From the director…
Welcome to Pipes & Wires #66
… especially to our new readers. This issue is jam-packed with summaries and
analysis of regulatory policy changes, regulatory determinations, deals and
industry restructurings – there is so much happening it was a bit hard to know
when to stop writing.
I’d like to wish you and all your
loved ones a very Merry Christmas and a Happy New Year. Pipes & Wires will
hopefully be back sometime in February when it seems there will be a whole more
to write about.
About Utility Consultants
Utility Consultants Ltd is a
management consultancy specialising in the following aspects of energy and
infrastructure networks…
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To be sent a detailed profile of
recent projects, pick
this link.
NZ – matters requiring attention
Review of Part 4A of the Commerce Act 1986
Refer to full article below.
Requirement to facilitate connection of distributed generation
The Electricity
Governance (Connection of Distributed Generation) Regulations 2007 came
into force on 30 August 2007. For more information or
just to chat about how your company can comply, pick here.
Requirement to implement a public safety management system (PSMS)
The Electricity Amendment Act
2006 and the Gas Amendment Act 2006 both spell out the requirement for Safety
Management Systems. These Acts set out what any Regulations made under the
respective Acts must include and what it may include. If you
would like further information or simply to chat about how a PSMS might work
for you, pick here.
Commerce Commission initial thoughts on 2009 price re-set
The Commission expects to release
its preliminary thoughts on the 2009 price re-set anytime now.
Review of Government Policy Statement on Electricity
The GPS on Electricity is being
updated and revised to reflect the NZ Energy Strategy. A draft for consultation
is expected in late January or February.
Section 62 (Obligation to continue supply) review
A cabinet decision was expected
by the end of this calendar year, with any legislative changes expected to
follow in the 2008 calendar year.
Review of information disclosure regime
The Commerce Commission intended
to issue a consultation package on the information disclosure regime around 14 December
2007 in anticipation of the revised Requirements being available in late March
2008. Read
the full notice.
Proposed change to ODV disclosure date
The Commerce Commission does not
intend requiring electricity lines businesses to undertake a full ODV update as
at 31st March 2008, but proposes instead that this be deferred until
31st March 2009. Read
the full notice.
Transmission for renewables
Following the introduction of a
target of 90% of electricity being generated by renewables by 2025, the
Electricity Commission has embarked on a Transmission
to Enable Renewables program that will include an explanation of how Part F
of the Electricity Governance Rules might work, and a renewables map that will
feed into the next Statement Of Opportunities.
Low Fixed Charge Regulations
The MED has re-opened consultation
on the draft Regulations to give interested parties the opportunity to
comment on how well the draft Reg’s would give effect to the amendments in the
Electricity Act (but not to comment on the merits of the policy decision to
amend the Act). Submissions close on 25 January 2008.
Regulatory policy
NZ – review of Parts 4, 4A and 5
of the Commerce Act
Introduction
The
long-awaited conclusions of the review of Parts 4, 4A and 5 of the Commerce
Act 1986 were released in late November.
This article firstly recaps the importance of this Act and then examines the
key recommendations of the Cabinet Paper.
The importance of the Commerce
Act 1986
The
purpose of the Act is to promote competition in markets within New Zealand. The
segments of the Act relevant to this article are…
·
Part 4 broadly provides for the control of prices of goods or
services for which competition is limited.
·
Part 4A sets out the regulatory framework for electricity lines
businesses.
·
Part 5 describes the authorisations and clearances that may apply
to such matters as mergers and takeovers, and restrictive trade practices.
Details of the review
The
Minister of Commerce announced in May 2006 that Parts 4 and 5 of the Act would
be reviewed. In September 2006 Cabinet agreed to a recommendation to include
Part 4A in the review as well in order to keep Part 4A consistent with the
provisions of Parts 4 and 5.
Key aspects of the recommended
changes
Key
aspects of the Cabinet Paper are as follows…
·
Para 21 – it was generally agreed that a Purpose Statement should
be included in Part 4, similar to the Purpose Statement in Part 4A. However
there was no consensus on suitable wording.
·
Para 22 – a suggested Purpose Statement for Part 4 includes “have
incentives to innovate and to invest, including in replacement, upgraded and
new assets and in related businesses” (Readers may recall there was talk of
amending the Part 4A Purpose Statement with a similar phrase – Phil).
