Regarding your editorial “The cautionary tale of Thames Water” (FT View, April 1), there is an opportunity here for the government and the Conservative party to actually do something positive for the country and the economy.
The John Lewis model is much admired by Labour, and perhaps by Conservatives too. Why not adopt something similar for Thames Water and put the utility on to a secure footing by having it owned by its own customers? There would be limited cost to the exchequer. Besides, raising utility bills by 40 per cent or more to bail out greedy shareholders just could not work. It’s not an option.
So step one is to put Thames Water into administration. Leverage is high at about 80 per cent in the utility, the debt held in the subsidiary company Thames Water Utilities Finance, within the regulatory ringfence. Customers would have to service this debt regardless. However the weighted cost of debt is only about 2.5 per cent, so affordable.
Once Thames Water is in administration, the government can then do a public share offering to Thames Water customers, inviting them to subscribe for shares, to own their own utility. Business customers (Class A) would have an entitlement to more shares than residential customers (Class B). All shares would be pari passu (rank on the same footing), with rights to share ownership linked to customer accounts, and not otherwise saleable on the market.
For example, Class B shares would be transferred when a property is sold. You can bet that the share offering would be fully subscribed and each customer would know that each pound raised is being used in improving service, rather than diverted into dividends. The government would underwrite the offer. Any shares not sold would be held by the Treasury and released to customers over time (the NatWest model).
It’s the John Lewis model. The customer-owned utility. Thames Water, after being given an equity infusion, would be able to raise fresh debt in the public markets within the regulatory ringfence with the assets as security, and Ofwat, dealing with a customer-owned utility, would regulate with a benevolent eye.
Richard Fletcher
London NW3, UK
