Labour promise to honour network debt ‘reduces risk’ of creditor loss

Labour’s proposals to honour the existing debt of network operators in full “significantly reduces” the risk that nationalisation would result in immediate losses for operating company creditors, ratings agency Moody’s has said.

Yesterday (15 May) Labour unveiled its plans to nationalise the energy networks if it gains power in a document entitled Bringing Energy Home.

The plans could also see investors being paid less than the market rate for their assets, prompting concern within the industry.

Moody’s says Labour’s proposals support its view that any nationalisation is “likely to be structured in a way that avoids imposing losses on operating company creditors”, but warns it could “weaken the credit quality of holding companies”.

Uncertainty around the base valuation, however, makes it “impossible” to estimate the value of compensation that would be received by holding companies, it adds.

Furthermore, the proposal to base the new regional energy agencies, which will take over the network operators, on existing electricity distribution license boundaries “creates credit-negative uncertainties” for gas distribution networks as they are not aligned with the license boundaries for gas distribution.

Although highly likely, there is no certainty that nationalisation will remain Labour policy by the time of the next general election and even if the policy is kept it may have been modified significantly. On this basis, Moody’s says its assessment of the impact of renationalisation depends on the “precise nature of their implementation” and it is therefore minded to wait for some of the uncertainty to dissipate before it places substantial weight on its credit analysis.

A number of industry voices have expressed their concern over the plans, with David Smith, chief executive of the Energy Networks Association, suggesting the details contained within the proposals create more questions than answers.

You can read his exclusive column for Utility Week here.