Water & Wastewater Treatment Magazine
Issue link: https://fhpublishing.uberflip.com/i/957171
www.wwtonline.co.uk | WWT | APRIL 2018 | 31 ● All respondents agreed business models will change increasingly over the next 15 years as a result of disrup on. ● In the main, the market agrees that technology and regula on are the most disrup ve factors (both were rated 6.75 out of 10). It is thought regulatory disrup on will aff ect energy genera on and energy retail the most (just ahead of energy networks). ● Confi dence in regulatory approaches is not high – 4.8 out of 10 on average. ● There is (marginally) more confi dence in the RIIO regime (5.2 out of 10) to accommodate the scale of change facing networks in the next fi ve to ten years than there is in the PR19 framework (4.8 out of 10) to accommodate the scale of change facing water companies in the me period up to 2025. ● Government and local authority ac ons are believed to be crea ng both posi ve and nega ve disrup on – some respondents said there was a lack of focus due to Brexit, but others said the government would provide both the nudge factor and regulatory push to alter consumer behaviour and the usage and storage of electricity/launch of new business models. THE DISRUPTION: NEW REGIMES FOR MONOPOLY NETWORKS What's the deal: With business plans for PR19 due this September and consulta on on the RIIO2 framework underway, price controls are now domina ng the thoughts and me of senior teams at regulated u li es across the UK. Ofgem and Ofwat have both been clear that their next price controls will be tough – including higher expecta ons for customer focus, fi nancial transparency and the delivery of innova ve ideas into business as usual opera ons. Why it ma ers: The fi nal determina ons monopoly u li es receive from their price controls defi ni vely infl uence their ability to invest eff ec vely for customers and deliver returns for shareholders over the following regulatory period. Our survey found there is (marginally) more confi dence in the RIIO regime (5.2 out of 10) to accommodate the scale of change facing networks in the next fi ve to ten years, than there is in the PR19 framework (4.8 out of 10) to accommodate the scale of change facing water companies to 2025. Both PR19 and RIIO2 are set to challenge these interests, with Ofgem and Ofwat squeezing the allowed cost of capital and expressing in no uncertain terms that shareholders should expect lower returns over the next period. Ofwat has set the weighted average cost of capital for PR19 at a historic low of 2.4 per cent. Furthermore, under pressure from government, chairman Jonson Cox has proposed reforms to dividend policy, which could cause a further crunch on investor playback during AMP7. But PR19 and RIIO2 are notable far beyond their impact on shareholder returns. Both frameworks seek to build on some seminal changes to regulatory approaches introduced in PR14 and RIIO1 respec vely, especially with regards to regulatory expecta ons for customer engagement in the business planning process and for customer benefi ts-focused innova on strategies. There are also brand new elements included. For example, Ofwat has introduced Direct Procurement for Customers (see p32), overhauled customer sa sfac on metrics and put forward a new set of common performance measures to make companies up their game. Over in energy, Ofgem's RIIO2 consulta on proposes rever ng to the fi ve-year me-scale used under the previous regulatory approach – DPCR – or possibly introducing an even shorter period in apprecia on of the level of uncertainty and radical change manifes ng in the energy system. Changes like these will mean organisa onal scrambles to ensure their impact on investment planning, risk exposure, opera ons, internal processes and repor ng are fully understood and prepared for. w w w . u t i l i t y w e e k l i v e . c o . u k DISRUPTION RESEARCH: Key fi ndings I N A S S O C I A T I O N W I T H www.wwtonline.co.uk | WWT | APRIL 2018 | 31