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UTILITY WEEK | NOVEMBER 2020 | 17 Policy & Regulation Talking Points… "Mother nature has savaged us with Covid, but with the help of basic natural phenomena we will build back and bounce back greener; and this government will lead that green industrial revolution." Boris Johnson, prime minister "Ambition is important but it's useless without a proper plan and package of proposals to deliver it." Alan Whitehead, Labour's shadow energy minister "There is a long way to go. The number of green jobs is still below 2014 levels despite repeated promises from the government, partly due to particularly supply chain jobs being created overseas." Sue Ferns, senior deputy general secretary, Prospect Quote, unquote The news in numbers: The government has published proposals to tighten the rules on energy efficiency in the private rented sector, alongside the launch of its Green Homes Grant. £10,000 The new cap on the sums private landlords will be expected to pay to bring their energy inefficient properties up to scratch, up from £3,500 currently. £3,500 Maximum fines councils will be able to impose on landlords who fail to comply. £4,70 Government's estimate for the average landlords will have to pay to bring their properties up to the Band C standard. £220 Average annual saving tenants are likely to make on their energy bills. Why PR19 gives energy network CEOs reasons to be cheerful Opinion Maxine Frerk Former Ofgem executive F our water company chief executives will have been breaking open the cham- pagne following the provisional findings from the Competition and Markets Authority (CMA) on their business plans. But what does the CMA's response mean for the energy networks? While the legal frameworks for appeals are different, regula- tors will normally pay a lot of attention to principles coming out of the CMA, and the energy companies will be scouring the 800 pages for points that might help them in an appeal. The most obvious area is on the cost of capital. The CMA has always been seen as the arbiter on this issue and, for example, during the RIIO ED1 process Ofgem shied its proposed cost of capital sharply downwards following the then Competition Commission's provisional deci- sion on NIE. Will Ofgem follow suit this time? It doesn't necessarily have to – the CMA has come up with a range and Ofgem could simply choose a different point in that range. But it would still need a good reason for doing so. The CMA argues for "aiming up" on the cost of capital, given the uncertainty around the right figure – that the "well estab- lished" long-term detriment to consumers from too low a figure and resultant under investment is greater than the detriment from customers potentially over- paying. The asymmetric nature of the incentives in water is another reason given for upping the equity return. In contrast, Ofgem is still arguing for a reduction in the cost of equity through an "outperformance wedge" while also proposing a range of penalty-only incentives. While Ofgem doesn't have to adopt the cost of capital figure the CMA has come up with, it will need to be broadly aligned in terms of approach and that almost certainly means a higher figure than at present. Efficiency is another obvious area for energy companies to pick up on. One bone of conten- tion in GD2 has been the use of the 85th percentile as the bench- mark for efficiency, setting a tougher standard than the usual upper quartile metric. The CMA has made clear that the decision on the appropriate threshold should essentially be tied to how confident one is in the underlying econometrics. In water the CMA pulled Ofwat back to upper quartile. Given the major concerns being raised about the quality of Ofgem's modelling it feels like it would be hard for Ofgem to defend the use of anything more than upper quartile. Looking across the piece, there are good reasons for energy networks to feel optimis- tic that if they appeal Ofgem's final decision they will get a fair hearing from the CMA. To read the full article, go to https://utilityweek.co.uk/ pr19-reasons-to-be-cheerful-for- energy-network-ceos/ "Ofgem risks regulating the networks in austerity mode, removing much- needed and well- justified investment and offering returns far lower than any comparable market anywhere in the world." Alistair Phillips-Davies, SSE chief executive