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UTILITY WEEK | OCTOBER 2020 | 9 …and what they mean What this means Ofgem was highly critical of the business plans presented by the gas and transmis- sion networks and levied severe penalties in some cases. Distribution companies will be watching closely, however they are tak- ing confidence in the fact that they are on the frontline of the net zero transition and in areas such as the decarbonisation of heat and transport there is a clear case for invest- ment. How much of this will be lumped into uncertainty mechanisms versus upfront allowances is the key question. There seems little dissent that each net- work will have to work closely with local stakeholders to ensure the decarbonisation agenda proceeds at the right pace for each region. However, it is less clear cut how this will tie into the national drive and the pre- vailing policy winds. What they said Basil Scarsella, CEO, UK Power Networks: "It would be unacceptable for a distribution net- work to dictate the pace at which the econ- omy and consumers wish to move towards net zero. That is not our call. We need to make sure that at whatever pace each region moves, our networks must be fit for purpose and not create obstacles for the transition to low carbon." Patrick Erwin, policy and markets direc- tor, Northern Powergrid: "[Ofgem] were tough with gas and transmission and they won't be any less tough with us. However, if you look at the credible pathways to decar- bonisation, we all recognise that the distri- bution networks to a greater or lesser extent are at the heart of the system and we will need to build capacity in that system by cus- tomer flexibility, network flexibility and at a last resort, new infrastructure. The question is how local and how fast." What to look out for Expect a big focus on stakeholder engage- ment. DNOs will want strength in numbers and given that Ofgem has been criticised in the current dra determinations for not lis- tening to what customers have told the com- panies, there is likely to be more emphasis on this element of the business plans. The Competition and Markets Authority's first take on the PR19 appeals in water – which were due as Utility Week went to press – will also be key on the contentious point of return on equity. What this means Utility companies across the board have strengthened their consumer vulnerability strategies but there is pressure for them to go further, leading to questions as to what external support is needed for vulnerable billpayers. There is also the key question of how utilities identify vulnerability, particularly as those struggling to pay their bills may not fit any of the criteria routinely applied. In the water sector, a metric is being created to determine water poverty (see p30). The pandemic has intensified calls for the creation of a single, shared priority ser- vices register across utilities and for greater collaboration with other lifeline service pro- viders and authorities on tackling poverty. What they said Adam Scorer, CEO, National Energy Action: "Most suppliers are doing a half decent job when a customer goes to them for support. But so many do not know what support is available and suppliers need to get on top of that. This is too big an issue to dump at the end of a supplier/customer relationship." Paul Massara, Fuel Poverty Committee member: "It's shocking that you still have isolated [priority service] registers between water, distribution networks and suppliers. That has not served customers well." What to look out for: Conversations between energy suppliers and BEIS over possible government inter- vention to help billpayers ended in a stale- mate over the summer. However, with some industry observers expecting the real impact of bad debt to surface over the winter, it seems likely the lobbying will intensify. The regulators and watchdogs mean- while will be alert for any signs of slacken- ing of support for vulnerable customers and businesses from the utilities companies. has been suggested the deal could be worth as much as £11 billion. WPD's management team insisted it would be business as usual while the sales process was underway, and stressed that any buyer would inherit a "dedicated workforce that is committed to achieving a gold standard of service for its customers, first time, every time". What this means: The deal is likely to be closely scrutinised as an indicator of the investor appetite for utili- ties post-pandemic and post-Brexit. Initial speculation about possible suitors also raises interesting questions about consolidation. UK Power Networks backers, CKI Holdings, Northern Powergrid parent company Berk- shire Hathaway, and Iberdrola (the owner of Scottish Power), have been mooted as poten- tials but would they be allowed to take on a and financeability further four networks? PPL has been clear that is seeking a "full exit" from the busi- ness but refused to speculate on whether it would sell the individual networks piece- meal. National Grid was also cited as a pos- sible buyer but would seem unlikely to want to include its US arm in any deal. What they said Vincent Sorgi, CEO, PPL: "We do recognise this will be a large equity cheque, given the size of the WPD business, but that's where potentially including US assets as consid- eration improves the probability of getting it done because it reduces the amount of cash that's required." Industry insider: "There are very few companies out there who could even con- template that sort of sum and the likelihood is they are going to already have a toe in the market. But is anyone going to be allowed to take on four networks if they're already in the market? I'm not sure." What to look out for PPL has been open about the whole process – no euphemistic "strategic reviews" here – and it has set out an ambition to announce a buyer by the first half of next year. It has repeatedly referenced the fact that the mar- ket has long undervalued WPD and will be hoping that both the RIIO2 process and the CMA response on PR19 don't include any fur- ther signs of squeeze on investor returns. The price PPL is able to negotiate will of course have implications for all DNOs. Coming at a crucial time in the price control process, any arguments about investors being deterred by a tough approach from Ofgem will be blown out of the water.