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UtILItY WEEK | 13th - 19th March 2015 | 15 Policy & Regulation meaning this does not fully come into force until the end of the eight-year price control. If brought forward to the beginning of RIIO- ED1 in April of 2015, this provides greater savings for consumers." Fih is the cost of equity, which was set at 6 per cent for RIIO ED1. In its evidence, Brit- ish Gas cites Ofwat's decision to set the cost of equity for water companies at 5.6 per cent (later reduced further). Finally, British Gas alleges procedural defects throughout RIIO-ED1, claiming Ofgem "has repeatedly failed to set out suf- ficient reasons to justify its conclusions, or allow effective engagement by stakeholders". The CMA's response is hard to call. It must now officially decide whether to act on the referral and, from the point it announces a review, has six months to make a decision. Undoubtedly, the networks will make a strong counter-case, led by Northern Powergrid, which took the unusual step of referring its own settlement to the CMA in the conviction that it could do better. Its argument is believed to centre on the cost of embedded debt, though the company refused to comment beyond a statement that said: "The company recognises that the regulatory process involves judgement – that's an important protection for customers. But if a flawed decision creates a material underfunding of the costs of providing the improved services customers want, it should be corrected." While the other four affected networks chose to swallow their settlements, they were not happy about them, with SSE and UKPN both releasing statements that high- lighted their "disappointment". The final determinations sought savings of £1.4 billion from the networks' original business plans – a level which, they claimed, would signifi- cantly impact investment. Rather than getting on with the business of ED1, the networks now have six months of legal squabbling to look forward to. Tra- ditionally a sector that has traded on its sta- bility and flown under the radar, network companies now face an increasingly hostile public, and must reassure investors, who were looking forward to an eight-year return that was certain, if not generous. For Ofgem, a regulator under siege, it's a further blow. As Brough says: "The opposi- tion Labour Party has promised to abolish Ofgem if elected and replace it with a tougher energy regulator. However, the current gov- ernment and National Grid have already taken over wholesale markets with contracts for difference and the capacity auction, while the CMA is reviewing wholesale and retail energy and now network regulation. Ofgem now appears to be fully emasculated." Ofgem's handling of the price review was thrown into further doubt with the allega- tion, contained in the energy select com- mittee's report on network costs, that its fast-tracking of Western Power Distribution (WPD) had cost that company's customers £860 million. While WPD has escaped the CMA, the fairness of its settlement has now publicly been called into question. With the entire utilities sector up before the CMA under three separate inquiries – energy retail, Bristol Water's appeal against PR14 and now network costs – the authority holds all the cards. Last month, it advertised for a new sector specialist for utilities. Per- haps it should hire two. Ian Peters, managing director, British Gas A British Gas stalwart, Peters has made few friends among the networks with his outspoken com- ments on their costs. Maxine Frerk, interim senior partner, smarter grids and governance, Ofgem Frerk took over the RIIO process towards its conclusion, taking up her new role in June 2014. Having previously regulated the retail side of the energy business, she will be familiar with the CMA process. David Gray, chair, Ofgem Having once run network regula- tion himself, Ofgem chairman David Gray has been instrumental behind the scenes in the passage of RIIO-ED1. His diplomatic skills will be heavily called on in the next few months. Robert Symons, chief executive, Western Power Distribution Having "won the price review", in his own words, by achieving sole fast-track status, Symons is the one network boss who will not have to worry about the CMA. An ambitious executive with a track record of acquisition and expan- sion, he will no doubt look to use this to his business's advantage. KEY PLAYERS All eyes on the CMA Energy retail The CMA's most high-profile utilities case is its inquiry into the energy retail market. The inquiry will formally report aer the election, in a long-awaited report that, it is hoped, will finally clear the air and chart a route forward for the beleaguered sector. In its initial findings, published at the end of February, the CMA indicated that it would be looking closely at the unintended consequences of Ofgem's regulation, shiing its focus from the perceived lack of liquidity and access to the role regulatory frameworks may play in distorting the market. Bristol Water Minnow Bristol Water was the only company to challenge Ofwat's PR14 determinations this winter. The regulator confirmed last week that it has formally referred Bristol's case to the CMA, The CMA will establish its panel to investigate the case, pulling expertise from its utility panel as well as from other areas. This appointment could "take a number of weeks", according to the CMA. Once appointed, the group will gather information through submissions, site visits, and oral hear- ings, before delivering its final verdict within six months. £160 £140 £120 £100 £80 £60 £40 £20 £0 Average trajectory of network costs on consumer bills network costs and energy bills 47% Wholesale costs 22% Network costs 7% Environmental and social obligation costs 20% Supplier operating costs and pre-tax margin 5% VAT 2013/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 22/23 22/23 Gas distribution Electricity distribution Gas transmission Electricity transmission Source: ENA's evidence to select committee