Outlook Neil Woodford, the star fund manager at Invesco Perpetual, is not one of the City's more outspoken figures, so when he does stick his head above the parapet, it's worth taking notice. And yesterday, Mr Woodford did more than that: you might say he climbed on top of the parapet and waved his hands about in a concerted bid to attract attention.
A public letter from Mr Woodford to Lord Mogg, the chairman of the energy watchdog Ofgem, was lengthy and made a number of serious points. In essence, however, it boiled down to a threat: change the way you regulate the industry or investors such as Invesco won't contribute to the cost of upgrading the UK's energy production facilities over the next decade.
The Invesco warning shot is not an isolated incident – it reflects a frustration that many leading figures in the energy industry have been expressing privately for some time now. Ofgem has come in for a great deal of criticism in recent years for its failure to protect consumers – in particular to get gas and electricity bills down – and that has prompted a change in the way it behaves. Those it regulates, meanwhile, have grown more and more upset about their perception that Ofgem has become increasingly consumerist.
Still, let's forget about the rights and wrongs of the past and concentrate on the decade ahead of us. One fact is broadly agreed upon by all parties: in order to meet its climate change obligations and to ensure the lights do not go out, Britain has to spend somewhere in the region of £200bn on new energy production facilities before 2020: on traditional coal and gas-fired power plants, on nuclear and on renewables.
The question is where the money is going to come from. It will not be the public sector – even if we were not headed into a period of extended austerity, the Government would want the privately-owned energy industry to bear the lion's share of the cost of upgrading its infrastructure. Nor will it be the energy companies – they simply do not have this sort of cash on their balance sheets.
That leaves two possibilities. Either consumers will have to pay more, through higher bills, in order to provide the energy industry with the capital it needs, or investors will have to come up with necessary cash, through rights issues and other types of fund- raising exercises at the companies in question. As a leading member of the latter camp, Mr Woodford's message is that he is not prepared to cough up unless Ofgem extracts some money from the former camp too, by taking a less aggressive line on the returns energy companies earn from customers.
This is not an argument about whether it is fair to ask consumers to pay more. If other investors take the same view as Invesco and refuse to support fund-raisings, customers will end up paying in any case as the only remaining source of finance. There is always the possibility that Mr Woodford is bluffing, of course, but it's difficult to argue with him when he points to more attractive investment opportunities beyond the utilities sector that might interest those such as him who are responsible for allocating capital.
We will hear much more of this argument over the next 12 months. Ofgem, and the Government to which it reports, have always been nervous about spelling out the inescapable truth about Britain's energy gap, but sooner or later they will have to be more explicit. Closing it, particularly with extra climate change obligations thrown in, is going to be expensive and customers will be forced to pay significantly more for their energy.Reuse content