REG - National Grid PLC - Interim Management Statement <Origin Href="QuoteRef">NG.L</Origin>

National GridAnnouncement

06/09/2014 20:42

For best results when printing this announcement, please click on the link
below:

http://pdf.reuters.com/Regnews/regnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20140728:nRSb4455Na


RNS Number : 4455N
National Grid PLC
28 July 2014 
 
28 July 2014 
 
National Grid plc 
 
Interim Management Statement for the period 1 April 2014 to 27 July 2014 
 
HIGHLIGHTS 
 
•          Continued solid operational and financial performance during the
period 
 
•          UK: Further progress in delivering operational efficiencies and
investment programme 
 
•          US: Good operational performance complemented by filing in New York
for increased KEDLI capital investment allowances 
 
Steve Holliday, Chief Executive, said: 
 
"Our businesses have continued to build on the performance improvements of
2013/14 and, as a result, have started the year well. 
 
The improvements we have made to the way we are working with our stakeholders
is now being recognised and I was proud to collect the Business in the
Community's Responsible Business of the Year award on behalf of all National
Grid employees. 
 
In the UK, we have progressed our investment programme, enhancing the overall
condition of our assets and improving their environmental and safety
characteristics. We continue to develop innovative ways to deliver the
essential outputs required more efficiently, maximise our performance under
the RIIO model and generate savings for consumers. 
 
In the US, we are sustaining our focus on improving customer service and
managing costs in preparation for further rate filings in 2015. I am pleased
that we were able to install the major upgrade of our US systems on time, a
major milestone in our extended implementation process and early signs that
this has gone well are encouraging. 
 
As a result, we are maintaining our outlook for 2014/15, reflecting the
expected delivery of another year of solid operating and financial performance
and asset growth, consistent with sustaining our long term dividend policy." 
 
ASSET GROWTH AND RETURNS UPDATE 
 
Overall asset growth on track 
 
In line with the guidance provided in the announcement of National Grid's
results for 2013/14 in May 2014, National Grid expects capital expenditure (on
a constant currency basis) to be at a similar level to the £3.4bn invested in
2013/14 which contributed to the 5% growth in regulated assets delivered last
year. In the UK, some spend may be held back by delays in the cable
manufacturing process for the Western Link, an undersea high voltage direct
current (HVDC) circuit connecting North Wales to Scotland. At this early stage
this delay is not expected to have a significant impact on overall growth. 
 
In the US, the Group is investing, as planned, at a marginally increased
level, in line with the updated medium term guidance of just over $2bn per
annum. Investment remains focused on network reliability, including
infrastructure replacement and modernisation, and gas distribution
infrastructure to connect new customers. 
 
Overall, the Group expects to grow its regulated assets by approximately 5%
during 2014/15, in line with previous guidance. 
 
BUSINESS ENVIRONMENT AND REGULATORY UPDATE 
 
Further progress towards increased clarity on future UK transmission
investment 
 
The implementation of Electricity Market Reform (EMR) under the new Energy Act
has made continued progress. DECC has announced its intention to contract for
53.3GW of generation for the winter of 2018 under the capacity market, with
the majority of this to be procured in the auction administered by National
Grid at the end of this year. Alongside the contracts for difference that are
expected to be awarded in December 2014, National Grid expects this process to
provide additional information that will help define elements of its future UK
transmission investment programme. 
 
Mid-decade measures announced to provide additional tools to help balance
supply and demand 
 
Ofgem has approved National Grid's proposal to invite tenders for two new
balancing services that could provide additional reserves to support the
operation of the system in the event of an uncertain security of supply
outlook. National Grid has sought tenders for up to 330MW to pilot the new
demand side reserve service for the winter of 2014/15 and will seek tenders
for up to 1,800MW of demand and supply side reserve for the winter of 2015/16.
These new mechanisms are expected to add less than £1 to an average annual
customer bill and to have no direct impact on National Grid's financial
performance. 
 
