I have sold my utility shares

[absolutezero]

There may be trouble ahead...

I've finally dumped all my shares in utility companies.

I suspect the whole lot* will be nationalised.
I put that at about 50% probability. Large enough for me to take action.
Whether that be de-facto nationalisation (>50%) or some fudge like the bank bailouts (~30%), I'm not sure, but I see it coming.
Of the options, I suspect nationalisation**.
I attach a <20% likelihood to nothing happening.

- Energy bills are (still) rising.
Forecasts of £400 in January alone.
I just popped onto U-Switch to see what I would get if I was to move to a new contract.
Currently paying £1600 for dual fuel fixed until October.
Cheapest currently available: £4100.

- I'm alright.
I can pay that if necessary, but the vast majority can't - and won't.

- There are already campaigns for a mass non-payment of bills.
Some interesting comments here: https://conservativehome.com/2022/07/19/james-frayne-a-working-class-revolt-looms-if-the-new-prime-minister-doesnt-tackle-surging-living-costs/
That's the thin end of the civil disobedience wedge. It could be worse.

- Should this 'bill strike' happen, the utility companies will become insolvent.
Forget putting non-compliers on pre-payment meters. There will be too many.
It will cease to be a business problem. It becomes a political problem. And they won't let it get to the point where there are riots.
'Something must be done' - and it will.

- Government steps in and nationalises all utility providers.
Not ideologically driven, more the provider of last resort.
Public opinion wouldn't back a bail out. See anger about 'bankers', but nationalisation is popular. (Wrongly in my view but there we go)

- I suspect all households will then get 'free' energy provided and paid for by the state.
No bills for as long as elevated prices last.
The state provides all energy at 'no cost'. (Yes. I know... The public now know the magic money tree exists - it's a political choice what its fruit gets used on... Forget the economics here and who pays for something that's 'free', the public have seen the tree)

So all in all, I suspect utility shares will be worth a lot less than they are now - potentially zero or massively reduced as the utility companies issue new shares and dilute your holdings to hand over to the state in exchange for a bailout.

*Don't see water companies being subject to this, but the contagion risk is there.

** Yes. Some are owned by foreign investors. EDF and E-ON for example but I'm sure the French and Germans will happily subsidise free energy for the British. Not.

[simoan]

If you are right; potential shorting opportunity … ?

No. If he’s right the credit rating agencies will have a field day. Go long Experian. All those numpties will never be able to borrow money again.

All the best , Si

[CliffEdge]

It's a strategic option

[monabri]

All utilities.....even water? ( has anyone mentioned water bills?).

Just what a new PM wants...the headache of managing a bunch of utilities, disgruntled shareholders of all political colours, a nice message to potential foreign investors. Just add it to her/his day job.

A windfall tax would be so much easier and might swing those on the fence voters.

[absolutezero]

All utilities.....even water? ( has anyone mentioned water bills?).

Just what a new PM wants...the headache of managing a bunch of utilities, disgruntled shareholders of all political colours, a nice message to potential foreign investors. Just add it to her/his day job.

A windfall tax would be so much easier and might swing those on the fence voters.

Not sure about water but can see a contagion risk on sentiment. It's a utility after all.

Given the annual profit margin of Centrica is something like £6 per household (not checked, just what I heard thrown about on the "news" this week) it's hardly a ridiculous profit, so I doubt a windfall tax would be in the offing. Plus that takes time. Accounting periods etc.

If nationalisation stopped civil unrest then it's a quick and easy fix.
Sod the shareholders. Nobody cares about them. Profit and capitalism are disgusting these days, don't you know?

[ursaminortaur]

There may be trouble ahead...

I've finally dumped all my shares in utility companies.

I suspect the whole lot* will be nationalised.
I put that at about 50% probability. Large enough for me to take action.
Whether that be de-facto nationalisation (>50%) or some fudge like the bank bailouts (~30%), I'm not sure, but I see it coming.
Of the options, I suspect nationalisation**.
I attach a <20% likelihood to nothing happening.

- Energy bills are (still) rising.
Forecasts of £400 in January alone.
I just popped onto U-Switch to see what I would get if I was to move to a new contract.
Currently paying £1600 for dual fuel fixed until October.
Cheapest currently available: £4100.

