CMA orders joint appeals on cost of capital in energy

The Competition and Markets Authority (CMA) has granted permission to energy networks to appeal their final determinations for the RIIO2 price controls starting today (1 April).

Appeals were sought by all of the electricity and gas transmission and gas distribution companies, with the main the point of contention being the allowed returns on equity, which Ofgem set at 4.3 per cent in real terms in its final determinations in December.

This incorporated a reduction of 25 basis points below the estimated cost of equity known as the outperformance wedge to reflect investors’ expectations that networks would exceed the baseline based on their past performance.

The CMA said permission for the appeals was granted subject to the condition that some of the common grounds of appeal are joined across appellants, namely the cost of equity, the outperformance wedge, ongoing efficiency and the licence modification process.

It said the appeals from National Grid’s electricity and gas transmission business will also be joined as requested.

Writing in Utility Week recently, former Ofgem partner Maxine Frerk said the large number of appeals will likely present a “headache” for the CMA.

Last month, the CMA issued its decision in the appeal of four water companies against their final determinations for PR19. Speaking in response, former Ofgem chief executive Dermot Nolan called for the appeals processes for energy and water to be “harmonised in some fashion.”