Ofgem capacity assessment shows marginal improvement in expected demand supply
balance for the coming winter 
 
In June, Ofgem published an assessment of UK electricity security of supply
for the next five winters. The assessment is based on analysis from National
Grid accompanied by Ofgem's own work. The new assessment is broadly consistent
with the 2013 analysis, showing that capacity margins are expected to fall
over the next two winters as older power stations close, before improving in
the last three years. Ofgem also notes that, unlike 2013/14, the new balancing
services and the capacity market mean that the risk of disruption to customer
supplies in coming winters has reduced compared to last year's report. 
 
Filed for additional capex allowances to augment the existing KEDLI rate plan 
 
In June, National Grid submitted a petition to the New York Public Service
Commission (NYPSC) to implement a three-year capital investment program to
allow KeySpan Energy Delivery Long Island (KEDLI) to invest $700 million in
gas infrastructure projects, including gas pipe replacement, storm hardening
and gas connections. These projects are designed to enhance the safety and
reliability of the gas system on Long Island and in the Rockaways. The
petition requests a new capital deferral mechanism that reflects the full
level of capital spend. This should allow the Company the opportunity to
improve its networks and maintain financial returns at reasonable levels while
extending the freeze on natural gas base delivery rates which have benefitted
customers. 
 
FERC update indicates a potential 10.6% base allowed return on equity for
transmission activities 
 
In June, the Federal Energy Regulatory Commission (FERC) issued an order
relating to its review of electricity transmission allowed returns. The order
proposes reducing the allowed base RoE to 10.6% prospectively and also for
this to apply retrospectively for New England Power for a 15 month period from
October 2011 to December 2012. This compares to current allowed returns for
National Grid's New England Power and Narragansett electric transmission
businesses (31 March 2014 rate base of approximately $1.8bn) of 11.14%. The
order is not final and is subject to further comment. If implemented, it would
be expected to result in a small reduction in ongoing revenues and a refund of
a portion of past revenues. Neither of these revenue effects is expected to
represent a meaningful impact on the financial position of National Grid. 
 
FINANCIAL AND FUNDING UPDATE 
 
There have been no material changes to the financial position of the Company
during the period. National Grid has a strong balance sheet, underpinned by
regulatory revenues, which is key to its ability to secure the required
long-term funding for both the UK and the US businesses. Interest cover,
gearing and other financial metrics remain within comfortable ranges to
sustain the Group's strong credit ratings in the medium term and support the
policy of growing the dividend at least in line with RPI inflation for the
foreseeable future. 
 
Continued added value through low cost debt issuance 
 
During the period, additional attractive debt finance was raised at
intermediate holding company level including a two year $300m euro bond at 6m
Euribor + 38bp, maintaining a healthy level of cash to finance forthcoming
maturities and capital investment. 
 
Scrip dividend take-up will result in issuance of nearly 35m new shares.
Intention to repurchase shares in line with new active management approach
subject to approval of resolutions at 2014 AGM 
 
Take-up of the scrip option for the final dividend was approximately 28%,
resulting in the expected issuance of 34.6m new shares in August (just under
1% of existing voting shares) in lieu of approximately £290m of dividend
payments. Consistent with the announcement in the full year results statement
issued in May 2014, and reflecting the Group's current healthy financial
position, the Company intends to repurchase shares in the market. The
Company's goal is to reduce the dilutive effect of the scrip as much as
possible to the extent that is consistent with maintaining the Group's strong
financial position as reflected in its credit rating. 
 
TECHNICAL GUIDANCE 
 
Technical guidance is largely unchanged from that included in the full year
results statement of 15 May 2014. 
 
New York decision on State Temporary Tax Assessment recoveries expected to
impact timing of revenues 
 
In New York, in June, the NYPSC issued an order for all utilities to refund
any over-collected revenues relating to the "18-a" tax, a temporary tax
assessment on utilities, and to reduce any ongoing over-collection of these
revenues. This will lower customers' bills during the current year. In total,
National Grid expects the net impact on IFRS reported revenues for the current
year, compared to expectations in May 2014, to be a reduction of approximately
$120m to $140m. This represents a reduction in the level of a timing balance
and, as a result, it does not change National Grid's expectation for US GAAP
earnings or achieved returns on equity for the year. 
 
