A separation along the lines implemented in Scotland would benefit investors: the key is the commitment to do no detriment to the wholesale business. Under this approach, investors would see improved performance by both the wholesale and retail sides of the business and the financeability of the wholesale business would improve.
In Scotland:
- No adjustment was made to the regulatory capital value;
- The retailer pre-paid wholesale charges and bore all the bad debt risks;
- There was no change to the allowed for cost of capital in the wholesale business; and
- And again, I should emphasise, we had a statutory duty not to do detriment to the core business of Scottish Water.
And let’s not lose sight of my earlier point about capturing economies of scale. The capital markets would seem likely to exploit the economies of scale within retailing that would likely be offered up if the same retail framework were introduced down here.
So investors see the opportunity for real value creation and at the same time, customers begin to benefit from improved service, lower costs and more tailored offerings. And this could reasonably be expected to improve willingness to pay, which, in turn reduces costs. A virtuous circle indeed!