·
Para 24 proposes that a wider range of regulatory instruments
being allowed, including a negotiate/arbitrate regime.
·
Para 32 noted that the discussion paper proposed that input
methodologies be set out in a stand-alone up-front process (presumably similar
to the National Third Party Gas Access Code – Phil).
·
Para 34 noted the views of most submitters that the input
methodologies should be subject to a merits review process.
·
Para 63 recommends that 100% trust-owned electricity lines
businesses be subject to information disclosure only.
·
Para 65 recommends that provision be made for regulating a 100%
trust-owned lines business if a “substantial proportion” of its customers
petition the Minister.
·
Para 67 states that this approach would cover 17 lines businesses,
and refers to Appendix D.
·
Para 69 proposes several transitional arrangements for the other
11 lines businesses.
·
Para 74 proposes that the responsibility of administering Part 4A
in regard to Transpower remain with the Commerce Commission.
·
Para 79 recommends that all gas pipelines except Nova Gas and the Taranaki pipelines be subject to a “default / customized
price path regime” and that Powerco and Vector transfer to this regime at the end of the current regulatory
period.
As the
recommendations progress toward legislation, Pipes & Wires will make
further comment.
Disclaimer
This
article is of necessity brief and provides a summary only. Accordingly readers
should consider the Cabinet Paper in its entirety before taking any action.
NZ – clearing the way for lines
company generation
Introduction
The
current government intends to further relax some of the prohibitions on lines
companies being involved in generation (known within the industry as “EIRA
Prohibitions”). This article examines the Electricity Industry Reform Amendment Bill which was introduced to Parliament on 4 December 2007.
Background
The
Electricity Industry Reform Act 1998 inter
alia required lines and energy businesses to be separate, and broadly
prohibited lines businesses generating more than a few GWh per year. Further
restrictions on retailing and hedging energy further limited the usefulness of
such generation.
However
the last nine years have highlighted a number of issues with these
prohibitions, not the least being that lines businesses are the most logical
owner of many localised generation opportunities as such opportunities can not
only provide much needed generation, they can also defer or avoid transmission and
distribution investment.
Key policy objectives of the
amendment bill
The bill
embodies the following three key policy objectives…
·
Make it easier for owners of lines businesses to sell the output
of generation they are allowed to own under the 2001 and 2004 amendments to the
EIRA 1998.
·
Narrow the scope of ownership separation requirements to focus on
geographic areas where there is the potential for market power or
anti-competitive behavior.
·
Amend the definition of renewables to include all renewables
including hydro and geothermal, and not just “new renewables” to better reflect
the current governments’ emphasis on renewable energy.
The Bill
also embodies the following specific principles…
·
Lines
companies will be able to retail up to name plate generation capacity within
their own networks, notwithstanding the last remaining provisions of the arms
length rules
·
There
will be no limit on hedging activities for generation within the network area
·
For
generation owned by a lines company outside its network area there will be no
restrictions at all on retailing
·
Electricity
companies with generation greater than 400 MW cannot own lines companies and
operate under these provisions.
Disclaimer
This
article is not intended as specific legal advice, but further inquiries are welcomed. Utility Consultants takes no responsibility for
actions or failure to act on the basis of this article.
Aus – NSW & ACT electricity distribution
re-set guidelines
Introduction
In
November 2007 the Australian Energy Regulator (AER) released two consultation papers setting out its preliminary
positions on various aspects of the electricity distribution price controls
that will apply in New South Wales and the Australian Capital Territory for the
five year control period commencing on 1 July 2009. This article examines the
AER’s positions on those issues.
