Power firms tackled by MPs over profits and performance
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Sunday 05 January 2014
Britain's power distribution chiefs are fuming about the damage to their industry's reputation by the company blamed for blackouts in the South-east over Christmas.
UK Power Networks (UKPN), owned by the Hong Kong tycoon Li Ka-shing's offshore-controlled family businesses, left thousands of customers without electricity on Christmas Day. Many remained in the dark for more than five days while the company struggled to repair storm damage.
As a result, senior managers from across the whole power distribution industry are now being hauled in front of MPs on the Energy Select Committee for what will inevitably prove to be a series of bruising encounters and dismal headlines. Calls for windfall taxes and bonus clawbacks could be in the wind.
No one would go on record ahead of the hearings, but one manager said, on condition of anonymity, that "UKPN's performance has raised a lot of eyebrows throughout the industry. I mean, what were they doing? Now all our reputations are getting tarnished."
Another said: "We're all going to be lumped in together when, in other parts of the country, we [also] had very severe weather but performed well, getting people's power back on within a few hours."
The Independent on Sunday's sister paper, The Independent, last week revealed how UKPN alone made nearly £1bn in underlying profits in its most recent financial year, while paying its chief executive £1.7m. The company may also have funnelled as much as £630m back to its Hong Kong and offshore parent companies in dividends and interest repayments on money they lent UKPN since taking it over in 2010.
Other companies have also channelled hundreds of millions of pounds back to foreign owners. Western Power Distribution, owner of network monopolies in the South-west, South Wales and Midlands, paid dividends of £443.4m to its US parent, PPL, during 2011-2012. SP Distribution and SP Manweb paid £948m in dividends to their Spanish parent, Iberdrola, over the same two years.
Such dividends to overseas companies did not necessarily mean that performance was reduced, however. SP Distribution was commended for the way it coped north of the border. And Western Power Distribution said that, of the 122,000 homes in its regions who suffered power blackouts in the horrendous storms in Devon and Wales, 99.9 per cent were back up and running within 24 hours.
UKPN denied inferences that it had been scrimping on staff, and is likely to repeat those denials to MPs, although accounts show it did reduce staff numbers in 2012. A spokeswoman said the company was investing "close to £600m per annum" in capital investment.
UKPN's chief executive, Basil Scarsella, however, will come under fire about his admission that the company allowed too many staff to be off on holiday over the Christmas break. Rival executives said this was a particularly surprising admission, given that Christmas and the New Year are often stormy periods.
"We knew the weather was going to be coming in and made sure we had enough people working. What was UKPN doing?" asked an executive at a rival firm.
"Now we're all going to be hauled in front of the Select Committee. But it will be pretty obvious when the companies come to give evidence who managed well and who didn't."
MPs will inevitably be asking about how companies can claim to be investing adequately in the network when they are making such vast profits out of ever rising customer bills. Against the backdrop of the price rise row stirred up by Labour leader Ed Miliband's pledge to cap bills, the distributers will face a particularly tough grilling.
The watchdog, Ofgem, will also be grilled on whether it has been tough enough on the local monopoly companies it regulates.
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