- I'm alright.
I can pay that if necessary, but the vast majority can't - and won't.

- There are already campaigns for a mass non-payment of bills.
Some interesting comments here: https://conservativehome.com/2022/07/19/james-frayne-a-working-class-revolt-looms-if-the-new-prime-minister-doesnt-tackle-surging-living-costs/
That's the thin end of the civil disobedience wedge. It could be worse.

- Should this 'bill strike' happen, the utility companies will become insolvent.
Forget putting non-compliers on pre-payment meters. There will be too many.
It will cease to be a business problem. It becomes a political problem. And they won't let it get to the point where there are riots.
'Something must be done' - and it will.

- Government steps in and nationalises all utility providers.
Not ideologically driven, more the provider of last resort.
Public opinion wouldn't back a bail out. See anger about 'bankers', but nationalisation is popular. (Wrongly in my view but there we go)

- I suspect all households will then get 'free' energy provided and paid for by the state.
No bills for as long as elevated prices last.
The state provides all energy at 'no cost'. (Yes. I know... The public now know the magic money tree exists - it's a political choice what its fruit gets used on... Forget the economics here and who pays for something that's 'free', the public have seen the tree)

Even if the Government was forced to nationalise the electricity and gas companies, paying nothing for them since they had failed, they would be idiotic to then give away energy for free. The most they would do is sell it at a loss. If they sold it at zero cost then there would be no incentive for anyone to save energy and energy usage would undoubtedly increase and hence the cost to the government would increase. Nationalising them and then selling the energy at whatever the price was before the final rise which broke the camel's back would be costly for the government but no where near as costly as giving away the energy.

This government though would be reluctant to actually nationalise them so instead would probably implement the above strategy by taking a stake in them and forbidding the payment of any dividends - the longer the crisis went on the bigger stake the government would take and the more diluted the existing shareholders would become but the companies wouldn't actually be nationalised so, as with the banks in the financial crisis, the full debt wouldn't appear directly on the government's books and there would be the prospect of the energy companies eventually paying it back. The eventual stakes taken though might make the stake taken by government in RBS look like nothing.

[absolutezero]

If you are right; potential shorting opportunity … ?

No. If he’s right the credit rating agencies will have a field day. Go long Experian. All those numpties will never be able to borrow money again.

All the best , Si

It's possible this would happen before things got to the mass-refusal-to-pay stage.

[absolutezero]

Even if the Government was forced to nationalise the electricity and gas companies, paying nothing for them since they had failed, they would be idiotic to then give away energy for free. The most they would do is sell it at a loss. If they sold it at zero cost then there would be no incentive for anyone to save energy and energy usage would undoubtedly increase and hence the cost to the government would increase. Nationalising them and then selling the energy at whatever the price was before the final rise which broke the camel's back would be costly for the government but no where near as costly as giving away the energy.

This government though would be reluctant to actually nationalise them so instead would probably implement the above strategy by taking a stake in them and forbidding the payment of any dividends - the longer the crisis went on the bigger stake the government would take and the more diluted the existing shareholders would become but the companies wouldn't actually be nationalised so, as with the banks in the financial crisis, the full debt wouldn't appear directly on the government's books and there would be the prospect of the energy companies eventually paying it back. The eventual stakes taken though might make the stake taken by government in RBS look like nothing.

A sound logic to this post.
Nationalisation in all but name but removes the political 'do you want us to spend your tax money on schools and hospitals or the electricity grid?' question.

I can see there being a cap of (say) £200 a month with the balance paid to the utility companies by the Treasury.

Either way the utilities' share prices would be battered and take a long time to recover.
See LLOY and RBS/NWG for examples.

[BullDog]

A good move by SSE getting rid of their domestic energy retail business then, it would seem.

[ursaminortaur]

Even if the Government was forced to nationalise the electricity and gas companies, paying nothing for them since they had failed, they would be idiotic to then give away energy for free. The most they would do is sell it at a loss. If they sold it at zero cost then there would be no incentive for anyone to save energy and energy usage would undoubtedly increase and hence the cost to the government would increase. Nationalising them and then selling the energy at whatever the price was before the final rise which broke the camel's back would be costly for the government but no where near as costly as giving away the energy.

