The UK’s opposition Labour Party has for the first time outlined how it would nationalise the energy industry, should it come into power.
The party has advocated public ownership of energy networks, water companies and the rail system for most of Jeremy Corbyn’s leadership since 2016, but until this week has remained coy on how it would nationalise the privatised industries.
According to a policy paper, the process of nationalising energy transmission and distribution companies, including interconnector projects, would begin “immediately” on taking office. It would involve a two-step Act of Parliament process, where the assets would be transferred to public ownership through Parliament and shareholders would be compensated through a bond issuance, which the party says would be “cost neutral” to public finances. It plans for regional and municipal energy agencies to move under a National Energy Agency umbrella.
Labour said UK law is clear that parliament can decide the level of compensation, pointing to the precedent of Northern Rock, the bank which was nationalised at the outset of the global financial crisis following its collapse. It said parliament could deduct the level of compensation when it takes into account “pension fund deficits; asset stripping since privatisation; stranded assets; the state of repair of assets; and state subsidies given to the energy companies since privatisation”.
“Privatisation of the UK’s energy grid is ripping off customers. Twenty-five percent of energy bills is paid out to network companies. This is used to line the pockets of shareholders, with over £13 billion ($16.5 billion; €14.7 billion) paid out in dividends over the last five years,” a statement from the party said.
“It’s an insult and an injustice to our people and our planet for companies operating the grid to rip customers off, line the pockets of the rich and not invest properly in renewable energy,” added Rebecca Long-Bailey, Labour’s shadow business, energy and industrial minister.
The policy paper conceded that the sector “will continue functioning on the same scale and broadly the same manner as before. The day after public ownership is implemented will look almost identical to the day before”. The party says the same professionals managing the companies at the moment will remain in place until replaced by Labour during its term.
The party added that existing debts “will be honoured in full” and refinanced over time. It maintains a belief that the publicly owned companies will gain higher credit ratings. Moody’s reiterated its view this week that any nationalisation would likely be structured in so that imposing losses on operating company creditors would be avoided, but it could weaken the credit quality of holding companies.
‘Last thing that is needed’
National Grid, the London-listed transmission and distribution company, responded by insisting it has been at the heart of decarbonisation in the UK and said the move would delay this further.
“At a time when there is increased urgency to meet the challenges of climate change the last thing that is needed is the enormous distraction, cost and complexity contained in these plans,” it said in a statement.
The Energy Networks Association, comprising the regional operators of the UK’s network, said Labour’s claims of a lack of investment by the industry was “wrong” and maintained that publicly owned companies are not as reliable.
“Over £100 billion of investment has been delivered by network companies since privatisation. In the last six years alone, they have invested over £22 billion in their gas and electricity grids across the country and provide jobs for 36,000 people,” it said.
Regardless of Labour’s plans coming to fruition, the sector is already facing significant change after regulator Ofgem last December settled on a 4 percent cost of equity return, about 50 percent lower than the previous regime and set to come into effect from 2021.