Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
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UTILITY WEEK | 8TH - 14TH JANUARY 2016 | 13 The year in review " " "Every pound spent must deliver enhanced security of supply" 9 January Tom Greatrex, former shadow energy minister on the "flawed" capacity market model. "It is an ambitious and complex task, which will take time to deliver" 23 January Cathryn Ross, chief executive, Ofwat, on securing trust and confidence in water and wastewater services through Ofwat's new forward work programme. "I am sorry" 6 February Sarah Venning, chief executive, NI Water, apologises in a letter to customers affected by industrial action. "We're putting our money where our heart is" 13 February Dale Vince, Ecotricity founder, on the company's decision to back Labour in the general election. "What happens what the renewable energy runs out?" 27 February Victoria Ayling, a Ukip parliamentary candidate, pursues a rhetorical line of questioning on the campaign trail in Lincolnshire. "The logic of vertical integration no longer works" 20 March Jonson Cox, chairman, Ofwat, on water company structures ahead of market opening. "Only in an uncompetitive market do you get to screw with your customers with impunity" 27 March Sara Bell, chief executive, Tempus Energy. "This scheme is far from smart… [it should be] halted, altered, or scrapped" 10 April Dan Lewis, senior infrastructure adviser, IoD, on the smart meter rollout. Water market opening The Open Water programme had a tumultuous start to the year when in February it was overhauled for a second time. Ofwat abandoned plans to appoint Wics, led by Alan Sutherland, to oversee the programme, aer the move was voted down by the Scottish regulator's board. Instead, it elected to make Market Operator Services Limited (MOSL) the delivery body and to keep the programme to create the non-domestic water market on track for its April 2017 deadline. However, at the end of the year, the Treasury made the shock announcement that the domestic water market could open up to competition by 2020, which could change the view of retailers and incumbents on how involved they are going to be in the market. PwC says the big six energy suppliers may now take an interest in the sector, while those potentially considering an exit may reconsider. With the challenge of meeting the tight timeframe for non-domestic water opening at the forefront of chief executives' minds going into 2016, the curve ball from government will only add to the issues they need to consider and deal with. As PwC water analyst Richard Laikin observed: "The era of converging utility retail may be a step closer." CMA rebukes retail and backs the regulators The Competition and Markets Authority (CMA) had a busy 2015. Its energy retail probe made its initial findings (see box, below), and both the government and energy companies will be keeping an eagle eye out to see if anything changes when it reports again in April. The CMA also saw its workload added to in March when British Gas and Northern Powergrid appealed against Ofgem's RIIO-ED1 price controls. The com- petition authority rejected all but one complaint each from the two appellants, and then only conceded that £105 million needed to be cut from the distribution companies' revenue over the eight-year price control, and granted NPG an addi- tional £11 million over the same period. Not much compared with the £17 billion settlements the regulator originally dished out. The ruling le British Gas licking its wounds as it was ordered to pick up the majority of the CMA's and Ofgem's costs. The CMA also ruled largely in Ofwat's favour in the PR14 dispute with Bristol Water. The water company only managed to gain an additional £20 million over and above the amount the regulator set out in its price control, a result Bristol Water chief executive Luis Garcia nonetheless described as "worthwhile". Energy market probe – potential remedies A safeguard tariff to protect non-switchers. Removing the Retail Market Review's four-tariff cap. Ofgem to host an independent price comparison site. Prepayment meter customers to be prioritised in smart meter rollout. Network investigation British Gas had four of its five appeals rejected. CMA reduced DNO's recoverable income over RIIO-ED1 by £105 million. British Gas told to pay 80 per cent of CMA costs and 60 per cent of Ofgem's costs. NPG had two of its three appeals rejected. CMA ruled that NPG could recover an additional £11 million over price control. Bristol Water investigation CMA sets the allowed wholesale cost expenditure at £428.6 million – above the £409 million set by Ofwat but lower than the £537 million Bristol Water wanted. The Wacc marginally increased from 3.6 to 3.65 per cent, but lower than the 4.37 per cent the water company was aiming for. The average charge for customers will be £159 a year, up from the £155 Ofwat set out in PR14 but lower than the £187 Bristol Water set out in its business plan.