Utility Week

10 | 13TH - 19TH DECEMBER 2019 | UTILITY WEEK Review of the year £126m One of the standout numbers of 2019 was the £126 million in nes and customer rebates dispensed by Ofwat to Southern Water for serious failures in the operation of its sewage treatment sites and for "deliberately misreporting" its performances, between 2010 and 2017. Southern chief executive Ian MacAulay, who joined in 2017, said the company was deeply sorry for the failures, which took place before the start of his tenure. He also launched a whistleblowing policy regime. It feels hard to imagine a worse story surfacing in a year that marked 30 years of water privatisation. Regulator Rachel Fletcher was to later describe it as having been "a dark week for the water industry". PR19: crushing verdicts Water companies may have slaved away for months to deliver their price review business plans, but this was the year we saw the regu- lator get ruthless. Ofwat's initial assessment of water com- panies' PR19 submissions le• many disap- pointed, with none viewed as "exceptional", and just three – Severn Trent, United Utilities and South West Water – securing "fast-track" status. Four ended up in the "signi… cant scrutiny" category. It was a theme set to continue throughout a di‡ cult year for a sector struggling with the pace of change. Dealing more successfully with innova- tion, cracking down on leakage and improv- ing resilience, and meeting Ofwat's ambition for a greater fairness and sharing of rewards brought some tough challenges for an indus- try that awaits the regulator's … nal determi- nations on Monday (16 December). The road to RIIO2 Energy networks are the masters of the long game; they have had to be. So, while chief executives were not surprised by Ofgem's decision in summer to stick to its Decem- ber plans to cut returns under RIIO2, some were le• exasperated at what they saw as an "overreaction". The cost of equity … gure may have shi• ed a little in their favour, up 0.3 per cent on the mooted 4 per cent, but it still fell way short of their view of a fair return, at between 5.5 and 6.3 per cent, and even further o˜ the comparative 7 to 8 per cent allowed under the current price control regime. With the net zero challenge upon them they had hoped for more. June 2020 will see the dra• determinations, with … nal decisions set to follow in the November. Return of the capacity market Nearly a year a• er the European court decided the capacity market broke state aid rules, the European Commission approved the scheme for a second time on 24 October, paving the way for its return. However, the … rst list of unpaid invoices from the restarted market reveals a £38.3 mil- lion de… cit so far, with a mutualisation pro- cess to recoup the lost funds due to start this month. Analysis ☛ continued from previous page Moves and mergers Shelling out You can be sure of Shell, so the slogan went a few decades ago, but this year saw the super-major's message move on from forecourts. Royal Dutch Shell's announcement in March that it would be rebranding its energy supplier First Utility to Shell Energy and switching its 700,000 households to renewable power, was one of the clearest indi- cations yet of its refocused market strategy. All change It felt that a transitioning energy retail market had € nally arrived when Ovo Energy, the ambitious poster child for challenger brands, bid to acquire SSE's retail arm, e„ ectively changing the shape of the original big six forever. Market watchers will be following its fortunes closely in 2020. SSE had planned a merger with fellow big six player Npower, which fell through. Eon UK would later go on to inherit Npower as a result of its par- ent company's acquisition of Innogy, Npower's owner. This month brought reports that 4,500 jobs look likely to go at Npower in order to sustain the business's future. "Because we know [about climate change] we are responsible. You can't live in ignorance. Your industries are so important in helping customers understand." Chair of the Committee on Climate Change Lord Deben speaking as a guest panellist at Utility Week's New Deal campaign debate in Westminster in September. "This sector's on fi re" Eon UK chief executive Michael Lewis, describing the state of the energy retail market in October and calling on government to increase focus on this end of the energy chain if the UK is to truly unlock nationwide energy e" ciency.

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