Corbyn threats 'could send utility companies overseas'

[Bouleversee]

I understood that bit; it was the equity reference I didn't understand.

[dspp]

I understood that bit; it was the equity reference I didn't understand.

The price control framework used to be set on a RPI - x% basis. Then some wag pointed out that RPI should be replaced by WACC or something similar, hence the equity reference in your reference. Basically in times of low cost of capital, irrrespective of inflation, they should be held down to the equity costs.

regards,
dspp

[Bouleversee]

OK, thanks.

[Gengulphus]

Moderator Message:
Although applicable to HYP Utilities this is a general untilities post and should be on a different forum. Will leave a shadow on Practical. Raptor.

This is a piece of moderation I can't get my head around. Why does a "general utilities post" not have relevance to the practical application of HYP. ...

I don't have any difficulty getting my head around it. Here's how:

Practically everything is interconnected with practically every investment in some way or other, some more major than others, but very few with no interconnection at all. That makes practically everything relevant to just about every investment board's topic - which in turn means that "is this relevant to the board's topic?" isn't a very good test for whether a thread belongs on a board - not unless the site owners and moderators want a site full of "anything goes" boards, with discussions fragmented between them, users looking for a discussion on a particular subject having to guess where it might be, etc.

Instead, I think the moderators try to apply a "where does this discussion best fit topic-wise?" test - and may well take into account which direction the discussion is going in. And I can very easily see why Raptor felt that the answer was not the HYP Practical board - nothing that has been said here so far is any more relevant to practical decisions about HYPs than to practical decisions about any other type of portfolio that contains utility shares, and indeed the only uses of the words "HYP", "HYPer", etc, in it so far are in stuff discussing the moderation decision, not stuff discussing the Corbyn threats to utility companies... Given that, why on earth should the thread be hidden away from investors who have rejected the HYP approach but use some other approach - e.g. a 'Value' approach that primarily aims to sell for a capital gains after typical holding periods of a few months to a few years?

Not saying that I think this is the best board to have moved the thread to, by the way - I can think of at least two other plausible candidates offhand, and I'd have a hard job choosing between those three (and there may well be others I haven't thought of). I'd guess the same goes for the moderators, and that they'll therefore give the board a thread is currently on the benefit of the doubt when they see a realistic doubt. But not when they don't...

Or in short, I think there's a price posters need to pay to keep a thread on the HYP Practical board: they need to say a reasonable amount that is specific to practical decisions about HYPs. If they don't, i.e. everything or nearly everything they say is relevant more generally, they shouldn't be surprised if the thread is moved to a more general board...

Gengulphus

[Alaric]

This is Clifford Chance (City Law firm) on the subject
https://www.telegraph.co.uk/business/20 ... investors/

John McDonnell, the Shadow Chancellor, has said the price would be set by parliament, suggesting shareholders would not get the full market value for their assets.

It's now economic and social history, but didn't the Attlee government from 1945-51, the Wilson government of 1964-70 and the Wilson/Callaghan government of 1974-79 pay "market" prices for nationalising the "commanding heights"? I don't think they paid cash, rather government bonds of notionally equivalent value.

There was also the occasional rescue where the government was the buyer of last resort. I'm thinking of Rolls Royce in 1971, British Leyland and Burmah Oil in the mid 1970s.

[dspp]

It is more complicated now. Many of these companies are headquartered overseas - RWE, EON, Iberdrola. We live in a more connected world. if comrade Corbyn really does make good on these threats then it could get very messy. But he wins either way, just by talking about it the price tanks. The companies have a vote too, and that is one of the reasons for all the restructuring. The energy sector transformations are another reason mind you.

It makes my head hurt and I work in the sector. Maybe VWRL is the answer, i.e. dodge the question.

regards, dspp

[Lootman]

he wins either way, just by talking about it the price tanks. The companies have a vote too, and that is one of the reasons for all the restructuring.

Except that if JC forces down the price then he could be sued for market manipulation. The real problem here is that JC thinks he has the kind of power that was possible 50 years ago but isn't possible now. The courts and the markets would crush him now, and rightly so. The socialist dream is busted.

[dspp]

This area of the boards is not for general political points please, just very precise relevant ones please.

De facto Corbyn and others (esp Merkel) are already having an effect. Going back a decade earlier most of the UK utilities are actually foreign owned (Thatcher, Major). Some companies are already seeking to restructure (RWE-SSE, though that may be overtaken by RWE-EON) to put a poison pill in place. Similarly the Innogy and Uniper creations were a response to other political pressures. Share prices are already affected. Regulators are already ratchetting down on price controls. This is both an issue in water and in energy.

The issue is what can we as individual small-time investors do about it. I have found no suitable reasonably-earning renewables candidate for myself (I know some hereabouts have suggested some, thank you, but they didn't cut it for me). Yet I considered this sector to be too big to ignore and personally I tried to pick the better placed utilities, most significantly: Pennon, SSE, NG, Centrica, Severn Trent. I think on aggregate I have done as good a job as one might.

The question is whether I will or should make a significant shift going forwards. I certainly don't think that I can reasonably consider the possibility of joining a class action suit based in (say) New York against a future Westminster Parliament as being a reasonable mitigation. So my choices are either to plough on or to sell out. I am certainly not adding to these at present. I am very comforted by the knowledge that an equivalent chunk is in highly diversified index trackers.

I fully admit it is a conundrum.

(Commuter rail is so deeply subsidised, and so much a political football, that I avoided. Phew I get some things right. I am analysing freight rail at the moment.)

regards, dspp