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Debt-Ridden Utilities at Risk of Accidents
Researchers have warned that some of Britain’s utility companies are so deeply in debt that they could find themselves unable to finance repairs in the event of a major accident.
A study by investment bank Reynolds Partners found that 11 British utility firms - including Electricity North West, Northern Ireland Electricity, Anglia Water, and Thames Water - currently have debts totalling £28 billion, while their assets are valued at some £29.3 billion.
The bank said that this could leave customers and households facing sharp increases in their bills - or even disruption to services - in the event of an emergency strikes.
Customers are advised to get out of debt as soon as possible and put some money aside in case of further increases to their bills.
Thames Water has £6.8 billion debts compared with £6.5 billion of assets, while Anglia Water is £6.3 billion in debt compared to £4.8 billion of assets.
Similarly, Northern Ireland Electricity's £1.6 billion debt is twice the size of its assets.
Reynolds Partners' chief executive John Reynolds said that utility watchdogs had allowed the utility firms’ debts to become so large because they enjoy very good credit ratings, at an "investment grade" level.
However, he stressed that the example of Northern Rock’s collapse demonstrated that such credit ratings can be wrong.
Mr Reynolds also warned that the companies’ financial flexibility had been limited due to the global credit crunch, which left them vulnerable.
"I think it is only a matter of time before there is a major shock and we find that a utility can't afford to restore power to homes, hospitals or businesses,” he said.
"At that point the regulator would have to allow bills to rise to pay for the damage, or customers will have to wait longer than they should for normal service to resume, or both."
Britain’s energy regulator Ofgem has warned that, although it can provide protection for customers in case of a utility firm going bust, it would not be able to bail out the company itself.
Debt Management News posted on 25 April 2008