CONTACTS 
 
Investors and Analysts 
 
From 7am UK time 
 
John Dawson              +44 7810 831944 (m) 
 
Tom Hull                      +1 917 524 4099 (m) 
 
From 12 noon UK time 
 
George Laskaris         +1 917 375 0989 (m) 
 
Other members of the team (Andy Mead and Victoria Davies) are either away or
travelling and will have patchy reception. Please use the contacts above in
the first instance if you wish to speak to a member of the team. 
 
Media 
 
National Grid 
 
Clive Hawkins             +44 (0)20 7004 3147              +44 (0)7836 357173
(m) 
 
Chris Mostyn              +44 (0)20 7004 3149              +44 (0)7774 827710
(m) 
 
Brunswick 
 
Mike Smith or Emma Walsh               +44 (0)20 7404 5959 
 
CAUTIONARY STATEMENT 
 
This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements include information with respect to
National Grid's financial condition, its results of operations and businesses,
strategy, plans and objectives. Words such as 'anticipates', 'expects',
'should', 'intends', 'plans', 'believes', 'outlook', 'seeks', 'estimates',
'targets', 'may', 'will', 'continue', 'project' and similar expressions, as
well as statements in the future tense, identify forward-looking statements.
These forward-looking statements are not guarantees of National Grid's future
performance and are subject to assumptions, risks and uncertainties that could
cause actual future results to differ materially from those expressed in or
implied by such forward-looking statements. Many of these assumptions, risks
and uncertainties relate to factors that are beyond National Grid's ability to
control or estimate precisely, such as changes in laws or regulations,
announcements from and decisions by governmental bodies or regulators
(including the timeliness of consents for construction projects); the timing
of construction and delivery by third parties of new generation projects
requiring connection; breaches of, or changes in, environmental, climate
change and health and safety laws or regulations, including breaches or other
incidents arising from the potentially harmful nature of its activities;
network failure or interruption, the inability to carry out critical non
network operations and damage to infrastructure, due to adverse weather
conditions including the impact of major storms as well as the results of
climate change or due to unauthorised access to or deliberate breaches of
National Grid's IT systems and supporting technology; performance against
regulatory targets and standards and against National Grid's peers with the
aim of delivering stakeholder expectations regarding costs and efficiency
savings, including those related to investment programmes and internal
transformation projects (including the US financial system and controls); and
customers and counterparties (including financial institutions) failing to
perform their obligations to the Company. Other factors that could cause
actual results to differ materially from those described in this announcement
include fluctuations in exchange rates, interest rates and commodity price
indices; restrictions and conditions (including filing requirements) in
National Grid's borrowing and debt arrangements, funding costs and access to
financing; regulatory requirements for the Company to maintain financial
resources in certain parts of its business and restrictions on some
subsidiaries' transactions such as paying dividends, lending or levying
charges; inflation; the delayed timing of recoveries and payments in National
Grid's regulated businesses and whether aspects of its activities are
contestable; the funding requirements and performance of National Grid's
pension schemes and other post-retirement benefit schemes; the failure to
attract, train or retain employees with the necessary competencies, including
leadership skills, and any significant disputes arising with the National
Grid's employees or the breach of laws or regulations by its employees; and
the failure to respond to market developments and grow the Company's business
to deliver its strategy, as well as incorrect or unforeseen assumptions or
conclusions (including unanticipated costs and liabilities) relating to
business development activity, including assumptions in connection with joint
ventures. For further details regarding these and other assumptions, risks and
uncertainties that may impact National Grid, please read the Strategic Report
section and the 'Risk factors' on pages 167 to 169 of National Grid's most
recent Annual Report and Accounts. In addition, new factors emerge from time
to time and National Grid cannot assess the potential impact of any such
factor on its activities or the extent to which any factor, or combination of
factors, may cause actual future results to differ materially from those
contained in any forward-looking statement. Except as may be required by law
or regulation, the Company undertakes no obligation to update any of its
forward-looking statements, which speak only as of the date of this
announcement. 
 
This information is provided by RNS
The company news service from the London Stock Exchange