Utility Week

Utility Week 5th June 2015

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

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UTILITY WEEK | 5TH - 11TH JUNE 2015 | 19 Finance & Investment Stock watch 13.8 13.7 13.6 13.5 13.4 13.3 EON 28 MAY - 2 JUNE 28 May 29 May 1 Jun 2 Jun 14.5 14.0 13.5 13.0 EON 5 MAY - 2 JUNE 5 May 12 May 19 May 28 May 2 Jun Eon's share price has fallen to a three-month low following news that rating agency S&P had downgraded its credit rating from A- to BBB+ ahead of the spin-off of its thermal generation assets into the newly formed Uniper company. The share price slumped from highs of €14.74 at the end of April to €13.30 at the beginning of this month following S&P's 28 May downgrade. This week Ofwat open to mergers benefiting customers Regulator begins consultation on changing rules to reduce the barriers to water company mergers Ofwat has opened a consultation on fresh rules that could reduce the barriers to water companies merging, as long as it is to the benefit of customers. The consultation follows changes to the regulation sur- rounding industry mergers in the Water Act 2014, which gives the regulator greater freedom to assess the impact of a planned merger. Until now, the Competition and Markets Authority (CMA) has been responsible for approving mergers within the water sector, but Ofwat's greater oversight could eliminate the need for a full CMA review – such as that currently under- way for Pennon's acquisition of Bournemouth Water. Ofwat has signalled increasing openness to mergers among water firms over the past 12 months. Late last year, chairman Jonson Cox called for "dynamic and dif- ferentiated" deals as the industry changes shape follow- ing PR14, and in anticipation of market opening in 2017. Ofwat's senior director of finance and networks, Keith Mason, said: "We welcome the changes to the rules on water mergers in the Water Act 2014. Our increased role at an early stage in the process will provide greater cer- tainty around potential mergers and reduce the burden on mergers which provide benefits to customers. Yet it still ensures that customers remain protected where this is not the case." The move was welcomed by investors. "Any soening of its stance to mergers has to be seen as a positive for a sector where M&A remains a key theme," said an inves- tor note from RBC Capital. JA GAS National Grid set to sell metering arm National Grid is set to sell its gas metering business for a reported £1 billion as part of a fundraising push, according to press reports. Investment analysts suggested the sale is "plausible" given this arm is not part of the transmis- sion system operator's core business. However, the £1 billion price tag falls short of consensus valuations due to the limited lifespan of the business in the face of the UK government's planned smart meter rollout. The Sunday Times said National Grid's 17 million gas meter assets will be sold ahead of the rollout of smart meters, which is scheduled to be completed by the end of the decade. It also suggested a sale of the company's UK gas distribution assets, but analysts said this is "less likely". Investors at RBC Capital and Citigroup value the metering business – which includes main- tenance, installation and meter reading – at £1.6 billion and £1.5 billion respectively, mean- ing a lower sale price of £1 bil- lion could have a small negative impact on the company's value. WATER Anglian profits hit by increased costs Anglian Water has seen its underlying operating profit trimmed as a result of higher operating costs during 2014/15. The company's preliminary full-year results show an under- lying operating profit of £452.6 million for 2014/15, down from £468.9 million the previous year. This is put down to a 7.9 per cent increase in operating costs (£38.5 million), which includes £13.4 million in inflationary increases and £10.3 million spent on an increase in minor repair activities to improve wastewater serviceability and water leakage. Despite this fall, the underly- ing profit before tax increased from £167.9 million in 2013/14 to £182 million in 2014/15, largely as a result of a decrease in finance costs of £31.1 million. ENERGY S&P downgrades Eon's credit rating Credit rating agency S&P has slashed Eon's credit rating from A– to BBB+ ahead of the utility's overhaul of its business structure. The German energy giant plans to spin off its beleaguered up- and mid-stream power and gas interests into a new company in a bid to protect its core retail and innovation business arms. But S&P said its credit met- rics could still take a hit: "We believe that Eon's business risk profile will strengthen aer the spin-off, although we think it likely that Eon's credit metrics will weaken from current levels." Cox: called for 'dynamic and differentiated' deals

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