Utility Week

2. WHAT: POLITICAL INFLUENCE AND INTERVENTION What's the deal: A surge in populist poli cs has prompted a corresponding rise in poli cal appe te for intervening in u li es markets. In energy retail, this has culminated in the price cap legisla on. However, in the last 12 months, water companies and energy networks have also begun to feel the poli cal heat. Why it ma ers: In our survey, policy change and uncertainty was rated 6.6 out of 10 in terms of its poten al to disrupt. Genera on and retail rated it most poten ally disrup ve, at an average 6.9 out of 10. John Pe grew, chief execu ve of Na onal Grid, recently told the Financial Times that US investors in par cular are concerned about a cocktail of uncertain es including Brexit and government interven on. w w w . u t i l i t y w e e k l i v e . c o . u k 3. WHAT: NEW REGIMES FOR MONOPOLY NETWORKS What's the deal: With business plans for PR19 due this September and consulta on on the RIIO2 framework under way, price controls are domina ng the thoughts and me of senior teams at regulated u li es. Why it ma ers: The final determina ons monopoly u li es receive from their regulators influence their ability to invest for customers and deliver returns for shareholders. Our survey found there is (marginally) more confidence in the RIIO regime (5.2 out of 10) to accommodate the scale of change facing networks in the next five 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 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 payback during AMP7 But PR19 and RIIO2 are notable 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 benefits-focused innova on strategies. There are also brand new elements included. For example, Ofwat has introduced Direct Procurement for Customers (see facing page), overhauled customer sa sfac on metrics and put forward a new set of common performance measures to push companies to up their game on key opera onal and service factors. Over in energy, Ofgem's RIIO2 consulta on proposes to revert to the five-year me-scale used under the previous regulatory approach – DPCR – or possibly to introduce an even shorter period in apprecia on of the level of uncertainty and radical change manifes ng in the energy system. P R E S E N T S 8 | 6TH - 12TH APRIL 2018 | UTILITY WEEK P R E S E N T S

• Cover