Weekend press: Water company dividends jump to £1.4bn

In our latest round-up of the weekend’s national news coverage, dividends paid out by UK water companies have almost tripped to £1.4 billion. Elsewhere, Bill Gates has reportedly entered the race to build the UK’s first small modular nuclear plants and Octopus Energy boss Greg Jackson has said that artificial intelligence is already better than humans for a number of tasks.

UK water company dividends jump to £1.4bn despite criticism over sewage outflows

Britain’s privatised water and sewage companies paid £1.4bn in dividends in 2022, up from £540mn the previous year, despite rising household bills and a wave of public criticism over sewage outflows.

The figures, based on a Financial Times analysis of the 10 largest water and sewage companies’ accounts, are higher than headline dividends in the year to end March 2022. This is because several have layered corporate structures with numerous subsidiaries, only one of which — the operating company — is regulated by Ofwat.

Maintaining dividends means less money is available from customer bills for investment in critical infrastructure such as sewage treatment and water mains.

The complex arrangements enable providers to distinguish between internal dividends — payments between intermediate holding companies in the group — and external dividends to private equity, sovereign wealth and pension funds, which own the entire water and sewage business including the holding companies.

The byzantine structures are one reason Ofwat is concerned over transparency in the sector. It is updating licence conditions so it can block dividends from April 2025 if the company looks financially vulnerable. It will also require boards to take account of environmental and customer targets when they decide to make payments.

Although water monopolies argue internal dividends are used to service debt and other costs, Ofwat says it “doesn’t recognise the distinction” and will consider all dividends that leave the regulated company “regardless of how they are used by the group and whether any amounts are paid out to the ultimate shareholders.”

David Hall, visiting professor at Greenwich University, said the monopolies “call them dividends because they are dividends”.

Dividends “are paid for by households and businesses through their bills, and [ . . . ] benefit group companies wholly owned by the ultimate shareholders.”

Thames Water, the largest water monopoly, paid £37mn of “internal dividends” to its parent company in the year to March 31 2022. This was an increase from £33mn in the previous 12 months, despite announcing that “external shareholders” had not received dividends for five years.

The company, whose owners include China Investment Corporation, said all dividends would be used to “service debt obligations and group related costs of other companies within the wider Kemble Water group [which includes Thames Water]”.

Continue reading here.

Financial Times

Rolls-Royce mini-nukes project under threat as Bill Gates eyes bid

Bill Gates is eyeing a bid to build Britain’s first mini-nuclear reactor in a direct challenge to Rolls-Royce which is scrambling to secure a government contract.

Seattle-based TerraPower, which was founded by the Microsoft billionaire, said it was considering throwing its hat into the ring for lucrative contracts to build Britain’s next-generation small modular reactors or “mini-nukes”.

In a blog post, Mr Gates said the nuclear energy company’s work “has drawn interest from around the globe”, citing agreements with Japan, South Korea and the Luxembourg-based ArcelorMittal steel conglomerate.

TerraPower claims its travelling wave reactor design can “operate for centuries with unenriched uranium fuel”. Founded in 2006, the company secured $830m (£657m) in its most recent funding round last summer.

Unlike many traditional SMR designs, the company’s plant, called Natrium, uses a molten salt heat storage system that will allow it to rapidly boost its power output at peak times.

TerraPower told the Sunday Times: “We are currently reviewing the opportunity [to deploy Natrium] in the UK. The UK has a lot to offer in the deployment of new nuclear technologies.”

Rolls-Royce is facing a battle to get its own SMRs approved by the Government after Chancellor Jeremy Hunt said that a competitive tender would be run on the projects, despite £210m of taxpayer money already having been invested in the company’s proposal.

The Telegraph

Orsted postpones cheap energy contract

Orsted has delayed for a second year its contract to supply consumers with cheap energy from the world’s biggest offshore wind farm and has warned that it could do so again, enabling it to cash in on higher market prices instead.

Hornsea Two, comprising 165 turbines about 55 miles off the coast of Yorkshire, has been fully operational since last summer, generating enough electricity to power 1.4 million homes.

Under a government contract awarded in 2017, Orsted was due to supply the power to energy bill-payers at a fixed inflation-linked price worth just under £84 per megawatt-hour today, with the contract for the first phase of the project due to begin in 2022.

However, the Danish state-backed power group confirmed last week that it has now taken advantage of a loophole to delay that contract start date for a second year, until 2024, enabling it to sell the power for higher prices instead.

Market prices are forecast to average about £135/MWh over the next 12 months, meaning the move could potentially deny consumers millions of pounds in energy bill savings.

Asked about the issue last week by Dominic Nash, an analyst at Barclays, Orsted did not rule out a further delay. If it does not take up the contract within three years of the original start date, the government has the option to cancel it.

Last year Orsted denied that it would profit from higher electricity prices after the initial one-year contract delay, because it had already hedged or pre-sold that year’s output below the contract price. It has made no such claim about the latest delay.