This government though would be reluctant to actually nationalise them so instead would probably implement the above strategy by taking a stake in them and forbidding the payment of any dividends - the longer the crisis went on the bigger stake the government would take and the more diluted the existing shareholders would become but the companies wouldn't actually be nationalised so, as with the banks in the financial crisis, the full debt wouldn't appear directly on the government's books and there would be the prospect of the energy companies eventually paying it back. The eventual stakes taken though might make the stake taken by government in RBS look like nothing.

A sound logic to this post.
Nationalisation in all but name but removes the political 'do you want us to spend your tax money on schools and hospitals or the electricity grid?' question.

I can see there being a cap of (say) £200 a month with the balance paid to the utility companies by the Treasury.

Either way the utilities' share prices would be battered and take a long time to recover.
See LLOY and RBS/NWG for examples.

If they did follow the same plan as with the Banks during the financial crisis it would be interesting to see whether they fix the preference share and bond "problem" which allowed some of us on the Motley Fool to make large long term profits from the situation. (They have fixed this for the banks with the resolution regime but I don't believe there is anything to stop a repeat with the utilities. Preference shares and bonds weren't diluted when the government took stakes in the banks and, although some preference shares suspended coupon payments, the terms of others didn't allow that suspension and the same for bonds. Their prices though dropped dramatically through contagion and profits could thus be made from those brave enough to buy and hold throughout the crisis. Note. I haven't looked into the terms of the energy company preference shares or bonds so it is pure speculation on my part that a similar opportunity might exist in the future)

[XFool]

If nationalisation stopped civil unrest then it's a quick and easy fix.
Sod the shareholders. Nobody cares about them. Profit and capitalism are disgusting these days, don't you know?

Do we know that? Or is it perhaps the pseudo-'capitalism' * form of "capitalism" that disgusts people? The kind of 'capitalism' we have so recently witnessed in action in the UK in... the energy supply industry!


* Privatise the upside, socialise the downside

[Lootman]

If nationalisation stopped civil unrest then it's a quick and easy fix.

With consequences. If the government capitulates because of "civil unrest" then we will probably see a lot more civil unrest because people will perceive it as an effective tool to change policy and manipulate a government. The Left already engages in this to some extent e.g. through protests and strikes. If the Left thought it could achieve one of its key goals - nationalisation - by foul means it would likely do so.

So I believe the premise is false. If there is civil unrest then just deal with it in the same way as other criminal behaviour. Stand firm and resolute.

By the way, I sold my UK utilities a few years ago and bought US utilities instead, which in general are under a much lower risk of such political and ideological interference.

[XFool]

If nationalisation stopped civil unrest then it's a quick and easy fix.
Sod the shareholders. Nobody cares about them. Profit and capitalism are disgusting these days, don't you know?

Do we know that? Or is it perhaps the pseudo-'capitalism' * form of "capitalism" that disgusts people? The kind of 'capitalism' we have so recently witnessed in action in the UK in... the energy supply industry!


* Privatise the upside, socialise the downside

When has the downside been socialised in the energy industry?

Who is now paying for all those failed energy contracts?

[XFool]

Who is now paying for all those failed energy contracts?

No one is. Companies have gone bust as far as I know. Those customers who were impacted have been moved to other suppliers, and those suppliers were obligated to take on those customers.

Yeah, right. I am a British Gas customer. Now helping to subsidise "obligated" customers of the failed energy companies.

https://www.theguardian.com/business/nils-pratley-on-finance/2022/feb/07/who-pays-for-lost-credit-balances-at-failed-energy-companies-we-all-do

https://www.proactiveinvestors.co.uk/companies/news/987852/bust-energy-company-bosses-in-line-for-50mln-payout-987852.html

[absolutezero]

So I believe the premise is false. If there is civil unrest then just deal with it in the same way as other criminal behaviour. Stand firm and resolute.

But do you think the British government has a figurehead who will face people down, or one who will take the path of least resistance?
The last one of those we had was stabbed in the back in 1990.
My money is on the path of least resistance.

