1. uncle tom said...

I can see the utilities suffering a massive surge in unpaid bills and irrecoverable debts as the HPC pans out..

3. Icarus said...

'Utilities have been targets for highly leveraged buyouts'. A leveraged buyout is where the company (a utility in this case) to be purchased is used as collateral for the funds borrowed for its takeover. Utilities were targets, as the article points out, because of their cashflow, which is used to service the debt. In the same way Asset-Backed Securities (with similarly high ratings from the Ratings Agencies) were bought by hedge funds which used the ABSs as collateral for the funds used for their purchase. In both cases the purchasers needed relatively little capital or equity for the purchase. The regulator has allowed financial cowboys to put us all at risk.

5. enuii said...

This is all on-topic as part of the bigger picture engulfing UK Plc. I can tell you all now that the engineering community has complained for a long time about this post modernist governments complete lack of a coherent energy policy and what it entails. The former CEGB was a great organisation that invested huge ammounts of time and money in the energy generation and distribution system prior to privatisation. Since then the utility companies that aquired these assets have simply sat on their laurels and sucked the maximum amount of money from them. It has recently been noticed that the older coal fired stations are all to be seen running flat out (check out their cooling towers when you drive past) to fill the gap in supply that has resulted from the lack of investment in new generating capacity.

It is also worth noting that the former Publically Owned CEGB also invested large amounts of money training its staff and engineers and carried enough in-house expertise to look after its own needs and the constant stream of investment in plant also supported many UK companies that have since privatisation gone to the wall.

As the observer correctly states 'Utilities have been prime targets for highly leveraged buyouts as they offer a steady cash flow against which to raise large amounts of debt.' Just think about the Monopoly board and how the game represents the utilities and their value in the money making property game is low, that is until the lights go out!

7. Orwell said...

"...For years the Corporation had been borrowing money for necessary public works and improvements, and as the indebtedness of the town increased the rates rose in proportion, because the only works and services undertaken by the Council were such as did not yield revenue. Every public service capable of returning direct profit was in the hands of private companies, and the shares of the private companies were in the hands of the members of the Corporation, and the members of the Corporation were in the hands of the four most able and intellectual of their number, Councillors Sweater, Rushton, Didlum and Grinder, each of whom was a director of one or more of the numerous companies which battened on the town.

The Tramway Company, the Water Works Company, the Public Baths Company, the Winter Gardens Company, the Grand Hotel Company and numerous others. There was, however, one Company in which Sweater, Rushton, Didlum and Grinder had no shares, and that was the Gas Company, the oldest and most flourishing of them all. This institution had grown with the place; most of the original promoters were dead, and the greater number of the present shareholders were non-residents; although they lived on the town, they did not live in it.

The profits made by this Company were so great that, being prevented by law from paying a larger dividend than ten percent, they frequently found it a difficult matter to decide what to do with the money. They paid the Directors and principal officials – themselves shareholders, of course – enormous salaries. They built and furnished costly and luxurious offices and gave the rest to the shareholders in the form of Bonuses.

There was one way in which the Company might have used some of the profits: it might have granted shorter hours and higher wages to the workmen whose health was destroyed and whose lives were shortened by the terrible labour of the retort-houses and the limesheds; but of course none of the directors or shareholders ever thought of doing that. It was not the business of the Company to concern itself about them.

Years ago, when it might have been done for a comparatively small amount, some hare-brained Socialists suggested that the town should buy the Gas Works, but the project was wrecked by the inhabitants, upon whom the mere mention of the word Socialist had the same effect that the sight of a red rag is popularly supposed to have on a bull.

Of course, even now it was still possible to buy out the Company, but it was supposed that it would cost so much that it was generally considered to be impracticable.

Although they declined to buy the Gas works, the people of Mugsborough had to buy the gas. The amount paid by the municipality to the Company for the public lighting of the town loomed large in the accounts of the Council. They managed to get some of their own back by imposing a duty of two shillings a ton upon coals imported into the Borough, but although it cost the Gas Works a lot of money for coal dues the Company in its turn got its own back by increasing the price of gas they sold to the inhabitants of the town ..."

The Ragged Trousered Philanthropists (Tressel 1910).

"...although they lived on the town, they did not live in it...."

Someone is speaking of certain off shore tax exiles?