According to the article, profit has not been the primary goal for the utilities though, because there is limited scope for extracting profits from uncompetitive essential utility services - the focus instead has been on maximising shareholder returns. So in the case of the water utilities, they "borrowed £53bn in debt while distributing £72bn to shareholders", which of course is what the issue is now interest rates have risen significantly. The article describes this as "the tension between generating strong returns for investors in uncompetitive monopoly conditions and providing high-quality, affordable infrastructure to the public". The end result is still the same though - transfer of wealth in a socially destructive direction.
Specifically table 1 on page 2, "The ten industries with the highest profit margin", has the spots 1 (elec: 42.5% profit), 2 (gas: 40.5%) and 8 (water: 32.1%) being utilities.
See people who bought homes at 5% down versus people who waited to have 20% down. The people who took on more debt were rewarded nicely with huge gains, and the people, who were prudent, now decide on paying a few hundred thousand more, if they were even able to keep up with saving a larger down payment.
> Your options are to acquire appreciating assets quicker than your competitor, or you get left behind.
This is wrong twice over! First of all, they are effectively monopolies, they have no competitors in their industry. The only thing they are competing against is which company can extract money the fastest (at the expense of the company and English citizens). Second of all, from the article, they aren't spending the raised money on capital investments.
> For example, South East Water—thousands of whose customers were left without running water this summer—spent more on dividends and servicing its debt than on infrastructure in the two years to March 2022. Water bills for Britain as a whole have increased by around 360%, more than double the rate of inflation, since privatisation. Over that time, annual capital investment by the ten largest water and sewage companies has fallen by some 15%, according to research by the Financial Times (FT).
Privatization is an utter failure here, just as would be predicted given the situation, and it's crazy to see an attempt to rationalize it away.
That The Economist, the City of London's answer to Pravda, published this article at all is telling.
Do you mean it's extremely left wing? Or pro-authoritarian capitalist? Or the most left-wing publication you can find in an otherwise capitalist group?
When the board is more like a group of Huns than a Shepard, you find that after you pay out the shareholders, the enterprise is toast. In some cases, like most recently in big box retail, the private equity investors are running an obvious and odious, but legal, fraud.
With utilities, the business is all about capitalization and cash flow. They should be stable and boring businesses. When they are exciting, the management is burning the candle at both ends.
Shareholder returns can come from profit, or selling off assets, or taking on loans, or underfunding pensions, or probably other ways financial experts can invent.
Maybe not today or this year or next year, but everyone is always going to want a return on the money they put in, whether it be owner or lender.
There is the difference
They must have used the debt to finance operations, as opposed to cutting the dividend or even putting more money in.
This allowed them to continue to have profits in the short term, at the expense of higher interest costs in the long term (which probably cause higher prices for customers in the long term).
if it's on the balance sheet and you sell it for more than it cost you, then you have to book it as non-operating income, i.e. capital gains, i.e. profit.
A water company caring about some international investors more than the people they serve, and siphoning money out to those foreign interests, borders on treason.
