Utility Week

Utility Week 20th October 2017

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

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UTILITY WEEK | 20TH - 26TH OCTOBER 2017 | 13 This week Ofwat: sector tarred by failures of the few Jonson Cox renews criticism of 'highly complex, offshore capital structures' in the water sector Ofwat chairman Jonson Cox has said that failures in service deliv- ery and financial transparency from some big water firms have "cast doubt over every other company". Speaking at Utility Week Congress in Birmingham last week, Cox said while overall, the sector has improved its delivery for customers massively over the past few decades, the "behaviour of a handful of the big water companies has cast doubt over every other company". "Customers oen trust their local water company, but when firms construct highly complex, offshore capital structures, they do so at a cost to customer trust," he told delegates. This is not the first time that Cox has levelled criti- cism at the financial over-engineering of some water firms. Earlier this year, Ofwat's chairman publicly called on Thames Water to reform its approach to service deliv- ery and the transparency it offers around its financial structure, in an exclusive column for Utility Week. Cox also said the regulator had been hearing some of the "usual moaning" from companies in response to the forthcoming price review, PR19. "We have the usual host of representations. Some are effectively made. Some, I think, perhaps not effectively made. "But we are very clear where we are going. Where we're going is a world where [the] management of water companies need to step up in the same way that compa- nies in the normal world do," added Cox. JG/KP ENERGY Ofgem: be 'mindful of legitimacy' Ofgem's chairman, David Gray, has warned energy networks that they must be "mindful of the way they are perceived" aer the publication of a report by Citizens Advice that claimed they were making £7.5 billion in unjustified profits. Speaking at Utility Week Congress in Birmingham last week, Gray said: "We all need to ensure public confidence in the regulatory regime and this means consumers believing that the companies are running efficient and effective networks and are earning a fair return," he said. Gray added that, under the existing RIIO regulatory framework, the financial perfor- mance of energy networks has been "much stronger" than the regulator anticipated. He reiterated Ofgem's mes- sage that these returns will be trimmed in the next regulatory cycle, saying that "companies should prepare for lower returns as well as delivering better out- comes for customers" in RIIO2. ELECTRICITY Renewables get £557m extra funding The UK government has made up to £557 million available for "less established" renewables projects in a new set of contracts for difference (CfD) auctions planned for spring 2019. The auctions form part of the government's Clean Growth Strategy, published last week. The strategy outlines how the UK will move towards a low- carbon economy. Energy minister Richard Harrington said: "We've shown beyond doubt that renewable energy projects are an effective way to cut our emissions, while creating thousands of good jobs and attracting billions of pounds worth of investment." ENERGY Profit hit from cap could be 'severe' Analysts have warned the intro- duction of a price cap could have a "severe" impact on the profits of energy suppliers. In a briefing note, Investec claimed that even if Ofgem reas- sesses efficient cost benchmarks, the introduction of a cap could have a "considerable financial and industrial impact" on sup- pliers. The Investec note said the existing prepayment cap had already set a tough benchmark on efficiency. According to the report, the existing cap "implies" an aver- age price cap will be around £961 a year, which is £170 below the current standard variable tariff from the big six. Thames: singled out for lacking transparency Stock watch 1,500 1,450 1,400 1,350 CENTRICA SHARE PRICE, THREE MONTHS Aug 2017 Sep 2017 Oct 2017 SSE SHARE PRICE, THREE MONTHS Centrica, Npower and SSE are likely to be hardest hit by the government's proposed price cap on standard variable tariffs, according to investment firm Jefferies. If implemented, analysts expect the suppliers' earnings per share for 2019 to drop by 17 per cent, 11 per cent and 8 per cent respectively. They say much of the potential hit appears to have been priced in already, estimating the negative impact on the share prices of Centrica and SSE (as of 11 October) at just 2 to 6 per cent. 210 200 190 180 170 Finance & Investment Aug 2017 Sep 2017 Oct 2017 pence pence

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