Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
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Finance & Investment This week Consumer Futures and Centrica back Ofgem squeeze on power networks' finance allowance Income could be cut for power networks Consumer Futures and Centrica are backing a squeeze on power networks' finance allowance that could slice up to half a billion pounds off their income. They came out in favour of Clouds for DNOs: £500 million cost to industry? Ofgem's proposal to cut allowed returns to shareholders in distribution networks from 6.3 per cent to 5.5 per cent. The change is expected to shave £2 a year off the typical household bill, at a cost of £400-£500 million to the industry over the eight-year RIIO-ED1 price control. Transmission and gas distribution networks are also likely to take a hit at their next periodic review, if the new approach is adopted. Richard Hall, director of strategic infrastructure at Consumer Futures, said monopoly utility stocks are "as close to risk-free as you can get whilst investing in equities". Accordingly, investors should be willing to accept a low rate of return, he argued. Centrica commissioned research from consultancy CEPA into the impacts of the proposal. It argued Ofgem had been overly generous in the past. Andy Manning, Centrica head of network regulation, said: "We want fair value for our customers at every part of the chain." The proposed approach would give more weight to recent evidence in calculating the cost of equity allowance, in line with a Competition Commission provisional ruling on NI Electricity. Distribution network operators and National Grid have yet to publish their consultation responses. A National Grid spokesperson indicated the company would argue Britain is different to Northern Ireland and Ofgem should continue with its long-term approach. MD Stock watch Shares in UK fracking companies soared on Monday, boosted by political backing and a vote of confidence from French oil giant Total. David Cameron promised he would go "all out for shale gas" and let local authorities keep all the business rates from shale sites. Total spent £30 million on 40 per cent of two UK licences, in partnership with Dart Energy, Igas and Egdon Resources, whose shares rose between 10 and 37 per cent on the news. 16 | 17th - 23rd January 2014 | UTILITY WEEK Water Pan-utility The UK's three largest water companies have amassed a total tax rebate of £144 million in a one-off refund from HMRC. Thames Water, Severn Trent and United Utilities all benefited from the industry-wide agreement with HMRC last October. It relates to revised capital expenditure tax treatment as a consequence of the abolition of industrial buildings allowances in 2008. HMRC said it would not comment on the "tax affairs of individual customers". However, the overall refund figure for the industry is likely to be significantly higher, with a number of the other water and sewerage companies across the UK yet to calculate their refunds. United Utilities benefited the most, having announced in its half-year results in November a cash payout of £90 million, £75 million of which it said would be passed on to customers. Thames Water has committed "100 per cent" of its £10 million refund to its Customer Assistance Fund, which helps ustomers c who cannot pay their bills – d oubling the funds available. Severn Trent is set to benefit from a £44 million "exceptional current tax credit", but has not yet decided how it will use the extra income. Insurance firm Homeserve has been issued with a provisional fine of £49.3 million by the Financial Conduct Authority, in relation to alleged mis-selling practices. The company, which sells insurance for boilers and burst pipes, has been under investigation for the past 18 months. Under the terms of the draft warning notice issued on Monday, the penalty could be reduced to £34.5m through a 30 per cent discount for early settlement. However, the company said it had only put aside £6 million to cover the fine. In 2012, consumer group Which? found that 10 of the UK's 12 biggest water companies had promoted potentially unnecessary supply pipe insurance. Majors refunded a total of £144m in tax Igas share price, 9 December 2013 - 13 January 2014 Homeserve fined in mis-selling probe Electricity Onshore windfarms sold by HgCapital Three UK onshore windfarms with a capacity of 11.05MW have been sold by private equity and renewable energy investor HgCapital. The windfarms, located on industrial sites in Cumbria, Lancashire and South Wales, were sold at the end of December 2013 for an undisclosed sum to funds advised by asset management company Resonance. Egdon share price, 9 December 2013 - 13 January 2014 132 16 128 124 14 120 12 116 112 10 108 104 8 9 Dec 18 Dec 30 Dec 8 Jan 9 Dec 18 Dec 30 Dec 8 Jan Source: AIM