AER’s preliminary positions
The
following table sets out the AER’s preliminary position on various issues…
|
Issue |
AER’s preliminary
position |
|
Post-tax
revenue model |
· Capital
contributions will be netted off forecast CapEx for determining return on
capital. · Capital
contributions will be included as assessable income in the year received for
determining tax liability. · Assets
resulting from capital contributions will be included in the tax value of assets. |
|
Roll
forward model |
· Needs
to recognise the ICRC’s
approach for ActewAGL. · Needs
to recognise the transitional rules for the NSW distributors. |
|
Sharing
efficiency gains |
· Both
ActewAGL and the NSW distributors will be subject to an efficiency benefits
sharing scheme developed under Chapter 6A, but which will not have a direct
financial impact before 2014. |
|
Service
target incentives |
· Proposes
to implement a “paper trial” service target incentive scheme for the next
control period that would not have financial impacts. |
|
Direct
control services |
· Proposes
to continue the approaches used by the ACCC, ICRC and IPART for
the current control period. |
|
Demand
management incentive scheme |
· Considers
that the D-factor introduced into the current price control by IPART provides
a practical starting point for the NSW distributors. · Does
not believe it would be appropriate to introduce a D-factor incentive scheme
for ActewAGL for the next control period. |
|
Control
mechanism for alternative control services |
· Expects
to continue the existing form of control for ActewAGL. · Appears
that the form of the Excluded Services Rule may be inconsistent with the
requirements of the transitional Rules for the NSW distributors. |
|
Determining
materiality of pass-through events |
· Consider
adopting a percentage threshold of a relevant revenue allowance consistent
with the ICRC’s and IPART’s approaches. |
The AER is
seeking submissions on the first five issues by 7th January 2008
(submissions on the last three issues closed on 10th December 2007 -
Phil). As the AER gathers the industry’s thoughts and clarifies its own
thinking Pipes & Wires will make further comment.
Regulatory
determinations
Aus – draft SA electricity transmission determination
Introduction
Pipes
& Wires #61 examined the proposed revenue cap submitted to the Australian Energy Regulator in May 2007 by ElectraNet for the South Australian
electricity transmission grid for the control period 1 July 2008 to 30 June
2013. This article examines the AER’s draft determination which was released in
November 2007.
Key features of the draft determination
The following table compares the
AER’s draft determination with that sought by ElectraNet…
|
Parameter |
Sought by ElectraNet |
AER draft determination |
|
CapEx |
$778m. |
$606m. |
|
OpEx |
$324m. |
$291m. |
|
Opening asset base |
$1,277m. |
$1,220m. |
|
WACC |
8.79%. |
9.66%. |
Next steps
The AER will receive submissions
on the draft determination until Monday 18 February 2008. Pipes & Wires
will make further comment when the final determination emerges.
Aus – ACCC declines revised GasNet Access Arrangement
Introduction
In April 2007 GasNet submitted a revised Access Arrangement
(AA) to the Australian Competition &
Consumer Commission (ACCC) for its Victorian gas transmission pipelines for
the period 2008 to 2012 (known as AA3). This article examines the ACCC’s draft
decision of November 2007 to decline that revised AA.
Background
GasNet owns and maintains the
Victorian Principal Transmission System (PTS), whilst day-to-day operations are
overseen by the Victorian Energy Networks
Corporation (VENCorp). Previously both GasNet and VENCorp were required to
submit proposed AA’s, but legislation recently introduced in Victoria has
removed the requirement for VENCorp to submit an AA. Instead VENCorp will need
to operate the PTS in accordance with the Market & System Operations Rules.
Key features of GasNet’s proposed AA3
Key features of the proposed AA3
included…
·
A step increase from $0.29/GJ to $0.40/GJ at the start of AA3 (ie.
a P0 of -$0.11/GJ).
·
An annual increase of 2.8% above inflation (ie. an X of -2.8%).
The principal reasons for the
proposed tariff increases include a 30% increase in operating costs, a 400%
increase in capital costs and a 2% decrease in gas throughput.
Key reasons for the ACCC’s draft decision
Whilst the ACCC has accepted much
of GasNet’s reasoning, it has rejected the following aspects…
·
GasNet had proposed $334m of CapEx during AA3 whilst the ACCC has
concluded that only $93m of this can be justified under the Gas Code.
·
The ACCC accepts many of the individual cost increases proposed by
GasNet but believes that GasNet has neglected to include the reductions in
corporate overheads arising from the acquisition by the Australian Pipeline Trust in 2006.
·
The ACCC broadly agrees with GasNet’s proposed annual and peak
volume forecasts (that are about 2% less than for AA2) except for the estimates
of gas-fired generation throughput and anytime withdrawal volumes.
More pleasingly, the ACCC has
concluded that a nominal vanilla WACC of 9.38% would be appropriate, an
increase from the 9.01% proposed by GasNet. It is also noted that the ACCC
believes that GasNet’s proposal to limit its volume risk exposure vis-a-vis the
fixed cost nature of its business is consistent with the Gas Code.
After considering submissions on
the draft determination, the ACCC expects to publish its final decision in
February 2008. Pipes & Wires will make further comment around that time.
