[ET Net News Agency, 8 November 2019] HSBC Global Research on 5 November hosted a video
conference with members of Ofgem (Office of Gas and Electricity Markets) - the UK energy
regulator - to have a dialogue with investors.
The UK energy utilities are subjected to regulated returns. The current regulation for
utility pricing, RIIO-1, has been in place for 4-6 years. Ofgem is developing a newer
regulation known as RIIO-2 for implementation in the next resets during 2021-23, which is
commonly believed to result in lower electricity and gas prices for consumers.
Proposals by the opposition Labour party include the creation of a National Energy
Agency, which would take over certain functions currently carried out by Ofgem, and the
renationalization of UK utilities, potentially at a valuation significantly below the
stated Regulated Asset Value (RAV).
HSBC acknowledged the uncertainties around utility regulations in the UK but it believes
most risks are already in the price of CK Infrastructure Holding (CKI)(01038). It said
CKI's solid FCF (free cash flow) capability offers a better upside to dividend or M&A
catalysts than its associate Power Assets Holdings (PAH)(00006), which is facing earnings
contraction due to project expirations in mainland China and a cut in permitted returns in
Hong Kong. (KL)