Ofgem’s proposal to reopen the RIIO price settlement for electricity networks wiped 20 per cent off Western Power Distribution’s (WPD’s) share price, according to chief executive Robert Symons.
In an exclusive interview with Utility Week, Symons, who recently took over the chairmanship of the Energy Networks Association (ENA), attributed the recent fall in owner PPL’s share price directly to Ofgem’s inclusion of “option three” in its consultation on whether to hold a mid-period review (MPR) of RIIO. Option three of the consultation means reopening “financial and incentive performance and design” – effectively, how much profit the networks make.
Warning of the impact this has on investor confidence, Symons told Utility Week: “Our investors are in the States, and their regard for UK regulation was exceptionally high up until the MPR consultation. They regarded the UK jurisdiction as one of the best in the world, mainly because it gave investors stability over a period of time. As soon as an agreement looks as though it’s going to be turned on its head, which option three of the MPR really states, that creates great uncertainty for them. If I take my own company, at least 20 per cent has been knocked off the stock price because of that uncertainty.”
In a warning for Ofgem, which is currently setting the framework for the next round of RIIO amidst widespread criticism that the current settlement is too generous, Symons said: “Discussions or debates about excess profits, which in themselves are a fallacy, and adjustments that could be made during an MPR melt into insignificance when you compare that to the effects of uncertainty – which are higher equity and financing costs in the future, resulting in higher costs for customers.”
WPD is owned by US energy company PPL, which is listed on the New York Stock Exchange. Its share price dropped from $36.67 on 30 November, the day before Ofgem released its consultation, to $29.82 at the time of going to press.
Ofgem’s consultation on the mid-period review closed on 2 February.