Energy firms ‘facing cash drought after Ed Miliband’s speech’, says analyst

• City ‘would tell big six directors to get stuffed’
• Warning comes as anger flares over Grid profits.


Anger over energy prices was intensified by National Grid reporting profits of more than £1.5bn on revenues of £2.7bn. Photograph: Rui Vieira/PA.

A leading City analyst claimed on Thursday that Ed Miliband had “killed stone dead” any chance of one of the big six energy firms obtaining finance for a very large new wind farm or gas fired power station before the next election.

The warning from Peter Atherton at Liberum Capital came as a new row blew up around accusations of energy profiteering, this time by National Grid, which reported first half operating earnings of more than £1.5bn.

Atherton said the Labour leader’s promise of an energy bill freeze and threat to break up large energy utilities had badly damaged confidence and raised the cost of capital for some firms by as much 20%.

“Big ticket items such as offshore windfarms have been killed stone dead. If any board directors [of the big six] were stupid enough to agree to try to raise money in the City now they would be told to ‘get stuffed’. They [banks or others] would be very reluctant to finance even the independent power providers who are not directly in the firing line,” he said.

Atherton said that Miliband’s speech at the Labour party conference had aggravated an already difficult situation caused by endless uncertainty about the timing and detail of the coalition’s own energy market reform legislation.

But consumer anger over bills is currently focused on the companies themselves, with National Grid described by Energyhelpline as “one of the fattest of the fat cats in today’s broken energy market”.

The criticism from the switching firm’s founder Mark Todd came after detailed figures showed the Grid made operating profits from its UK electricity transmission business alone of £614m on revenues of £1.7bn. The Grid made £456m profits on revenues of £945m on its UK gas distribution business, but only £330m on revenues of £3.4bn in its US operations.

All these are regulated businesses, but both the company and independent experts said it was difficult to compare US with UK figures. They also cautioned against comparing them directly with the much lower – but still criticised – profit margins of Britain’s big six supply companies that are the Grid’s customers.

The Grid, whose electricity and gas transmission charges have partly been blamed by power suppliers for their bill increases, rewarded shareholders with a 14.49p a share dividend, costing £520m.

Steve Holliday, the chief executive, defended the payout and the scale of profits saying they were needed to retain shareholder support for new investment in energy networks, which will cost £3.5bn this year alone.

“We continue to invest efficiently in essential regulated assets on both sides of the Atlantic, providing our customers with reliable networks while generating value and driving growth,” he said.

He described Todd’s criticism as “unhelpful” and said his company was tightly regulated, with any extra profits halved and handed back to customers.

The Grid’s transmission and distribution costs amounted to only £11 out of every £100 recent increase in energy bills, he said. Over the next eight years, under the latest agreement with Ofgem, costs would go up by less than £1 per year.

But Todd said the transmission company’s charges now made up about £175 of every energy bill, a total of around £4.5bn every year across 26m UK households.

“It is time for the government and Ofgem to step up and take control with tougher regulation on the National Grid and a new settlement that forces costs down, not up by 7.5% a year. Clearly Ofgem have been bamboozled by National Grid and have been too soft on them.”

But Ofgem defended itself pointing out that the price controls set for the Grid forced it to cut £5.7bn investments from the original business plan that the regulator ruled were of no benefit to consumers.

In a statement it added: “Ofgem’s price controls also include a mechanism that ensures where any outperformance is due to the company delivering it at less cost than expected, these profits are shared automatically with consumers. Ofgem has consistently set the lowest allowed rate of returns for regulated utilities.”


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