Weekend Press: Yorkshire Water owner Corsair seeks exit

In our latest review of sector coverage in national media, one of Yorkshire Water’s owners is said to be eyeing a sale of their £500 million stake, meanwhile Thames Water’s financial structure and net zero targets are under scrutiny. There are also reports on the hydrogen village trials and the possibility of a nationwide electricity blackout.

Yorkshire Water owner Corsair seeks exit

One of the owners of Yorkshire Water is weighing a sale of a stake in the utility for up to £500 million amid growing concerns about Britain’s ailing water industry.

City sources said that Corsair, a US-based investment house, was working with investment bankers at Goldman Sachs on finding a buyer for its 30pc stake in Kelda, the owner of Yorkshire Water.

It is thought that Corsair’s shareholding in Yorkshire Water may be worth between £300 million and £500 million.

The possible sale comes after shareholders in Kelda were forced to pump £500 million into the business in June this year following concerns about the company’s balance sheet.

The fundraising came after a plan announced in October last year to inject £940 million of equity over five years and comes on top of £700 million provided by bondholders since February.

Kelda’s other shareholders include GIC, the government of Singapore’s sovereign wealth fund, Deutsche Asset Management and SAS Trustee Corporation, an Australian investment firm.

The Times

Government pushes ahead with plans for the UK’s first hydrogen towns despite backlash from locals

The Government is pushing ahead with plans for the UK’s first hydrogen towns despite backlash from locals over safety fears.

Gas network operators are thought to have already put forward towns they deemed to be ‘most suitable for conversion’ such as Aberdeen, Scunthorpe, and areas near Humberside and Merseyside.

A small trial of hydrogen heating will begin in Fife, Scotland, next year with about 300 homes being supplied with the gas.

Whitby, in Ellesmere Port, was put forward for the pilot scheme to test out the use of hydrogen in homes but those plans were thrown out in July when it was met with fierce opposition from locals who feared being ‘lab rats’.

While last month protesters took to the streets in Redcar against Government proposals to heat 2,000 properties in the seaside town in Yorkshire with hydrogen.

The Government is pressing ahead with trials despite The National Infrastructure Commission last month concluding after an exhaustive investigation that hydrogen should be ‘ruled out as an option to enable an exclusive focus on switching to electrified heat’, reported The Guardian.

Three other towns – two in Wales and one in the West Country – have also been mooted as potential areas for hydrogen, according to The Telegraph.

A Department for Energy Security and Net Zero spokesperson said: ‘By 2030, we aim to deliver 10GW of low carbon hydrogen production capacity, including at least half from green hydrogen sources, supporting more than 12,000 jobs and up to £11bn of private investment across the UK.

‘We are building the necessary evidence base to determine whether hydrogen blending offers strategic and economic value and meets the required safety standards. We will confirm more details by the end of the year.’

In a move to reassure people it is thought the Government could rename areas ‘decarbonisation zones’ and offer to switch from gas to heat pumps, while gas companies could also be allowed to blend hydrogen with the existing gas network.

Daily Mail

South East Water: Supply returns after three-day outage

Water supply has returned to properties in East Sussex after a three-day outage.

South East Water said supplies had been affected in the Brightling and Robertsbridge areas of Rother.

The issue is thought to have been caused by a burst pipe in Perryman’s Lane in Burwash, with disruption beginning on Wednesday morning.

On Saturday, the firm said supplies had returned to normal, and apologised to affected customers.

“We’re incredibly sorry to all customers who had no water or low pressure this week following a burst main in the Sussex area,” incident manager Steve Benton said.

“Our teams worked round the clock to restore tap water supplies to the Brightling, Three Cups Corner, Punnett’s Town and Churches Green areas of Sussex.

“We know this has been a very frustrating time for our customers and apologise for the inconvenience it has caused.”

On Friday evening, about 23 households were still without supply, South East Water said.

Farmer Christine French previously said it had been difficult to get enough water for her cattle.

“We’ve got 36 youngsters which are running out of water rapidly. They need to be fed at least twice a day,” she said.

South East Water, which is currently under investigation by Ofwat, revealed this week that it has paid out £2.3m in dividends to investors.

