supply chains and put 200,000 jobs at risk, but also hike bills for hardworking families across the country. 

“By sticking to the Conservatives’ clear and pragmatic plan, energy bills are at their lowest in two years. We’re the only party backing the North Sea, protecting thousands of jobs and communities in the process. Our approach will always be to prioritise cheap energy and help families make decisions that work for them – not burden them with extra costs and taxes like Labour.” 

Sir Keir Starmer has refused to rule out introducing new green levies on bills. 

The Labour leader repeated his pledge not to raise income tax, national insurance or VAT. But he refused to rule out introducing new green levies on bills 

Richard Holden, Conservative Party Chairman, said: “Stealth Tax Starmer has opened the door to higher energy bills under Labour by not following our clear plan to slash green levies and put cash back into people’s pockets. 

“After being bounced into scrapping their plan to hike VAT, Keir Starmer is desperately scrambling to fill Labour’s £38.5 billion black hole. 

“Be under no illusion – Labour will have to raise taxes by £2,094 for every household to pay for their unfunded spending plans, taking us back to square one. Rishi Sunak and the Conservatives have a clear plan and are taking bold action to drive down energy bills by protecting the Energy Price Cap and ensuring green levies are lower each year of the next parliament.” 

Labour plans to create a publicly-owned company called Great British Energy. 

The firm would be headquartered in Scotland, where much of the UK’s oil, gas and offshore wind industries are based. 

Labour would fund the company through a windfall tax on oil and gas firms, which they said would raise £8.3billion over the next five years. 

Great British Energy would invest in wind and solar projects, as well as new technologies including floating offshore wind, hydrogen and carbon capture and storage. 

Sir Keir said Labour was not planning to “turn the pipes off instantaneously”, adding oil and gas would be part of the UK’s “energy mix for decades to come”. 

The Express 

Scientists explore new way to test water quality 

Scientists in Devon are researching a new way of remotely testing the cleanliness of bathing waters. 

The University of Plymouth project aims to develop autonomous technology to place on top of equipment such as buoys at beaches or in rivers. 

Those behind the scheme said the kit would be designed to take water samples several times an hour before analysing the results and transmitting the data back to shore. 

This research comes while a boil notice remains in place in parts of Brixham following a water parasite outbreak in May. 

The number of confirmed cases of people affected by cryptosporidium rose to 100 on Thursday, the UK Health Security Agency has said. 

South West Water (SWW) bosses said “further intense work” was needed to “fully remove any contamination”. 

SWW CEO Susan Davy apologised for the outbreak and said the water firm had “fallen significantly short”. 

The 18-month water-testing project, which is a collaboration between the University of Plymouth and the university’s spinout company Molendotech Ltd, is funded by a £330,000 grant from Innovate UK. 

Organisations such as the Environment Agency currently rely on samples being taken by hand and sent to a laboratory for analysis. 

Prof Simon Jackson, the chief scientific officer at Molendotech Ltd, said the aim was to monitor water quality “autonomously”. 

“We want to be able to autonomously monitor water quality so we don’t need to have people going and taking water samples and then measuring those in situ or in a lab,” he said. 

“We want to be able to have the test wherever we want, in a bay, on a beach, or up a river. 

“We could then continuously monitor the water quality and send the results back so that we have a map of water quality for any particular stretch of water.” 

Dr Keiron Fraser, associate professor in marine conservation at the University of Plymouth, added: “Potentially, you could look at a world in the future where it might be possible to log onto an app and check what the sewage contamination levels for a bathing beach are in pretty much real time.” 

BBC News  

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.