UK – final gas distribution proposals
Introduction
The current UK gas distribution
price control expires on 31 March 2008 after being given a 12 month extension
to bed in the sell-down of National
Grid Gas’ regional networks. After considering OFGEM’s Initial Proposals (May 2007) and
Updated Proposals (September 2007), this article considers the Final Proposals
that were released in early December 2007.
Background
Pipes
& Wires #60 set out OFGEM’s initial thoughts that proposed to reduce
OpEx, new CapEx and RepEx by 17%, 17% and 18% respectively over the coming
control period. The updated proposal relented slightly with OpEx and RepEx but
proposed to reduce new CapEx further still.
Key features of the final proposal
Key features of the Final Proposal
in comparison with OFGEM’s Initial and Updated Proposals are…
|
Parameter |
Industry totals |
||
|
Initial Proposal |
Updated Proposal |
Final Proposal |
|
|
OpEx |
£598.0m |
£628.0m |
£663.8m |
|
Growth CapEx |
£328.2m |
£319.2m |
£339.1m |
|
RepEx |
£654.0m |
£678.0m |
£722.0m |
|
Opening asset value |
£11,682.4m |
£11,715.2m |
£11,716.2m |
|
Pre-tax WACC |
4.2% |
4.2% |
|
|
Vanilla WACC |
4.84% |
4.84% |
4.94% |
This pretty much brings Pipes
& Wires coverage of the current GDPCR to a close. However Pipes & Wires
will be returning to the UK very soon to examine OFWAT’s early work on the 2010 – 2015 water
and sewage price controls.
Aus – draft VENCorp electricity transmission decision
Introduction
In March 2007 the Victorian Energy Networks Corporation
(VENCorp) submitted its proposed revenue and negotiating framework to the Australian Energy Regulator for the control
period from 1 July 2008 to 30 June 2014. VENCorp then submitted its pricing
methodology in June 2007. This article examines the role that VENCorp plays in
the Victorian electricity industry, and then considers the AER’s draft
decisions in regard to VENCorp’s proposals.
Clarifying VENCorp’s role
Transmission asset ownership and
investment decision making are separated in the Victorian industry, a situation
that is unique in the National Electricity
Market. SP Aus-Net and Murray Link own and operate the
transmission grid assets and provide bulk transmission services to VENCorp by
agreement. VENCorp itself doesn’t own any assets but is responsible for
planning and directing augmentation of the transmission grid.
Hence the revenue control that
applies to VENCorp relates to its OpEx, planned and committed augmentation
charges, prescribed service charges payable to SP Aus-Net and Murray Link and
any adjustments due to accumulated surpluses or deficits from the current control
period.
Key features of the draft decision
Key features of VENCorp’s
proposals and the AER’s draft decision are…
|
Parameter |
Sought by VENCorp |
AER draft decision |
|
Nominal revenue |
$405m in 2008/09 rising to $565.7m in 2013/14. |
$373.08m in 2008/09 rising to $516.85m in 2013/14. |
|
Nominal OpEx |
$44m. |
$39.37m. |
|
Committed augmentation charges |
$148m |
$125.16 |
|
Nominal planned augmentation charges |
$63.21m |
$46.18m |
|
Prescribed service charges |
$2,604.50 |
$2,534.41m |
|
Accumulated surplus or deficit |
|
Removal of a nominal $25.19m surplus expected to be accumulated
by end of current period |
|
Maximum allowable aggregate revenue |
$2,889.80m |
$2713.93m |
|
Proposed negotiating framework |
|
Only one aspect of VENCorp’s proposal was determined to be
inconsistent with the NER. |
|
Pricing methodology |
|
Concluded that the proposed methodology referred to a number of
NER requirements that are no longer relevant, and must therefore submit a
revised methodology. |
The AER will be receiving
submissions on this draft determination until 19th February 2008.
Pipes & Wires will make further comment probably around April 2008 once a
final decision emerges.
Aus – Energy Australia seeks revocation of revenue cap
Introduction
In May 2007 the Australian Energy Regulator (AER) received a
request from Energy Australia for a
revocation and substitution of its revenue cap. This article examines the
context for revocation and substitution, briefly recaps the revocation and
substitution recently sought by TransGrid,
and considers the reasons put forward by Energy Australia.