Ofwat is investigating South East Water over its service to customers and record in maintaining a water supply.

The firm said the £2.3m was less than the £4.5m paid a year earlier and a figure which was lower than what Ofwat believed was reasonable.

BBC News

Thames Water scraps plan to become net zero by 2030

Troubled Thames Water has been forced to scrap its pledge to become net zero by 2030 as it battles mounting pressure on its finances.

The supplier said it has dumped its climate target to prioritise improving its sewage pollution performance. The climbdown comes just four years after Thames bosses set the 2030 target.

A Thames Water spokesman said it had listened to the “communities we serve and while they’re supportive of our plans to reduce our carbon emissions, customers have told us tackling sewer flooding and reducing sewage discharges should be a priority in our next business plan”.

Lord Cromwell, a member of the Lords’ Industry and Regulators committee, questioned the firm’s commitment: “Thames Water is now saying it is prioritising sewage discharge at the cost of meeting its net zero targets.

“I wonder if that means that they previously considered they could go on polluting the rivers so long as they met their net zero targets.”

Campaigner Feargal Sharkey also took aim at the supplier: “It’s nothing but promise after promise with Thames Water yet they never deliver.

“It’s time we called time on this company and put it in the hands of somebody who might be able to run it, fix their leaky pipes and ensure that they are delivering a service that is worth what the consumer is paying for.”

A spokesman for Thames said: “We’re rephasing our original pledge to reduce our operational emissions to net zero by 2030. This follows significant changes to the original findings and assumptions about carbon emissions used by the water sector.

“While these developments do not change our desire to achieve net zero, we are still working to fully understand the challenges and opportunities they present and how these will impact the size and deliverability of our net zero plans.”

It said it will update its net zero plans next year.

The Daily Telegraph

Thames Water’s convoluted financial plumbing is part of the problem

One test in journalism is whether you can successfully explain the story you are writing to your mother. In business leadership, it is whether you stand a chance of explaining yourself to a parliamentary committee who are out for blood.

Good luck to Thames Water, then. The debt-laden utility will this week face MPs to explain why a £500mn equity investment from shareholders came into the group in the form of a convertible loan, paying 8 per cent interest.

The answer — which judging by Thames Water’s recent letter to the select committee seems to be: our private equity owners prefer to put in equity in the form of loans and, actually, it doesn’t matter anyway — may meet with some scepticism. The hearing will also look at the recent payment of £37.5mn in dividends from the water company’s regulated operating company up into the upper reaches of its convoluted financing structure. This is particularly important to the future of a company that increasingly looks to be in a downward spiral.

The company has a point on the funding. Despite the fact that the shareholder loan is clearly a liability in the top holding company accounts, and enters the Thames Water operating company as a repayment of an “intra ringfenced group loan”, it is equity where it matters — at the operating level. It is treated as such by credit rating agencies. Private equity likes to make everything as complicated as possible, often for tax reasons. In this case, some tiny sliver of senioritymay have appealed given Thames’s dire straits.

Investors in Thames’s long-term debt at the operating level, like pension funds, are unlikely to have concerns: investors in the ringfenced entities that make up the operating group are protected from whatever shenanigans go on above in the holding companies. None of this really makes it easier to explain to politicians or the public, however — which is an issue when you’re a huge utility supplying a basic human resource.

More importantly, you can’t detach Thames’s unwieldy corporate structure from the company’s predicament and the regulatory failures that got it here. The convoluted set-up is a legacy of former owner Macquarie and other ex shareholders’ extraction of value using debt raised from the holding companies. That debt, mostly at what is called Kemble Water Finance, is serviced using dividends sent up from the regulated operating company, hence the £37.5mn.

Thames Water points out that its current owners haven’t received an external dividend for several years (or interest payments on their shareholder loans). The owners don’t plan to receive dividends or similar payments until at least 2030.

But just as equity into the operating group is arguably equity regardless of its origin, dividends are sucking cash out of the utility regardless of where it ends up. KWF does have a working capital facility but, essentially, the flow of dividends up from the operating company to pay its debts is what is keeping the show on the road. And that is getting harder.

