The CMA has set the headline rate of return for water companies at 3.2%, compared with 4.67% in the previous price control period, approximately 3.6% proposed by the water companies and 2.96% proposed by Ofwat.
The CMA said it had also provided increased allowances to pay for improvements in some priority areas such as security of supply and leakage and maintained strong incentives on the companies to improve cost efficiency and service quality and reduced companies’ exposure to future costs that may be beyond their control.
It said that if accepted the return to investors will be 32% lower than the last price control period, 9% lower than the Group’s provisional findings and approximately 12% lower than the rate proposed by the water companies.
But CMA said it had reversed an adjustment by Ofwat that would increase revenues for three out of four of the companies by bringing forward revenue from future price control periods, and to pass this charge to bill-payers.
Nine energy networks are appealing Ofgem’s so-called ‘final determination’ of t how much the companies can charge their customers and what they have to deliver in the next five-year price control period. These changes are a result of the RIIO-2 price control decision issued in December 2020 by Ofgem.
The appeals to the Competition and Markets Authority (CMA) largely focus on the allowed return on investment and the way Ofgem calculated the costs the companies would spend on maintaining and investing in their networks, CMA said.
The nine firms seeking permission to appeal are:
- Cadent Gas Limited
- National Grid Electricity Transmission plc
- National Grid Gas plc
- Northern Gas Networks Limited
- Southern Gas Networks plc and Scotland Gas Networks plc (joint application)
- Scottish Hydro Electric Transmission plc
- SP Transmission plc
- Wales & West Utilities Limited
The CMA has 14 working days to decide whether to grant the firms permission to appeal, extended to 20 working days if the CMA needs to consider any submission from Ofgem.
If permission is granted, the CMA will have 6 months to come to a final view on the appeals.
NGN said its appeal would centre on: Ofgem’s approach to calculating the Cost of Equity; the inclusion of an Outperformance Wedge; ongoing efficiency; and the level of incentive offered to the Frontier Company.
WWU said that the level of revenue allowances “are inadequate to deliver our business as usual services and our long term investment”. It had particular concerns over the amount and certainly of allowances for the long term investment programme “which is essential to deliver safe and reliable services for customers and a Net Zero ready network for the future”. WWU also says revenue allowances for cost of capital are inadequate.
National Grid accepted the overall package for its Electricity System Operator business.
It said it “broadly accept[ed] most of the package for the Electricity and Gas Transmission businesses” and welcomed “significant movement in total expenditure (“totex”) allowances and greater flexibility around future net zero investment”, Its CMA appeal is with regard to Ofgem’s proposed cost of equity and outperformance wedge.
Follow the appeal here