'Good Guy' SSE looks to have made a smart move

 

Outlook Alistair Phillips-Davies says he wants SSE to be thought of in the same way as John Lewis.

That's never going to happen: people will always hate paying their utility bills, and will probably always hate their suppliers.

However, with his new price guarantee, he is making a canny judgement that he just might make customers loathe his company less than its rivals.

And, with a surge of bad publicity for the industry likely today with the expected launch of a full-scale competition inquiry, SSE has won itself some crucial "good guy" billing in the mainstream consumer media.

It's not just the public that may feel better disposed towards the old Scottish & Southern. For policymakers, too, SSE is one step closer to the side of the angels – or the penitents, at least. In demonstrating, as SSE puts it, an "appetite for reform", it has both helped the Government's push against draconian Labour price caps ("look, we can be good without more regulation"), while giving Ed Miliband a victory in his campaign against the energy giants.

But what has SSE actually given up here? Let's look at its two attention-grabbers first.

Sacrificing the ability to raise prices for two years is something of a gamble. Nobody can tell where wholesale energy prices will go over the period to 2016, particularly given the uncertain situation with that gas goliath, Russia. A Putin-led incursion further into Ukraine could trigger trade sanctions that would drive wholesale gas prices sharply higher.

However, it's a fair bet that cash-strapped Russia will not pursue a foreign policy that would risk its most valuable export being blacklisted. More likely is that US fracking supplies and ever-increasing LNG capacity will keep global prices under control. So fixing prices now is less risky than it might seem.

Dividing its retail from its wholesale operations will improve transparency – which is to be applauded – but energy companies have always strongly denied that the old system was hiding excess profits in the first place. In other words, the change, by SSE's own testimony, is immaterial.

And what has it gained? Lots.

By using the political cover of demand for reform in the industry, it has managed to justify hundreds of redundancies. It has also taken the opportunity to scale back its investments in pesky wind power. The Beatrice wind project off the coast of Caithness will be reduced from a potential 750MW to no more than 375MW, while the onshore wind farms at Dalnessie and Fairburn will be scrapped altogether.

Meanwhile, SSE continues to have enough cash swilling around to pay a 6 per cent dividend to shareholders. As the City analyst Louise Cooper points out, that's not bad considering safe-haven utilities shares are traditionally thought of as being a substitute investment play for gilts, which yield 2.7 per cent. If it has enough cash to pay out so much to shareholders, did it really need to scale back investment so much?

Mr Phillips-Davies gives the impression that he is prepared to make financial sacrifices to assuage public opinion. The best judge of the real cost to the business of those is the stock market. So, what happened there? SSE's share price jumped 1.5 per cent.

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