Friday (24 June) morning was a hectic one for the Utility Week news team, who arrived to the news that ‘Brexit’ is really happening, the CMA has published its final report, and that Business Stream will buy Southern Water’s business customer base when the incumbent exits. Three stories which spent the day vying for the spotlight.
First up, Brexit.
After months of tussling and fierce political-party-splitting rivalry, the outcome of the EU referendum has taken many by surprise, as ‘Leave’ pipped ‘Remain’ to the post and won by just 4 per cent.
The reaction has been polar. Some are calling UK ‘Independence Day’, while others are warning the decision will decimate the economy and could even be the end of the United Kingdom.
Investor uncertainty
Between UKIP leader Nigel Farage’s celebratory gesticulations, prime minister David Cameron’s tearful resignation announcement, and US presidential candidate Donald Trump’s unwarranted interest, what does the decision mean for utilities?
If the ‘Remain’ contingent is to be believed, we’re doomed.
The vote creates a great deal of investor uncertainty in both the energy and water markets, although Whitman Howard analyst Angelos Anastasiou says UK utilities are likely to outperform the market in the short term.
Share prices of both energy and water took an immediate hit, with shares in RWE plummeting 13 per cent in the first 10 minutes of trading. EDF and Eon, as well, saw their share prices fall nearly 10 per cent. However, all have since recovered somewhat.
Shares in the listed water companies also dropped, albeit by less. The water sector says it will “keep calm and carry on”, as our government negotiates the terms of the UK’s exit with all 27 member states of the EU.
The general consensus is that we don’t know what will happen in the long-term, but, as Energy and Utilities Alliance chief executive Mike Foster tells Utility Week: “In the short term there’s undoubtedly going to be some volatility…”
A damp squib?
Not to be overshadowed, Friday also marked the publication of the Competition and Markets Authority’s final recommendations for the amelioration of the UK energy market.
On first read, not much has changed since the publication of the provisional remedies in March, aside from the revision of the £1.7 billion overcharge figure to £1.4 billion.
Whilst it may be the end of the road for the two-year-long, £5 million investigation, many in the industry feel the inquiry has been a “damp squib”, and it is unlikely that the entire energy market will docilely conform to the recommendations.
Independent supplier First Utility says the Authority has “completely missed the mark”, comparison site Uswitch dismisses some of the recommendations as “illogical and totally at odds with government policy”, and non-profit supplier Ebico goes as far as to call the whole inquiry a “complete waste of time”. Campaigners have even scaled the CMA offices in London, accusing the Authority of “loving the big six energy suppliers”.
Energy and Climate Change Committee chair Angus MacNeil tells Utility Week the CMA is being “tepid” in its recommendations. “There are many areas where we will want to raise questions,” he says.
Time ticks on
From the mature energy retail market to the infant water retail market as, also on Friday morning, incumbent water and sewerage company Southern Water announced it would exit the water retail market when it opens, and hand over its business customer base to the ambitious Scottish retailer Business Stream.
After almost a year of negotiation the acquisition – for which both size and location were the key drivers – will double the size of Business Stream’s customer base, creating the third biggest company in the UK non-domestic water market.
Business Stream chief executive Johanna Dow tells Utility Week that the company is “well on the journey” to market opening, but “there’s no doubt that there is not a huge amount of time left”.
This is just the latest development in a market which is really beginning to take shape.
Keep an eye out for more in-depth analysis of all three stories in the upcoming issues of Utility Week, and online.