[Lootman]

So I believe the premise is false. If there is civil unrest then just deal with it in the same way as other criminal behaviour. Stand firm and resolute.

But do you think the British government has a figurehead who will face people down, or one who will take the path of least resistance?
The last one of those we had was stabbed in the back in 1990.
My money is on the path of least resistance.

Quite possibly so. And yes, in 1990 Thatcher stood firm against the poll tax protests, but then of course was challenged and replaced by a wetter leader. Personally I always thought that the Community Charge was fairer than what existed before and after it.

Truss has been channelling Maggie so maybe she has the necessary backbone to avoid selling out the utilities and their shareholders?

[absolutezero]

So I believe the premise is false. If there is civil unrest then just deal with it in the same way as other criminal behaviour. Stand firm and resolute.

But do you think the British government has a figurehead who will face people down, or one who will take the path of least resistance?
The last one of those we had was stabbed in the back in 1990.
My money is on the path of least resistance.

Quite possibly so. And yes, in 1990 Thatcher stood firm against the poll tax protests, but then of course was challenged and replaced by a wetter leader. Personally I always thought that the Community Charge was fairer than what existed before and after it.

Truss has been channelling Maggie so maybe she has the necessary backbone to avoid selling out the utilities and their shareholders?

I wouldn't hold my breath!

[XFool]

OK I understand your point now.

I think where you and I likely differ is that you see this as a fault of the companies, probably exclusively, whereas I see it as a fault of the government?

Who said I don't see it as the fault of the government? Or rather of the long term application of an ideology much favoured by Conservative governments.

Edit to add: Do you think you'd have the same views on this topic if your energy supplier had gone bust and you were taking advantage of the de facto insurance policy on credit monies that is provided by the "supplier of last resort" scheme?

Who knows? I might indeed think the same thing yet still be relieved etc.

However it was never to be. When the "choice" issue first came up I did indeed look into it and soon found it was not really as simple as I had naïvely imagined. Indeed, how could it be? How do you have a real competitive environment for consumers in the supply of gas or electricity? Gas is gas, electricity is electricity. It doesn't come in different colours or flavours.

I am not denying being an everyday hypocrite - I benefited(??) from the demutualisation of some of the building societies in the past, even though I was against the whole thing. I always thought it would end badly one way or another - little did I know how right I was going to be.

[GrahamPlatt]

If nationalisation stopped civil unrest then it's a quick and easy fix.
Sod the shareholders. Nobody cares about them. Profit and capitalism are disgusting these days, don't you know?

Do we know that? Or is it perhaps the pseudo-'capitalism' * form of "capitalism" that disgusts people? The kind of 'capitalism' we have so recently witnessed in action in the UK in... the energy supply industry!


* Privatise the upside, socialise the downside

When has the downside been socialised in the energy industry?

Nuclear?

[XFool]

When has the downside been socialised in the energy industry?

Nuclear?

I understand it is heavily subsidised although it is not a sub-sector I follow so can’t comment beyond that.

But … my understanding of the phrase “.. socialise the downsides” is that it means a private company demanding a bailout from government using tax money, usually post some event that should have either (a) been handled by the company as part of normal business, and/or (b) was an event of the company’s own making probably due to negligence, and as such the bailout protects the owners interest at the expense of the tax payer. That isn’t a situation I recognise in the energy industry, nuclear or otherwise.

That is one hard and fast simple example. However, surely it is a little narrow? My point is more generally that we seem to have a kind of pseudo-capitalism in the UK, which seems built in to the way these things work. Everything is 'privatised' - because of the "public bad, private good" ideology - and when the profits are flowing private is indeed "good" - for the insiders? When the profits evaporate, suddenly the "public", one way or another, is expected to pick up the tab. This often seems to be built in to entire industries: Energy companies, Railways... Also, when you think about it, any company that pays wages so low the employees have to be subsidised by the state via benefits. We are effectively paying our taxes to keep the shareholders and owners in the style to which they want to be accustomed. Why do these companies exist? What are they even for?

BTW. Anyone who isn't amused by say the likes of EDF Energy - a UK company that came about via privatisation and now "wholly owned by the French state owned EDF" - hasn't got a sense of humour.