Jeremy's Blog 26th March 2021 - Utilities Infrastructure
This article by Jeremy Moody first appeared in the CAAV e-Briefing of 25th March 2021
Three recent decisions on utilities regulation are intended to enable more investment by them, resulting in more work on clients’ land.
Since their privatisation, the main utility companies, with their access to the consumer’s doorstep, have been closely regulated. Concerns about affordability and hostile press coverage has put a public focus on regulating the prices charged for water, gas, electricity and telephone lines. Ofwat, Ofgem, Ofcom and other regulators closely scrutinise spending plans, seeking to limit returns to companies and their shareholders. However, there seems a change in the wind, recognising the need for more investment.
A major, if often unrecognised, success of privatisation has been its ability to deliver sustained investment, drawing on private capital markets outside the vagaries of government policy and financial management. When public finances are under pressure, capital spending is the easiest part to cut swiftly. Maintaining and upgrading pipes rarely achieves a sustained priority. The demands of connectivity, climate change and the economy’s need for improved infrastructure for future growth all increase the pressure for investment.
Electricity – The first decisions were in response to appeals by National Grid and SSE (with Scottish Hydro) against the way Ofgem had reduced their forward budget. Their objection was that their investment programmes (National Grid having some 10,000 projects) had not been properly recognised. The result was a modest but significant increase in the rate of return allowed. With electricity demand doubling for 2050 and renewable generation across the country the need will be for new, better cables from everywhere to everywhere.
Water – A similar outcome from appeals by Northumbria Water (with Anglian Water) and others resulted in a modest increase in allowed rates of return for the investments needed for future water supplies in response to climate change, development and regulatory standards.
Fibre – In a more striking change, Ofcom is now allowing BT several years of freedom over charging for access to fibre to support the long-demanded radical improvement in connectivity across the country, now putting BT to proof of its capacity to deliver that new fibre.
The transfer of value by the new Electronic Communications Code from site providers to mast operators (rather than network operators, tending now to use rather than own masts) could be seen to fit this model by rewarding investment in masts.
The common outcome is more work across rural land with infrastructure not just for the nation but also for the power and connectivity needed by the rural economy.