Utility Week

Utility Week 22nd September 2017

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

Issue link: https://fhpublishing.uberflip.com/i/876437

Contents of this Issue


Page 15 of 31

16 | 22ND - 28TH SEPTEMBER 2017 | UTILITY WEEK Finance & Investment This week Ofwat chief rejects cost of capital fears Cathryn Ross knocks back water company complaints about projected cost of equity in PR19 Ofwat chief executive Cathryn Ross has rejected industry fears that the projected cost of capital for the next regulatory period will undermine resilience. Speaking at an Ofwat event in London, Ross said she is "not desperately sympathetic to some of the noises off" companies are making about the regulator's pro- posed level for the cost of capital in PR19, and in particu- lar the reductions it has proposed for the cost of equity. She said suggestions these changes might compromise the sector's financial resilience are wrong. "The implica- tion is that there is a relationship between our cost of capital, spend on resilience and the delivery of actual resil- ience," she said. "That relationship just does not exist." Earlier this month, a KPMG report commissioned by Anglian, Northumbrian and Affinity Water claimed Ofwat's proposed cost of equity was based on flawed assumptions about the total market return (TMR) com- panies will see. It warned that if Ofwat pushes ahead with its proposed TMR – of 5.1 per cent to 5.5 per cent – there could be "significant implications for financeabil- ity and cash flows of the regulated firms, allocation of capital by investors, perception of the UK utilities sector, and potentially for consumers". The report suggested Ofwat should therefore "review in detail" its plans. But Ross pushed back on such claims. "The best way for us to get the resilience that customers and society need is not to ratchet up the cost of capital," she insisted. "What matters is that we provide a reasonable return on risk – which we will." JG ENERGY Cost review 'could be basis for strategy' The government's energy cost review could form the basis for the UK's industrial strategy, according to SSE chief executive Alistair Phillips-Davies. But in an open letter, Phillips- Davies said the Professor Dieter Helm-led review, intended to set the UK on a path to achiev- ing the lowest prices in Europe, must perform well against three criteria: supporting invest- ment in energy infrastructure; continuing the low-carbon transformation; and supporting sustainable investment. He cited SSE's £1.5 billion annual spend on infrastructure, adding this was "generally more than we make in profit". Barclays' estimate that £210 bil- lion of investment is needed by 2030 "illustrates the scale of the investment challenge". Phillips-Davies said he was "optimistic that we will deliver a low-carbon electricity system", and that the review "could form the basis of the next phase of change to both the UK's electri- city system and the country's emerging industrial strategy". ELECTRICITY Ofgem confirms £200m cut for DNOs Ofgem has confirmed it will slash £200 million from distribu- tion network operators' spending allowances over the remainder of the RIIO-ED1 price control. The regulator says the sav- ings are possible because DNOs underspent their allowances in the previous price control. Confirming the cut, first mooted in June, Jonathan Brearley, Ofgem's senior partner for networks, said: "We have already told network companies that they should prepare for tougher price controls from 2021, with lower returns. "We also want to get a better deal for customers in the current price control period, which is why we have announced a reduc- tion in the DNOs' allowances." ENERGY Good Energy sees 16% rise in revenue Good Energy has announced a 16 per cent increase in income during the first half of the year. The renewable energy supplier said its revenue for the first six months of 2017 was £52 million, compared with £44.8 million in the same period last year. Gross profits fell slightly from £14.8 million in the first half of 2016 to £14.4 million this year. Pre-tax profits dropped by 37 per cent from £1.2 million to £0.7 million in the same period. The company's latest trading statement also showed the total number of customer meters has increased 5 per cent to 251,800. Ross: 'not desperately sympathetic' Stock watch NATIONAL GRID SHARE PRICE, FIVE DAY National Grid has repurchased shares at levels that could add value in the medium term, given the weakness in its stock price over the past few months, analysts said this week. At 10am on 14 September National Grid shares were trading at £948.00, compared with £1,020.50 on 17 June. National Grid's most recent regulatory filing suggests the company has already bought about £280 million and will have spent £425 million by the end of December on share buybacks. 965 960 955 950 945 940 14 Sep 15 Sep 18 Sep 19 Sep NATIONAL GRID SHARE PRICE, THREE MONTH 1,020 1,000 980 960 940 920 Jul 17 Aug 17 Sep 17 pence pence

Articles in this issue

Archives of this issue

view archives of Utility Week - Utility Week 22nd September 2017