This certainly demonstrates the nonsense of a regulatory approach that focused solely on the operating company and didn’t look further up the chain at financing, debt, and structure. As Ofwat belatedly gets tougher, these are in ever-greater conflict.

Read the full article here (subscription required)

The Financial Times

How a blackout could put Britain four meals away from anarchy

It begins when a distracted worker at the National Grid opens an email and clicks on an attachment. Weeks later, just before Christmas and with Britain in the grip of a brutal cold snap, a colleague is finishing up for the day when she notices something odd: the cursor on the screen of her computer is moving of its own accord.

The cursor brings up sets of controls that operate circuit breakers at different electricity substations. A box appears on the screen, asking for a request to be confirmed.

The cursor clicks “yes” — and a significant portion of London is plunged into darkness.

In the hours that follow, there’s no broadband inside the blackout zone. Mobile signal masts fall silent, preventing calls and online connections. Cash machines, shop tills, credit cards and petrol pumps won’t work. Traffic lights and trains are down. If the outage can’t be fixed within a couple of days, fresh water and sewage services, which rely on electric pumps, may begin to fail.

We know that the scenario is plausible because it’s happened before, albeit in eastern Europe. On December 23, 2015, Ukraine was the victim of the first cyberattack to disrupt a nation’s electricity supplies. Hackers gained access to power supplier systems by fooling employees into opening doctored email attachments. A worker is said to have looked on, horrified, as his workstation was hijacked.

Could it happen in the UK? The government thinks so. This week, Oliver Dowden, the deputy prime minister, called on people to buy battery-powered radios, torches and candles to boost their “personal resilience” in the event of power supplies collapsing.

The advice was overdue, say academics. Virtually every facet of the economy, every modern convenience assumes a reliable electricity supply. “I think it’s clear that if there were a nationwide or regional shutdown of the electricity grid for a few days, that would indeed be a major disaster,” said Lord Rees of Ludlow, the astronomer royal, who is also a co-founder of Cambridge University’s Centre for Existential Risk.

“We’re very dependent on electricity, obviously, and increasingly on the internet. And if either of those things failed, we’d be in bad shape very quickly. Within a few days it might lead to a real social crisis.”

………

Even a modestly successful cyberattack could be enormously disruptive. Dr Edward Oughton of George Mason University has modelled what the impact of the 2015 assault had it happened in London, not Ukraine. He calculated that up to 1.45 million people would have lost power to their homes and that power supplies to sewage systems serving up to 3.9 million would have been disrupted. This was the result of targeting just 14 substations, picked at random, around London. Across Britain there are about 300.

The fallout from a very big blackout could be much worse. Alongside chemical and nuclear attacks, the government’s national risk register lists “space weather” as posing a serious threat to the UK. The reasonable worst-case scenario for this is usually based on a repeat of the Carrington Event of 1859, when the Sun ejected billions of tons of charged plasma towards the Earth.

It resulted in Victorian skies being lit by fantastic auroras and telegram equipment acting oddly. In a world where telegrams have been displaced by the internet, the consequences could be far more severe.

A spokesman for the National Grid electricity system operator (ESO) discounted the dangers. “For a Carrington-like storm we expect there could be some localised power outages, in a similar way to how there might be in a terrestrial storm. The ESO would be able to restore these areas within a few hours at most, by diverting power and switching circuits back into service,” he said.

Read the full article here (subscription required)

The Times

‘The climate change argument is becoming ever more convincing’, says former BP chief

Former BP chief Lord Browne has said Rishi Sunak’s decision to expand North Sea drilling is “not going to make any difference” to Britain’s energy security and is “symbolic”.

Lord Browne, who is now among Rishi Sunak’s lead scientific advisors, said he was “surprised” by the Prime Minister’s decision to grant new licences to drill in the North Sea annually.

Speaking in Dubai, where he has been attending the Cop28 climate talks, Lord Browne declared that the UK continental shelf was dying as an oil and gas resource and suggested Mr Sunak’s planned expansion was little more than a political gesture.

