UK Electric Utilities: Is zonal pricing back on the table?

According to the Observer on Sunday (10/25), Chancellor Healey's first budget will include a "first package" of long-term reforms aimed at lowering UK energy costs. The article cites options including: 1) new measures to delink power/gas prices, where renewable developers could be paid to exit their contracts early; 2) revisit the possibility of power prices that vary across regions, a reform previously rejected by Miliband; 3) removing renewable obligations from industrial electricity prices. It is not clear to us what option 1 entails, and how option 3 would be funded, while option 2 sounds like zonal pricing. In our view, the UK utilities see a risk/reward to the downside into the UK Budget and Burnham's 10-year plan, where tackling energy affordability appears to be the key goal for the PM. We rate SSE as Sell (target price 2,036p), NG as Neutral (1,175p) and Centrica as Buy (214p) among the UK energy utilities.