TOP NEWS: National Grid plans to appeal some price control elements

(Alliance News) - National Grid PLC on Tuesday said it has accepted the overall package for the ...

Alliance News 2 March, 2021 | 11:57AM
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(Alliance News) - National Grid PLC on Tuesday said it has accepted the overall package for the electricity system operator under UK regulator Ofgem's RIIO-2 final determination, but will submit a technical appeal concerning the electricity & gas transmission package.

The FTSE 100 power grid operator said it broadly accepts most of the package for the electricity & gas transmission businesses but will appeal to the UK Competition & Markets Authority against Ofgem's plans for a cost of equity and outperformance wedge.

"We believe that the methodology Ofgem used to set the cost of equity ignores evidence for higher total market return and risk-free rate levels. We also maintain the view that the outperformance wedge, a downward adjustment to allowed returns in expectation of future outperformance, is conceptually and practically flawed. We were disappointed it remained in the final determination," National Grid explained.

Should the CMA accept to hear National Grid's appeal, then the six-month process will start in April with provisional findings likely around July and final determination in early October. This is based on timelines for similar processes, the company said.

National Grid said it is accepting the overall electricity system operator package under RIIO-2, the newest price control period following RIIO-1.

It said it was pleased by an increase in allowance versus draft determination and noted that the new package "will allow the critical investment required to maintain the resilience and reliability" of its networks. The FTSE 100 company also said it was happy with the increased flexibility in mechanisms to enable additional investment in the energy transition.

Overall, National Grid expects to invest around GBP10 million in capital expenditure through the five-year price control period across its electricity and gas transmission networks, close to GBP2 million a year on average and "substantially higher than the RIIO-T1 price control".

Given broad acceptances for RIIO-2, as well as is increasing investment programme, National Grid now forecasts that its credit metrics will stay below the necessary threshold levels for BBB+/Baa1 debt ratings on an ongoing basis.

Nonetheless, even if its ratings are downgraded by ratings agencies, it is confident in retaining broad access to debt markets.

"National Grid remains committed to retaining an efficient balance sheet and a strong overall investment grade credit rating going forward," the company said.

Its dividend policy for the current year has not changed, but looking ahead it intends to grow its annual dividend per share in line with the UK consumer price index including owner occupiers' housing costs, maintaining it in real terms.

"The board will review this policy regularly, taking into account a range of factors including expected business performance and regulatory developments," said National Grid.

Shares in National Grid were up 1.0% at 831.40 pence in London on Tuesday.

By Anna Farley; annafarley@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
National Grid PLC 902.30 GBX 0.47

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