He told The Telegraph: “I’ve always thought that most of the North Sea and [the Atlantic] West of Shetland is at the end of its exploration life. So I was quite surprised at this plan. It’s a bit more symbolic, I think, than real.

“Someone wants to make a point that there’s freedom of choice here. It’s not going to make any difference in terms of the volumes found, and even in carbon dioxide produced if it’s used.”

North Sea drillers face not just dwindling supplies, but also a deeply unstable political environment. The last two years alone have seen offshore taxes raised from 40pc to 75pc, with Labour promising more to come should it win the coming election.

Lord Browne suggested that the UK’s offshore operators are now just planning to make as much money as they can and then quit.

“This is not an industry that is going to invest the same amount of money every year… People recognize that when governments become unreliable, that will stem the investment.

“And if there is nothing left to do [no remaining oil and gas], then people will naturally say fine – now we’re in the endgame. Let’s just take as much money as we can.”

Industry disagrees, with Mike Tholen of Offshore Energies UK suggesting the North Sa is the “foundation of energy security” and the platform on which to build a renewable sector.

However, Lord Browne’s comments carry weight given his reputation as arguably BP’s more influential former chief executive.

They are even more striking given Lord Browne’s current role as chair of the Government’s Council for Science and Technology – a group of the UK’s most senior scientists appointed to advise Rishi Sunak. On this issue, however, they appear not to have been consulted.

Read the rest of the article here (subscription required)

The Daily Telegraph

Sellafield staff ‘used home computers to beat security failings’

Staff at Sellafield were asked to work on sensitive projects using their home computers, a former employee has said, amid questions about cybersecurity at Britain’s most hazardous nuclear site after claims it was hacked by groups linked to Russia and China.

Claire Coutinho, the energy secretary, is due to meet representatives from the Nuclear Decommissioning Authority (NDA) after an investigation alleged that state actors had embedded sleeper malware into the computer network at Sellafield, the largest nuclear waste and decommissioning site in Europe.

Sources told The Guardian that IT breaches had been detected as far back as 2015, and accused the organisation’s leaders of having “consistently covered up” the scale of the intrusions.

Highly sensitive material potentially relating to the movement of radioactive waste and monitoring of leaks had likely been compromised, and it is still unknown as to whether the malware has been successfully eradicated, the newspaper reported.

A former staff member, who worked as a senior manager at the site between 2008 and 2021, told The Times that staff had a “complacent” and “lax” attitude towards cybersecurity, with employees often leaving their login details attached to their computers and frequently having to be reminded to lock their screens.

“At a corporate level I think it was taken very seriously and we often had to watch videos role-playing a cybersecurity threat scenario,” he said. “But at an operational level people would say ‘oh, it won’t happen here’, and think that the stuff they were working on wasn’t important enough to be the target of a hack.”

The ex-employee said he was sometimes asked by his superiors to work on sensitive projects using his personal computer so that it was not “on the network”.

Just before Jamie Reed, former MP for Copeland, resigned his seat in 2017 to take up a role at Sellafield, the former manager was asked to make preparations for his arrival on his home computer “in case a secretary saw an email about it or if we were FOIed [sent a freedom of information request] about it”.

“So if they are telling you to do stuff like that on the one hand, but saying on the other that it’s really important we protect all the data that we have — it doesn’t align,” he said.

He added that the site also lagged behind on new technologies and that the computer systems were often “antiquated”, with staff using outdated versions of Windows on their computers and relying on USB sticks rather than cloud-based software.

A spokesman for Sellafield Ltd, which operates the site under the control of the government-run NDA, declined to comment on the claims made by the former employee.

The organisation has, however, strongly denied allegations made in the Guardian investigation, saying it had “no records or evidence” that its networks had been “successfully attacked by state actors”.

“Our monitoring systems are robust and we have a high degree of confidence that no such malware exists on our system,” a spokesman said.

The Times

Too much focus on ‘fairytale solutions’ at Cop28 climate talks, warn activists

Hundreds of lobbyists have descended on Dubai to push for untested new technologies to solve the climate crisis. Experts say they are just a distraction designed to let oil companies off the hook. Stuti Mishra reports from Cop28.

Read the full article here

The Independent

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.