Utility Week

Utility Week 12 12 2014

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/431114

Contents of this Issue


Page 15 of 33

14 | 12th - 18th December 2014 2014 | UtILItY WeeK Policy & Regulation 25 Years of Water Privatisation Roundtable with EC Harris, 27 November 2014 All change for AMP6 M arking a quarter of a century since the water industry was privatised – and ahead of the evening's event (see page 16), Utility Week and EC Harris sat down with key figures at a roundtable to discuss the challenges of delivering AMP6 now that the price review is drawing to a close. In a fluid debate, the 12 delegates talked about how they have come through the price review, and the challenges of the new ways of working it has mandated. Ofwat chief executive Cathryn Ross started the discussion by praising the water companies for achieving "a real step change" in improving and developing their business plans compared with PR09 – and on top of the significant shi in the way this price review is being structured – with the focus on total expenditure rather than solely on capital or operating expenditure. This topic dominated the opening exchanges of the roundtable, although the companies acknowledged the challenge of moving to the totex regime, they said it was not the greatest hurdle that lay ahead. Affinity Water's chief executive, Rich- ard Bienfait, said the change to totex may remove a capex bias in terms of the spend- ing by the water companies, "but I think it's going to create other biases". "I think it's going to encourage the accel- eration of investment at the start of the period; maybe it will accelerate the invest- ment at the end of an AMP period; maybe it will encourage more opex solutions towards the end of the period price control period." Another representative from a water com- pany said that they no longer see the money they invest as part of capex or opex, but just as "a pound of money". Plus, the group agreed that without the same incentives "to build a shiny new thing", the companies' assets will be sweated more and coupled with more "flexible solutions". National Grid's head of UK RIIO delivery, Chris Bennett, was able to provide a view from a regulated sector on the impact that a shi away from the opex/capex regime to a totex one – with Ofgem shiing the transmission networks to the new system 18 months ago. He said: "With totex, you are able to look at the whole cost base and deliver innovative solutions. It is a massive step forward from RPI-x." But the change in focus on the price control period is not the only major change the industry faces, and soon the discussion turned to the looming implementation of retail competition in April 2017. Tony Smith, chief executive of the Con- sumer Council for Water (CC Water), said there would be "serious problems" if the wholesale and retail systems between com- panies did not align, but added that "there are some challenges but we're off to a good start". That interaction between the wholesaler and the retailer was said to be as important as the relationship between the retailer and the customer. Smith said that knowing which party was responsible for resolving any given issues "is crucial". The delegates highlighted that the "cus- tomers" are not only the end users, but also the retailers, who will be the customers of the wholesalers. They said "competitive tensions" needed to be established within the incumbents to ensure wholesalers delivered for customers. This then spun into discussions about the structure of the market once the final deter- minations were made, and ahead of compe- tition, and the seemingly inevitable changes we can expect to see. What these structures would be was a matter of debate, but some of the delegates suggested we may end up with smaller com- panies rather than larger ones because "it may be more profitable to do it that way". The final topic, before the representatives headed off to join the reception to mark the 25th anniversary of privatisation, returned to the issue of PR14 – and in particular the length of the AMP6 cycle. Questioned as to whether five years was right for the industry, the general view was, much like the energy sector, a longer AMP cycle was "almost inevitable" because it would allow for investors to look longer term. The representatives from the water com- panies called for "assurances" from the regulator should a longer AMP period be introduced, but all said they would poten- tially welcome the idea. The key point that all the delegates took away with them is that, even with the final determinations now made, and competition getting ever closer, there is still a lot of work to do, and the sector, as it has over the past 25 years, will continue to evolve. Setting the scene The PR14 price control for the water sector marks a grand departure from the previous price control regime. The shift away from the RPI-X and capital expenditure/operating expenditure models to one fo- cused on outcomes and overall expenditure is something the industry is still getting to grips with. The final determinations from the regulator (out today – Friday 12 December – see website for full details) will set out the financial framework for water companies as they aim to deliver their business plans and an improved service for customers. With partnerships with contractors being drawn up for the five-year AMP6 period, the consensus of opinion at the roundtable organised by Utility Week in association with EC Harris was that PR14 holds both opportunities and challenges, but rightly has improved performance and value for money for customers at its heart.

Articles in this issue

Archives of this issue

view archives of Utility Week - Utility Week 12 12 2014