Utility Week

UTILITY Week 28th April 2017

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UTILITY WEEK | 28TH APRIL - 4TH MAY 2017 | 11 Policy & Regulation Policy & Regulation Water Sector unlikely to make ripples While energy finds itself in the firing line, water firms look likely to avoid populist anger. F or better or worse, water will get little or no mention in election campaign- ing or manifestos. Nor is there much ongoing policy work either. The Department for Environment, Food and Rural Affairs (Defra) revealed a largely innocuous strategic policy statement to Ofwat in March. The document did commit to come to a conclusion on the introduction of domestic water competition "at the end of the Parliament or early in the next one", but few expect this to be taken literally in the light of the unexpected general elec- tion, and although Labour has expressed Energy under the cosh The snap election announcement was barely hours old before Utility Week began hearing a litany of concerns from a wide variety of energy sector players about the impact it will have on key areas of policy work. The future of carbon pricing, emissions reduction, small modular reactors, the levy control framework, competitive tendering for onshore transmission and smart grid strategy. All these and more have been raised as areas vulnerable to delays, which could damage investor confidence. Optimists have countered some of these concerns with reassurances that Ofgem will be able to push ahead with more technical issues, like the embedded benefits changes and the regime for competitively appointed transmission operators. Fewer hopes are held out for the smooth running of the smart and flexible energy systems consultation Ofgem is conducting in partnership with BEIS. It seems inevitable that nothing more will now be heard on this key piece of work, which is due to set out remedies to problems like the classification of energy storage, and suggest models for transforming the role of distribution network operators, until the autumn. On the other hand, the election is likely to fast-track intervention in energy retail pricing, giving rise to a ra of work for the regulator. The day aer May's election announcement, Clark promised "muscular" action to stop utilities introducing inflation-busting prices rises. This quickly escalated to becoming a manifesto commitment. "We hope that the Digital Economy Bill will complete its passage through Parliament when it is discussed on 26 April. The amendments are vital to enabling water companies to help their customers." Michael Roberts, chief executive, Water UK icy stability, which the industry craves. May has been constrained so far by the fact that she has been governing without the author- ity of her own mandate. A fatter majority would enable the prime minister to put her own stamp on the government. But not all clarity is welcome. For energy retailers and many environmentalists, greater visibility of May's plans is likely to be hard to stomach. For the former, the relent- less swing towards populist politics means price regulation is now a manifesto com- mitment, while the environmental lobby is nervous that 2020 targets for renewables deployment will be for the chop aer the Great Repeal Bill. Climate change commitments are unlikely to make the final cut of the main manifestos in this election, however. Hastily cobbled together, they will largely be rhetoric heavy, content light and short. At time of going to press, one Conservative source told Utility Week that work has hardly begun on his own party's manifesto. Nevertheless, it will be published shortly. If there is a source of concern for water companies, it is that the election will slow the progress of the Digital Economy Bill, a piece of legislation that is also important to the energy industry. Michael Roberts, chief executive of Water UK, says the bill is "vital to enabling water companies to help their customers by using data from government departments like the Department for Work and Pensions to target assistance more effectively and efficiently". By the time this issue lands with read- ers, it will be clear whether this bill, due for parliamentary debate on 26 April, has become a casualty to the distractions of the general election or not. Back at Defra, the one person who may be concerned about clarity and continuity is its leader, Andrea Leadsom, who was gied the department aer her aborted shot at being prime minister last year. She has kept a fairly low profile in the role, doing nothing obvious to place her in any firing lines May might set up aer what most are assuming will be her victory. But that may not be enough to protect her from a reshuffle. strong opposition to water competition in the past, it will have more pressing issues to deal with. There were no unpleasant surprises in the strategic policy statement, and industry commentators seem sanguine about the sec- tor's ability to hold a steady line in ongoing areas of change. Indeed, contrary to the con- sternation many energy sector leaders are feeling, one water sector chief executive told Utility Week the snap election would have a "mildly positive" impact on business. One boon for the sector is that the elec- tion will reset the political cycle in a way that decouples general elections from water price-setting – reducing the likelihood of water prices and company dividends becom- ing populist bandwagons during campaigns. Second, from an investor point of view, the uncertainty in the energy sector about the future of subsidy regimes, competition, and general policy, means the relatively clear and stable water policy environment will give regulated water companies heightened appeal. Even more so at United Utilities, Pen- non and Severn Trent, whose dividends are linked to inflation, which is set to rise out to 2020. SEPTEMBER OCTOBER 24-27 September Labour conference 1-4 October Conservative conference 15 September - 10 October Party conference recess (expected) 16-19 September Lib Dem conference

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