Utility Week

UTILITY WEEK | 1ST - 7TH MARCH 2019 | 17 Operations & Assets Operations & Assets which will help secure EMEC's posi tion as a vital hub for marine energy technology development for years to come. It's also a big landmark for Orkney, which has firmly established itself as the capital of the UK marine energy sector. "As the body that manages leasing of Scotland's seabed, we're keen to do all we can to support offshore renew ables and are therefore delighted to be able to work with EMEC and their clients." Orbital Marine Power, the test centre's longest standing tenant, was recently awarded a marine licence to test its upcoming commercial produc tion tidal turbine, the Orbital O2, at EMEC for a project running up to 2039. If you have an asset or project you would like to see featured in this slot, email: paulnewton@fav-house.com. Market view A consultation in name only? What are the consequences of the government's proposal to let Ofwat modify water company licences without consent? asks Tim Briggs. I n midJanuary, the government opened a consultation on ways to improve water management. It focuses on technical matters, but at the back there is a proposal that is likely to be of concern to water companies and their investors: Ofwat is to be given the power to modify water company licences without their consent. Since privatisation, water companies have operated subject to conditions set out in a licence, which Ofwat can enforce through statutory orders and fines. Licences cannot be modified without the company's consent or, failing that, a reference to the Competition and Markets Authority (CMA). That restricts Ofwat's ability to force through radical changes to water company licences. Now the government proposes to give Ofwat the power unilaterally to make changes to company licences, with limited rights of appeal. The onus will be on water companies to challenge the regulator by means of a formal appeal to the CMA. That will be expensive and resource intensive. Second, the consultation refers to the possibility that the introduction of a new licencemodification regime may breach financing covenants. Third, the consultation acknowledges that the pro posed changes may "impact on credit rating agencies' assessment of the credit worthiness of the sector". Yet it concludes that "by any objective measure the water sector will continue to remain an attractive destination for investment". Many would disagree and question whether investor confidence has been taken for granted. The consultation notes how Ofgem has had the power to modify energy company licences since 2011. However, Ofgem previously operated a "consent or CMA" model and changes were made only to comply with EU law. Will these proposals affect the position with respect to price control appeals? When Ofgem was given the power unilaterally to modify energy company licence conditions, it turned the price control appeal mechanism upside down. Energy price controls may now be appealed only on specified grounds – opening up the prospect of companies "cherry picking" parts of the determination. In water, price control determinations are not imple mented through licence modifications, and the consulta tion is silent on whether the government intends the new appeal mechanism to apply also to such determinations. Views are being sought until 12 March. It will be interesting to see the balance of responses and whether this is a consultation in name only. This is an extract of a column by Tim Briggs, partner, Herbert Smith Freehills. For the full article, visit: www.utilityweek.com

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