Context for revocations & substitutions
The context for considering
Energy Australia’s request is Sections 6.2.4(d) and (e) of Version 9 of
the National Electricity Rules. In particular Section 6.2.4(d) sets out the
following three situations under which the AER may revoke a revenue cap…
·
The cap was set on the basis of false or materially misleading
material provided to the AER.
·
There was a material error in setting the cap and all
affected parties have given written consent for the AER to re-open the cap.
·
There is a substantial chance of ownership of assets within the
transmission business which may lead, in the opinion of the AER, to a change in
revenue requirement.
Section 6.2.4(e) provides for the
AER to substitute a new cap for the remainder of the control period.
Recap of the TransGrid revocation and substitution
Readers may recall that Pipes
& Wires #57 examined TransGrid’s request for revocation and
substitution of its revenue cap for the control period 1 July 2004 to 30 June
2009. TransGrid believed that the ACCC
had adopted a debt margin that would lead to a revenue shortfall of $27.56m
over the control period and sought a variation in its revenue cap from CPI +
2.93% to CPI + 4.99%.
Basis for Energy Australia seeking revocation and substitution
Energy Australia sought a
revocation and substitution of its current revenue cap on the following bases…
·
That debt financing data provided to the ACCC was either false or
materially misleading for the purpose to which it was applied.
·
That the ACCC materially erred in substance by using this data
with no adjustment despite having received advice from Energy Australia that
using such unadjusted data would understate its debt financing costs.
·
That the ACCC materially erred in process by failing to consider
Energy Australia’s concerns.
The AER’s process
The Rules require the written
consent of affected parties to be obtained before a revenue cap may be revoked.
The AER believes that TransGrid and Country
Energy are affected parties and has sought their confirmation of whether
they see themselves as affected parties, and if so whether they would consent
to the re-opening of Energy Australia’s revenue cap. No objections to the re-opening were received
within the allowed period. The AER expected to release a decision by the end of
this year, so Pipes
& Wires #67 will hopefully be able to make further comment.
Privatisations
Aus – privatising the NSW generators
Introduction
In what many may consider a rather
surprising move, the cabinet and caucus in the Australian state of New South
Wales voted in early December to sell the state-owned electricity retailers and
to lease the state-owned power generators to the private sector. This article
examines the Owen
Report which recommended the sale, and exactly what will be sold and
leased.
The Owen Report
A key focus of the Report by Prof
Tony Owen of Curtin University was to assess the future requirements for
base load generation requirements in NSW, and in particular identifying the
most efficient means of funding that investment.
Prof Owen’s key finding is that
NSW will need additional base load generation in 2013/14, and that the most
efficient way to do this is to improve the commercial and policy signals to the
private sector. His recommendation is that the state divests itself of all
ownership of both retail and generation.
The state government’s response
Not surprisingly, any talk of
privatisation evokes heated responses from the community, ranging from
resounding support from the business lobby (who want improved security of
supply) to strong opposition from the rural lobby (who want low prices). The
promise of a spend-up to improve water, health and transportation
infrastructure and the promise that new generation will not be a cost to
the taxpayer seems to have softened opposition but it is interesting to note
that the government will only lease the generators (not sell them out-right)
and will not remove retail price caps in 2010 as recommended by the Owen
Report.
It will be interesting to see
whether the sale of the retail businesses prompts the same feeding frenzy that
the sale of Sun Retail and Power
Direct in Queensland caused. Pipes & Wires will make further comment if
and when it does.
Energy markets
Ireland – progress on the Single Electricity Market
Introduction
Pipes
& Wires #61 discussed the build-up to the Single Electricity Market in the
Irish Republic and Northern Ireland. This SEM kicked off on 1 November, and
this article briefly considers its opening weeks.
Background
The core of the SEM is a pool
into which all electricity generated must be sold into, and all electricity
consumed within or exported from Ireland must be purchased from. The operation
of the SEM will be jointly managed by the grid operators in each jurisdiction, EirGrid and SONI respectively.
The opening weeks of the SEM
Several weeks on from the
official kick off all seems to running smoothly and already Scottish & Southern Energy
have decided to enter the SEM (which is undoubtedly more attractive as a single
market than as two separate markets) to challenge the dominant players.
On the political front, the Minister of
Energy, Nigel Dodds noted that the SEM represents a new phase in Northern
Ireland’s relationship with Europe, and is a big step in the development of a
UK – Eire – France reciprocal electricity market. Pipes & Wires will make
further comment as the SEM unfolds.
