UK's CMA Provisionally Upholds Cuts to Energy-Network Returns -- Update
August 11 2021 - 4:29AM
Dow Jones News
By Jaime Llinares Taboada
U.K. power and gas network companies face lower returns over the
next five years after the U.K. Competition and Markets Authority
provisionally upheld new rules by energy regulator Ofgem that lower
regulated profits for the April 2021-March 2026 period.
The CMA on Wednesday published a provisional decision on new
rules following appeals by the infrastructure companies. Ofgem in
December decided to cut allowed returns for 2021-2026 compared with
the previous regulatory cycle.
The CMA said that Ofgem's decision on the allowed cost of
equity--an important ratio measuring allowed returns on
investment--wasn't wrong. Its final report is due by the end of
October.
The regulation will affect network infrastructure owners such as
National Grid PLC, SSE PLC and ScottishPower's owner Iberdrola
SA.
The CMA's provisional decision is a negative outcome for
National Grid and SSE, and is likely to disappoint investors, said
John Musk, analyst at RBC Capital Markets. U.K. regulated networks
make up just under 50% of National Grid's earnings before interest
and tax--including the recently acquired WPD business--, and around
40% for SSE, Mr. Musk said.
Shares in National Grid at 0903 GMT were down 1.0% at 942.3
pence. SSE was down 0.4% at 1,607.5 pence.
National Grid said it was disappointed that the CMA's decision
wasn't in favor of the appeals against the cost of equity.
SSE said that Ofgem's cost of equity is flawed and doesn't
reflect the risks associated with the investment needed in
electricity transmission. It also said that the CMA's decision
differs from its own approach for the water industry.
The 4.55% cost of equity ruling is lower than the 4.76%
consensus expectation, given that it was widely anticipated that
the CMA would deliver a return similar or in excess to that of
water companies, said Jenny Ping, analyst at Citigroup.
Write to Jaime Llinares Taboada at jaime.llinares@wsj.com;
@JaimeLlinaresT
(END) Dow Jones Newswires
August 11, 2021 05:21 ET (09:21 GMT)
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