23/02/2010

CRC Energy Efficiency Scheme starts in April

April 2010 sees the start of the Government’s flagship carbon trading scheme called CRC Energy Efficiency Scheme. CRC is a mandatory scheme for large business that aims to improve energy efficiency and reduce the amount of carbon dioxide emitted in the UK. Its vital to the Government’s target to reduce greenhouse gas emissions by 2050 by at least 80% compared to 1990 baseline.

CRC will operate as a ‘cap and trade’ mechanism, providing a financial incentive to reduce energy usage by putting a price on carbon emissions from energy use. Companies will have to purchase allowances initially sold by the Government for £12 per tonne of CO2

Only those companies who used more than 6000 MWh during 2008 will be required to participate, this includes, of course, virtually all water companies. Any company that used the half hourly electricity market in 2008 will have to disclose information on their energy usage.

The CRC introduces a new reality for companies. Although initially the carbon price is set too low to make a significant difference its inevitable the price will ramp up with time. Companies would be well advised to start considering now what the implications are for their business.

22/02/2010

Sustainable Urban Drainage legislation progresses

Photo: Kettering Borough Council
Last week saw the final meeting of the All Party Group for Sewers and Sewerage of this Parliament. It was chaired by Paddy Tipping MP who has done so much to promote the interests of the sewage industry. At the meeting Defra outlined progress with the Sustainable Urban Drainage (SUD) proposals incorporated in the Flood and Water Management Bill currently going through Parliament.

Currently the expectation from Defra is that the provisions for SUD will come into force in 2011. The regulations will establish a SUD approval body. These will be formed by each Local Authority or Unitary body. It is envisaged that in future when a developer applies for planning permission they will at the same time seek SUD approval. Statutory consultee’s on SUD will include the Environment Agency, Highways Agency, British Waterways and Internal Drainage Authorities. The enforcement procedure is likely to mirror the current planning regulations system.

Currently an amendment to the bill is being debated that would set in legislation timescales for SUD approval being granted. Some important aspects of the proposals are still not clear such as who will own the drain from each property to the SUD facility, it could be the householder, local authority or water company.

The plans raise serious concerns over whether local authorities will have the resources and capabilities to undertake their new responsibilities especially in the current climate of cutbacks in public expenditure. Without explicit funding the new plans will be to no avail. 

03/02/2010

Infrastructure Planning Commission starts work

The Infrastructure Planning Commission (IPC) is a new body which will decide on planning applications for Nationally Significant Infrastructure Projects including reservoirs and sewage treatment works. It was setup to overcome the debacle over planning for projects like Heathrow Terminal 5. It is designed to simplify and speed up to the planning process to about 24 months.

The blog was recently in discussion with Sir Michael Pitt the Chairman of the IPC. He said: “its important for everyone to recognise that the new planning system introduced by the 2008 planning act is utterly different to the old process”.  There is a much greater emphasis on very high quality pre-application work and effective consultation with communities. The IPC will expect applicants to have thoroughly investigated alternatives and tailored their consultation to the needs of the population in the affected area.

The Local Authorities still have an important role on advising on the pre application consultation and whether it has been effective. The IPC is terrified of being subject to Judicial Review, consequently in the first few years it will be very cautious in its approach and not take risks with the process.

This has significant implications for promoters of major projects. The IPC will not advise on whether it thinks the consultation process undertaken by the promoter has been acceptable until the application is formally received. This may be 18 months after consultation starts. Sir Michael Pitt said: “Promoters are typically major companies with significant resources and professional staff. As a consequence the IPC expects them to recognise if their consultation process has been inadequate”. There is consequently the risk of having to start again if the initial consultation is not adequate which will both delay major schemes and leave the community in an extended period of uncertainty.

All Water Companies accept price limits except Bristol Water


All the water companies except Bristol Water have accepted the Final Decision. Why was this when early signals were that number including Thames and Southern were very unhappy with the Draft and Final Determination?

The step change came in December when Ofgem published its decision on pricing in the electricity and gas market called Distribution Price Control Review 5. This allowed a cost of capital going forward of 4% post tax compared with the 4.5% allowed by Ofwat. The blog understands that this was the major factor in influencing the water companies to accept Ofwat’s Final Determination. None except Bristol were willing to risk the Competition Commission and the chance it might say the cost of capital should be reduced! 

Bristol Water are appealing because they believe the risk to customers implicit in the Ofwat determination is too high. They are particularly concerned at the low level of asset replacement equating to a water main life of 300 years. The other major factor is the fallout from the loss of water supply for 2 weeks in Gloucester after the 2007 floods. For several major population centres Bristol Water is dependent on a single source of supply and is consequently concerned about the impact on customers of a major failure.

01/02/2010

Bid for Northumbrian Water Group


Northumbrian Water shares leap today after the Sunday Times broke the news that Ontario Teachers’ Pension Plan may bid 1.7 billion pounds for the water utility. Northumbrian jumped almost 13% and Severn Trent plc and United Utilities both gained about 5%.

The Canadian Teachers Pension Fund already owns 27% of Northumbrian Water putting it in a strong position. Despite the tough Ofwat ruling water companies are attractive to pension companies as they offer very stable, low risk income streams. The Canadian Pension Plan is a major stakeholder in Anglian Water Group. 

Infrastructure funds and pension groups are good partners for water companies as they tend to be long term investors content to let management run the business provided they deliver stable cash generation. The certainty they provide encourages long term decision making and investment where it will protect or enhance the asset base. The evidence from Anglian Water and Yorkshire Water is that having a pension company as stakeholder does not inhibit innovation instead it encourages investment where there is a clear return to stakeholders and high operational performance.