Utility Week

UTILITY WEEK | 16TH - 22ND MARCH 2018 | 19 This week Leveraged water firms may need fresh equity Ratings agency says a tough stance on gearing by Ofwat could force them to turn to shareholders Highly leveraged water com- panies could be forced to seek "fresh equity" because of increased regulatory pres- sure, including possible licence changes, according to Moody's Investors Service (Moody's). The credit rating agency pub- lished a water sector comment last week responding to Ofwat chairman Jonson Cox setting out a sweeping programme ofw reform at Water UK's annual City Conference for investors in London on 1 March. Cox challenged compa- nies to improve financial resilience and adjust dividend policies. Moody's said Ofwat's "call for change" may force companies to cut debt. Stefanie Voelz, vice president-senior credit officer at Moody's, said: "While such balance sheet strengthen- ing would be credit positive, the imposition of explicit restrictions on companies' capital structures would represent a divergence from past regulatory practice." Moody's said companies with highly leveraged struc- tures included Anglian, Southern, Thames, Yorkshire, Affinity and South East. Voelz added: "In expectation of a tough price review… many of the more highly geared companies have started increasing financial headroom by reducing debt to below 80 per cent of their regulatory capital value. "This has been achieved by the retention of earnings, but to bring gearing down further, for example towards 70 per cent, before 2020 would almost certainly require equity injections." KP ELECTRICITY FD to retire after 18 years with UKPN UK Power Networks' (UKPN) finance director Richard Roberts is to retire, aer 18 years at the company and its predecessors. He will be succeeded by Jenny Harrison, currently finan- cial controller at UKPN, when he leaves on 31 March. Roberts has been finance director at the company since its creation in October 2010 and held the role at its legacy firms – EDF Energy Networks and Seeboard. However, he said the past seven years have been the highlight for him: "It has been a really great seven years and the performance of the business has improved beyond anyone's expectations. It was a complete mindset change, for the better. We became really focused and had a proper vision, which had hard measurable targets across every area, so month on month we could track how we were doing." ELECTRICITY Labour party backs Mersey tidal barrage John McDonnell has confirmed the backing of Labour's front bench for plans for a £1.5 billion tidal barrage project in the River Mersey. The shadow chancellor told the Financial Times last week that Labour would use its pro- posed regional investment bank to bankroll the project, which would contribute to the party's target to generate two-thirds of electricity from renewable sources. Steve Rotheram revived the tidal power project aer winning the vote to become metro mayor of the Liverpool city-regional authority last year. In November 2017, Rotheram appointed former Dong Energy UK chair Brent Cheshire to head a special purpose vehicle to take the project forward. ENERGY Low-carbon fund for Manchester launches A £15 million fund designed to promote the production and distribution of energy from renewable resources in Greater Manchester launched on 9 March. The Greater Manchester Low Carbon Fund aims to make it easier for property developers and infrastructure providers to use renewable energy in development schemes. Launched by the Greater Manchester Combined Authority, the fund will be managed by real estate advisory service GVA. It will offer loans to fund projects that would not attract commer- cial finance due to the "relatively new" technology involved, or projects that would be improved through the fund's expertise. Gearing: Ofwat wants big cuts Stock watch 720 710 700 690 680 670 PENNON SHARE PRICE, FIVE DAY UNITED UTILITIES SHARE PRICE, FIVE DAY Severn Trent, United Utilities and Pennon Group all saw their share prices spike last week aer JP Morgan upgraded its ratings for the companies. It argued investors' concerns about Labour's plans for renationalisation were overblown, noting that the shares were trading at 1 per cent, 5 per cent and 11 per cent below their respective regulated capital values. Pennon Group saw the biggest increase, with a jump of more than 4 per cent to 659p following the update. 660 640 620 600 7 Mar 8 Mar 9 Mar 12 Mar 13 Mar Finance & Investment 7 Mar 8 Mar 9 Mar 12 Mar 13 Mar pence pence

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