Mergers,
acquisitions & take-overs
US – progress on the Energy East acquisition
Introduction
Pipes
& Wires #63 discussed Iberdrola’s
€3.4b cash and €3b debt bid for Energy
East, which was of course hot on the heels of Iberdrola’s successful
acquisition of ScottishPower
earlier in 2007. This article briefly examines progress on the Energy East
deal.
Progress on the deal
Last month (November) Energy East
shareholders voted overwhelmingly in favor of the deal proceeding subject to
state and federal regulatory approval. In early December the FERC concluded that the proposed deal would not
raise any vertical or horizontal market power issues. However approval is still
awaited from the five state utility regulators (New York, Maine, Massachusetts,
New Hampshire and Connecticut).
Iberdrola’s strategy
Now that Iberdrola is among the
largest utilities in Europe, it sees Energy East as a good way to tackle the
eastern US market in concert with its presence in the western US through
ScottishPower subsidiary PPM Energy.
Moreover Iberdrola sees Energy East’s commitment to renewables as a strong
compliment to its own commitment (and it appears that there may be tax
incentives somewhere amongst all this).
UK – sale of Yorkshire Water
Introduction
In the wake of Southern Water’s acquisition by a JP Morgan-led consortium, Pipes
& Wires #65 noted industry speculation that a few other UK water
utilities could become acquisition targets. This article examines the Saltaire
Water consortium’s successful 1,090p ex-dividend bid for Yorkshire Water’s owner, Kelda Group plc.
Background to the deal
One of Saltaire’s participants, Citigroup, recently commenced a new fund
to tap investors’ keen interest in the stable cashflows from regulated water
businesses. Saltaire’s interest pushed Kelda’s stock price up from 937p to a
high of 1,100.65p on the LSE
(a 17% jump) and then to a close of 1,055p. Gains around the 10% mark were also
recorded for Northumbrian, Pennon and Severn Trent suggesting a high level of
investor interest in water businesses.
Details of the deal
Saltaire Water Ltd will acquire
all the issued and to be issued capital of Kelda Group Ltd from all
shareholders for 1,090p cash. All shareholders who were on the Register on 7
December 2007 also received the interim dividend of 10.65p per share, making a
total consideration of 1,100.65p per share which represents a premium of 17.5%
to the closing price of 937p immediately before Saltaire’s offer on 21 November
2007 and a premium of 21.7% on the average trading price of 904.5p over the six
months prior to the offer.
The UK water industry is
obviously a hot space at the moment, so Pipes & Wires will make further
comment as deals emerge.
UK – United Utility sells wires business
Introduction
Bucking the trend somewhat with
its decision to retain its regulated water business, United Utilities plc recently announced the
sale of its regulated electricity business to North West Electricity Networks
Ltd. This article examines United’s background and the details of the deal in
the context of global utility investments.
Background
United Utilities began in 1995
when North-West Water acquired NORWEB
in what has been the most enduring merger of water and electricity in the UK.
Perhaps more importantly United has focused on the unregulated management and
operations of regulated businesses, including securing a £1.5b contract to
mange the NWENL network until 2015 with a further right of renewal until 2020.
United intends to retain the
regulated water business which has high organic growth prospects.
Details of the electricity sale
NWENL is backed by Commonwealth Bank of Australia and JP Morgan. Total consideration was £1.78b
including the assumption of £642m of debt. United expects to return about £1b
to shareholders.
The global investment waves
Global utility investments to
date have fallen into five identifiable waves as follows…
|
Wave |
Timing |
Direction |
Predominant strategy |
|
1st |
Late 1980’s |
European and US utilities
investing in Latin America. |
Positional, investigative |
|
2nd |
Early 1990’s |
US utilities investing in the
UK and in Victoria, Australia. |
Investigative, traditional,
transformational |
|
3rd |
Late 1990’s |
US utilities began to withdraw
from the UK and from Victoria, Hong Kong and Singaporean utilities invest in
Victoria, European utilities begin to merge. |
Positional, investigative, traditional |
|
4th |
Early 2000’s |
US withdrawal from New Zealand
and the UK, European investment in the UK and the US. |
Positional, traditional |
|
5th |
Mid 2000’s |
Continued consolidation of
European utilities through mergers, some backward integration into Russian
gas suppliers |
Positional, transformational |
Although this table has focused
more on electricity and gas than water, it is reasonably clear that a wide and
deep money trail from Australia to the UK is starting to emerge that could well
form a 6th wave.
