UTILITY WEEK | APRIL 2021 |
5
KNOWLEDGE WORTH KEEPING
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WPD premium could
weigh on CMA appeals
Industry tongues were wagging furiously as this issue of Utility Week
went to press with the climax of the water sector's CMA saga being swi ly
trumped in the headlines by National Grid's momentous announcement
that it has sealed a deal to buy Western Power Distribution.
It's a major development that National Grid has said is all about
its long-term net zero ambitions as well as a determined campaign for
growth. But the short-term rami€ cations are likely to be controversial,
mostly because of the enormous premium to RAV (regulatory asset value)
achieved just as National Grid is arguing the case to the CMA that returns
are not high enough for investors in RIIO2.
A source close to the deal admitted to Utility Week that the timing is not
ideal and will leave both National Grid and other appellant networks with
a lot more to prove in their CMA process.
For those keen to maintain the legitimacy of RIIO2 appeals, there do
appear to be some robust arguments to suggest the RAV premium (possibly
as high as 70 per cent) is not quite as gargantuan as it € rst appears due to
a number of factors.
One is the asset swap between National Grid and WPD's current owner
PPL for the former's Rhode Island network – the opportunity which
really clinched the deal and which will have buoyed the RAV premium of
both networks. Another is that WPD's signi€ cant investment programme
through RIIO2 will e" ectively erode the RAV premium over the next few
years.
Nevertheless, the deal creates a "bad headline" in the CMA context, as
one commentator put it, and will intensify the scrutiny applied by the CMA
to complaints about the cost of equity.
More broadly, there's a lot to unpack in this landmark deal, which
will also see National Grid sell a majority stake in its gas transmission
business. Several commentators have already labelled this as a gloomy
development for the hydrogen transition lobby because it seems to suggest
a lack of enthusiasm about the potential of that strand to the UK's net zero
story, though sources at Grid € rmly deny this is the case.
For all the latest reaction, commentary and analysis on this critical
transaction, go to utilityweek.co.uk. There's going to be a lot said
Jane Gray, content director, janegray@fav-house.com
Meet the Editorial Team
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e: jonikiforov@fav-house.com;
t: 01342 332077
Content director: Jane Gray,
e: janegray@fav-house.com,
t: 01342 333004
Digital editor:
James Wallin,
e: jameswallin@fav-house.com;
t: 01342 332015
Intelligence editor:
Denise Chevin, e: denisechevin@
fav-house.com;
t: 01342 332087
Energy editor:
Tom Grimwood,
e: tomgrimwood@fav-house.com;
t: t: 01342 332061
Reporter:
Adam John
e: adamjohn@fav-house.com;
t: 01342 332069
Water correspondent:
Ruth Williams,
e: ruthwilliams@fav-house.com,
t: 01342 332069
Policy correspondent:
David Blackman,
e: davidblackman@fav-house.com
Letter from the Editor
Jane Gray
Verint:
No going back: the pandemic year
that shook up utility customer
services
https://bit.ly/3r26Wx8
Maintel:
Why utility companies should
embrace digital innovation
https://bit.ly/3tyOGgs
Vision:
How to fi x megaprojects (and all
capital projects that matter)
https://bit.ly/3qzY2Ha