A spokesman for the Department for Energy Security and Net Zero said: “It is disappointing if a power generator decides to delay their start dates if they are receiving support under the contracts for difference auctions — our main mechanism for supporting low-carbon electricity generation. That’s why we are preventing companies [from] doing so under the latest and future auctions.”

Separately, Orsted said it was still hoping to “green light” its proposed £8 billion Hornsea Three wind farm this year, despite not having received tax breaks it told The Times in March were necessary to offset rising costs. However, it said it would not proceed with the project, which would surpass Hornsea Two as the world’s largest, if it did not see “satisfactory” value. Orsted has a contract to deliver power from the project for about £45/MWh.

The Times

AI is better than people, warns Octopus Energy boss Greg Jackson

Artificial intelligence is doing the work of 250 people at Octopus Energy and achieving higher customer satisfaction ratings than humans, its chief executive has revealed.

Just 16 weeks since deploying AI in its operations, Britain’s third-biggest household energy supplier is using the technology to answer more than a third of emails from customers.

“Emails written by AI delivered 80 per cent customer satisfaction — comfortably better than the 65 per cent achieved by skilled, trained people,” Greg Jackson said.

Writing in The Times, Jackson said the success of AI was “unlikely” to lead to job cuts at Octopus as the company was growing rapidly. Customer service staff are able to process emails such as queries about bills far more quickly by using AI to draft their responses, which they approve before sending. This frees them to spend more time answering the phone.

However, he warned that its experience illustrated the “terrifying” pace of the technology and the potential for it to cause “huge and rapid dislocation” to the job market. He urged governments to “move fast to prevent existential risk”, arguing that the technology could be used by malign actors and ultimately could become a “super-intelligence” that could threaten humanity.

“AI works by relentlessly pursuing its objectives. Set these wrong and terrible outcomes can occur,” he writes. “It’s not that the AI is evil and intent on human destruction. It’s just that we risk being incidental casualties, like the ants we accidentally squish as we walk to work.”

Octopus Energy, founded in 2015, has enjoyed rapid growth and now supplies 5.3 million households. It employs about 4,800 people, about a quarter of them in customer service.

Since the launch late last year of ChatGPT, the artificial intelligence chatbot developed by the American group OpenAI, there has been concern about the implications for society.

Proponents say the technology can help in a wide range of applications from making medical diagnoses to drafting legal contracts or coding software, but there are worries about potential risks. Last week President Biden met the chief executives of leading developers including OpenAI, Alphabet and Google and told them they must mitigate the risks it poses to individuals, society and national security.

The Times

Big energy firm to wipe customer debts after smart meter glitch

A big energy supplier is wiping the debt on hundreds of customer accounts after a smart meter glitch left them with shock bills.

Boost Power will remove any debts applied to the accounts of customers affected by a prepayment meter glitch.

Ovo Energy, the owner of Boost Power, has told The Sun that it will no longer ask customers to pay the company back after being undercharged for their electricity usage.

The meter glitch landed some households on prepayment meters with debts of as much as £700.

Customers affected by the glitch won’t need to do anything and Boost will be in touch next week to confirm that any debt applied will be wiped from their accounts.

It comes after hundreds of customers received emails and letters last month from Boost which supplies around 200,000 homes, telling them they must pay back the cash after being incorrectly charged.

The message said: “Unfortunately, when our prices went up in October, your meter wasn’t updated due to a technical problem.

“This means that we were charging you less than we should have for a short period of time. We’re sorry about this.”

“You’ll need to pay the difference in price for energy you’ve used. But we’re reducing this amount by 10% to say sorry for the mistake.”

The Sun

The dirty secret behind premium ‘green’ energy deals

Britain’s biggest energy suppliers are refusing to stop buying controversial certificates that allow them to sell tariffs as “100pc green” when they are not.

“Green” energy tariffs have typically come at a premium and have been up to £60 more expensive than a standard deal. About 9m households had “green” energy deals in 2021.

But industry experts say that households are being “duped” into thinking their electricity is clean because suppliers can buy certificates that allow them to market tariffs as sustainable.

Energy suppliers can buy certificates, known as Renewable Energy Guarantees of Origin or “Regos”, from green energy generators – and still provide their own customers with power generated from fossil fuels.

Suppliers are facing increasing pressure to ditch the practice and it is understood that a regulatory review into greenwashing in the sector could be restarted later this year.

Meanwhile, Britain’s major energy companies have spent nearly £2bn on the certificates over the past five years.

Archie Lasseter, the head of sustainability at Utilita, said: “The problem is industry wide. Almost all suppliers are offering tariffs purporting to be ‘100pc renewable’ or ‘zero-carbon’ electricity.

“Households on these energy tariffs have been duped into thinking the energy they use is 100pc renewable when it’s not.

“It’s unbelievable that suppliers have been willing to do it for so long, but even worse, the regulator and the Government have simply watched on and done nothing.”

Last month Ovo Energy said it would stop buying Regos, because they allow suppliers to “greenwash” their environmental credentials without boosting the supply of renewable energy.

Telegraph Money approached all of the major energy suppliers, but not one would commit to stop the use of Regos.

Continue reading here.

The Telegraph

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.