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UTILITY WEEK | 4Th - 10Th JULY 2014 | 3 Leader Ellen Bennett This week 4 | Seven days 7 | Expert opinion Karma Ockenden 8 | Interview Peter Matthews, chairman, Natural Resources Wales 13 Policy & Regulation 13 | News British Gas: NAO must analyse network costs 14 | Analysis Are water companies ready for competition? 15 | Analysis The CMA energy inquiry 19 Finance & Investment 19 | News NAO says Decc paid too much to go green 20 | Analysis Winners and losers in the green subsidy lottery 21 | Analyst view Daniel Wong 22 Operations & Assets 22 | High viz NI Water 23 | Pipe up Jacob Tompkins 24 | Market view Weather forecasting 25 | Expert view Barclays 26 | Market view A smart way to regain trust 27 Customers 27 | News Government ducking liability for bill rises 27 | I am the customer Steven Thurlow 28 | Market view The race for customer service 30 Community 30 | Subscriber focus Kate Ison, ICE 31 | Disconnector What is to become of the Wocs? The efficacy of the regulatory stick was clear this week, as the majority of water companies fell into line with their revised business plans. Wessex Water, United Utilities, Severn Trent – even the usu- ally recalcitrant Thames Water bowed to the inevitable and accepted Ofwat's 3.85 per cent vanilla weighted average cost of capital (Wacc). Mind you, Thames is never far from the negotiating table; it says the sums don't add up and that the only way it can make the lower Wacc work is by holding back £108 million of wholesale cost savings. This latest sally is unlikely to be the last round in the negotiation, but there are at least some horses to trade for the regulator and the UK's largest water company. Not so for some of the water-only companies (Wocs) – notably Sutton and East Surrey Water (SESW), which has bid for a 4.75 per cent Wacc. As Yes, Minister's Sir Humphrey Appleby might say, a brave move indeed. The Woc argues that it has independent research proving it requires this level of investor return to remain finance- able. Ofwat will beg to differ – its trump card being the fast-tracked Woc Affinity Water, which, it will say, has proved that a well-run and efficient Woc is perfectly capable of accepting a lower rate of return. Wocs used to benefit from a financial allowance made for small companies, and SESW will argue that nothing has changed since that allowance was removed. Ofwat itself has said that it will listen to smaller companies who argue for more money – but that there must be evidence of customer benefit, and the bar for that evidence will be set high. With the counter-example of Affinity Water and its recent track record of relentless focus on affordability, Ofwat seems likely to reject SESW's bid. If the Wocs say they can't run at the allowed rate of return because they don't have the efficiencies of scale, there is an obvious answer. Ofwat opened the door to mergers in the water sector earlier this year, and chief executive Cathryn Ross told analysts in April that changes to the industry structure might be appropriate. Is time running out for the Wocs? Ellen Bennett, Editor ellen.bennett@fav-house.com GAS 13 | Political Agenda Mathew Beech WATER 7 | Expert view Karma Ockenden 8 | Interview Peter Matthews, chairman, Natural Resources Wales 14 | Market view Are you ready for competition? 19 | Stock watch United and Severn 22 | High Viz NI Water 23 | Pipe up Jacob Tompkins 24 | Market view Weather forecasting ELECTRICITY 13 | News WPD challenges Ofgem decision 19 | News NAO says Decc paid too much to go green 20 | Analysis Winners and losers in green subsidy lottery 26 | Market view Regaining trust with smart meters ENERGY 13 | News NAO must analyse network costs 14 | Analysis Energy suppliers under the CMA spotlight 27 | News Government ducking liability for bill rises 28 | Market view The race for customer service Knowledge worth keeping Visit the Downloads section of Utility Week's website for special reports and exclusive research commissioned for the utilities industry. http://www.utilityweek.co.uk/downloads