Beware the power carve-up
Hard to know whether to laugh or cry at the prospect of a merger between the retail arms of British-quoted power supply SSE and Germanowned Npower, part of Innogy and ultimately controlled by RWE. The deal would bring an end to overseas ownership of a big-six power supplier. By any standards German ownership of our utilities has been damaging.
RWE’s previous control of Thames Water was a travesty and only made to look benign by the Macquarie stewardship ( see below) which followed.
Npower has been an ongoing thorn in the eyes of regulator Ofgem and was fined £26m two years ago for abysmal treatment of customers. Parent RWE failed to deliver on pledges to invest in new nuclear in Britain making it harder for successive governments to keep the lights on. Foreign ownership also made it impossible for consumers to align interests with investors.
reducing the number of major energy players from six to five and creating a behemoth with 13m customers could only reduce competition in an imperfect market. It could lead to challenger suppliers, offering fairer tariffs, being squeezed.
SSE already has more of its customers on over-priced Standard Variable Tariffs than its competitors. Clearly any deal ought to be scrutinised by both Ofgem and the monopolies enforcer, the Competition & Markets authority.
as we know from the banking industry putting two large players together – Lloyds and HBOS – can result in years of disruption for consumers, investors and employees.
Separating generation from distribution would be a return to the status quo ante at the time of privatisation.
But it would be better for consumers if Innogy were to float off rather than merge its UK retail arm, or even to look at a partnership with new low- cost challengers in the market such as OVO or First Utility.
The power market doesn’t need an even larger, price setting distributor with questionable service standards.
Cayman leaks
MRS Thatcher would be spinning in her grave if she knew how privatisation of Britain’s water companies has turned out. Far from the image of popular capitalism, they have been converted into debt-fuelled entities with complex Cayman Island financial structures, largely under foreign ownership, making super-charged returns.
as enterprises which touch the lives of citizens from Yorkshire to London, the appalling structure of the industry, which has seen billions of pounds of dividends and bond interest payments shipped out of the UK to overseas investors, is an open goal for Jeremy Corbyn as he plans renationalisation. Under pressure from regulator Ofwat, there are signs the owners are getting the message that rapacious management and cunning structures which allow tax avoidance have gone on too long. Indeed, for most people in Britain the contempt of the consumers and taxpayers for water companies will be far greater a source of anger than the Paradise disclosures of Lewis Hamilton’s corporate jet or the tax avoidance for the cast of sleazy Mrs Brown’s Boys.
Of the four biggest sinners – Yorkshire Water, anglian, Southern and notorious Thames Water – only Yorkshire so far has taken steps to begin dismantling Cayman Island structures. Ideally the regulator would want to see debt paid down rapidly with a less risky and debt dominated structure. Plainly the regulator should have addressed the issues years ago. real villains of the piece are investment bankers such as vampire kangaroo Macquarie and Citigroup who advised on the improper structures and have taken fat management fees out of the water firms. Unconscionable.
Sweet returns
a GREAT bulwark against short-termism in business is family ownership. associated British Foods, where Weston family interests hold 54.5pc of the shares, is a case in point.
Patience and heavy investment in Silver Spoon beet sugar is finally paying off with operating profits surging five times to £223m. as significantly, it gives ABF a platform for domestic production for the post-Brexit world about which chief executive George Weston is supremely confident.
as always, ABF’s food brands – from Twinings, to dorset Cereals and ryvita – are overshadowed by Primark. Shrinkage of some US fashion stores obscured the runaway performance elsewhere. But the group is still pressing ahead with american openings, including hipster Brooklyn. In Britain same store sales are up 4.5pc, overall like-for-likes 10pc and total sales up 16pc.
Few retailers, even those more online enabled, will manage that.