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Ron Delnevo's Blog
Ron Delnevo's Blog
Blogs » Ron Delnevo's Blog

Guaranteed Profits For Utility Investors?

Tim Yeo, Chairman of the Commons Climate Change And Energy Committee, has informed the UK Public - that's you and me - that the profits of EDF will need to be guaranteed if that company is going to invest in nuclear power stations.

I have got news for Tim. THE PROFITS OF ALL UK UTILITIES ARE ALREADY GUARANTEED!

The politicians that flogged nearly all of the UK's utilities to the private sector were so keen to get rid of these priceless assets that they forgot put in place worthwhile pricing controls.

The failure of price controls was amply demonstrated by the Chair of OFWAT, the office that is meant to closely regulate the water industry to ensure that UK consumers are not ripped off.

Basically, the lady Chair said that water companies could pay what dividends they like to shareholders and then pass on the cost of new capital expenditure required to water users through their bills.

Now you might think that sounds a bit like what Private Equity investors often do, e.g. sell assets, pay themselves dividends and hope the business can recover the costs somehow. They are not too worried how: they have made their profits through the asset sale/dividend process.


YOU WOULD BE RIGHT!
For water, read ALL UK utilities.

That is why utility prices are, in the main, rising faster than RPI.
There is only one answer. The profits utilities are allowed to make/distribute must be directly tied to annuity rates.

Because the reality is that an investment in a UK utility is not a risk. It gives a guaranteed return, like an annuity.

The Labour Party should pledge to legislate to limit utility profits. That would guarantee an election win and be even more popular with UK voters than Mr Cameron's gay marriage inclinations!









 

Wednesday, 6th February 2013

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