UK – Spark goes on the prowl
Introduction
News emerged last month (November
2007) that Spark
Infrastructure was pursuing “an acquisition in the UK water sector” in
conjunction with one of its major shareholders. This article examines Spark’s
background and considers the possible deal ahead of it.
Background to Spark Infrastructure
Pipes & Wires #46 and #47
discussed the formation of Spark Infrastructure from Cheung Kong Infrastructure’s Australian
electricity businesses (ETSA
Utilities, Powercor and CitiPower). Spark listed at the end of
2005 and immediately recognised that it would need to pursue global
acquisitions because of its rather low organic growth prospects.
So what’s Spark up to ???
Although Spark are understandably
tight-lipped about what exactly they are pursuing, we can figure out that its’
not Kelda Group plc nor is it United Utilities electricity business (although
it is thought that Spark’s related party Cheung Kong Infrastructure may have
bid for it) or United Utilities water business (which they seem to be going to
hang on to because of its strong growth prospects).
Remaining possibilities could be Severn Trent Water, Northumbrian Water or Pennon. As usual time will
tell.
Romania – formation of an energy champion
Introduction
As Brussels becomes more insistent
on opening up Europe’s energy markets, individual member states are looking
increasingly to the formation of national energy champions to safeguard their
own security of energy supply. After considering Germany’s, Spain’s and
France’s efforts to form national energy champions this article considers
Romania’s attempt to form not just a national champion but a regional champion
after less than 12 months as a member state.
Background
Romania emerged from the
Communist era with a fragmented oil, gas and electricity sector. Not
surprisingly, one of the key issues currently before Romania is the political instability
in the neighboring former Soviet states through which much of Europe’s gas is
transmitted. Romania has therefore set itself some stretching nuclear and
renewable energy goals to generate 100,000GWh per year by 2020 both to reduce
dependence on imported gas and to become a nett electricity exporter.
The Romanian champion
The champion is likely to take
the form of a state-owned holding company under which all oil, gas and
electricity activities will be consolidated and which will also see about €35b
of investment. It is expected that the state will own between 25% and 40% of
the holding company, the investment fund Fondul Proprietatea will own a
further 20% and the remaining shares will be gradually listed on the Bucharest Stock Exchange. Finance & Economy
Minister Varujan Vosganian has indicated the eventual full privatisation of
the holding company whilst Prime
Minister Calin Tariceanu has suggested that the holding company will become
a dominant regional player similar to CEZ or ENEL.
CapEx – general interest stuff
Getting the CapEx right in the infrastructure sectors
This presentation was made at the
NZIGE Spring Technical Seminar in
September 2007. If you’d like a copy, pick here.
Renewals – (half) the hidden side of CapEx
This presentation was made at the
Electricity Networks Asset Management Summit in November 2007 on the broad
topic of asset renewals. If you’d like a copy, pick here.
PAS 55 – the emerging standard for asset management
To find out more about improving
your asset management activities through adopting the emerging global standard
for asset management PAS 55-1:2004 pick here
or call Phil on +64-7-8546541, or to request a Slide Show on implementing PAS
55-1 pick here.
Website promoting best practice CapEx
Utility
Consultants is pleased to announce the release of a specialist website
dedicated to promoting best practice CapEx policies, processes and planning in
the infrastructure sectors.
Assorted conference papers
Utility Consultants has recently
presented the following conference papers which are available upon request…
·
“Tariff
control of Pipes & Wires utilities – where is it heading??” – presented
at the NZIGE Spring Technical Seminar,
October 2006.
·
“Setting
service levels for utility networks” – presented at the Electricity Network
Asset Management Summit, November 2006.
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Disclaimer
These articles are of a general nature and
are not intended as specific legal, consulting or investment advice, and are
correct at the time of writing. In particular Pipes & Wires may make
forward looking or speculative statements, projections or estimates of such
matters as industry structural changes, merger outcomes or regulatory
determinations.
Utility Consultants Ltd accepts no liability
for action or inaction based on the contents of Pipes & Wires including any
loss, damage or exposure to offensive material from linking to any websites
contained herein.