RIIO Initial Proposals. Warwick Thursday 2 August 2012

Transcription

1 RIIO Initial Proposals Warwick Thursday 2 August 2012

2 RIIO Initial Proposals Introduction John Dawson Investor Relations Director

3 Cautionary statement This presentation 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, 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 and decisions by governmental bodies or regulators (including the new RIIO approach in the UK); breaches of, or changes in, environmental, climate change and health and safety laws or regulations, including breaches 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 result of climate change or due to unauthorised access to or deliberate breaches of our IT systems or otherwise; 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, restructuring and internal transformation projects; and customers and counterparties failing to perform their obligations to the Company. Other factors that could cause actual results to differ materially from those described in this presentation include fluctuations in exchange rates, interest rates and commodity price indices; restrictions 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 funding requirements of its pension schemes and other post-retirement benefit schemes; the loss of key personnel or the ability to attract, train or retain qualified personnel and any disputes arising with its employees or the breach of laws or regulations by its employees; and incorrect or unforeseen assumptions or conclusions (including financial and tax impacts and other unanticipated effects) relating to business development activity, including assumptions in connection with joint ventures. For a more detailed description of some of these assumptions, risks and uncertainties, together with any other risk factors, please see National Grid s filings with and submissions to the US Securities and Exchange Commission (the SEC ) (and in particular the Risk factors and Operating and Financial Review sections in our most recent Annual Report on Form 20-F). The effects of these factors are difficult to predict. 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 results to differ materially from those contained in any forward-looking statement. Except as may be required by law or regulation, National Grid undertakes no obligation to update any of its forward-looking statements, which speak only as of the date of this presentation. The content of any website references herein do not form part of this presentation. 3

4 Purpose Factual update Enhanced understanding of the proposals Data book available on website John Dawson Investor Relations Director 4

5 Agenda Operational headlines Pauline McCracken & Helen Campbell Ofgem s financing package and measuring financeability Paul Whittaker Group context & stakeholder engagement programme John Dawson John Dawson Investor Relations Director 5

6 Headlines Electricity Transmission Gas Transmission Gas Distribution Cost of equity 7.0% 6.8% 6.7% Cost of debt Index Index Index Gearing 60% 62.5% 65% Transitional measures Totex capitalisation rate 1 period (8 years) NA 1 period repex, stepped % 85% Base Totex 53% Incremental Totex 90% variable Capex 15.3bn 4.8bn 1.2bn Controllable opex 2.7bn 1.4bn 3.3bn Repex N/A N/A 3.6bn John Dawson Investor Relations Director 6

7 RIIO Initial Proposals Operational Assumptions Pauline McCracken Transmission Price Review Manager

8 Electricity Transmission Initial proposal key elements Capex RIIO T2 Outputs c. 0.6bn 13% Real price effects c. 0.7bn Unit cost & workload c. 1bn BASE UNCERTAINTY 1.7bn moved from base to uncertainty m UNCERTAINTY UNCERTAINTY BASE BASE Submission Scope Efficiency Initial proposals Pauline McCracken Transmission Price Review Manager 8

9 IQI Ratio National Grid submitted baseline expenditure Ofgem view of expenditure Ratio % 75% 102 allowed expenditure Additional income 1.5% of allowed expenditure 48% sharing factor Pauline McCracken Transmission Price Review Manager 9

10 Gas Transmission Initial proposal key elements Capex 35% Revenue drivers New European environmental legislation investment Asset replacement investment BASE UNCERTAINTY m UNCERTAINTY UNCERTAINTY BASE BASE Submission Scope Efficiency Initial proposals Pauline McCracken Transmission Price Review Manager 10

11 Uncertainty Mechanisms Best view c. 7bn of spend covered by uncertainty mechanisms Customer generation and demand connection Undergrounding of new overhead line routes Load related customer signals Reopeners one off material asset health costs Mid period review GB or EU market change Streetworks costs* Smart metering impacts above core allowance *For all schemes that start after April 2011 Pauline McCracken Transmission Price Review Manager 11

12 RIIO Initial Proposals Operational Assumptions Helen Campbell Gas Distribution Price Review Manager

13 Gas Distribution Initial proposal key elements Totex 19% Asset integrity investment moved to future periods Tier 2 and 3 mains workload reduced BASE m BASE BASE Submission Uncertainty Mechanisms Scope Efficiency Initial proposals Helen Campbell Gas Distribution Price Review Manager 13

14 RIIO Initial Proposals Financing Packages Paul Whittaker UK Director of Regulation

15 Financing packages Initial proposals Electricity Transmission Gas Transmission Gas Distribution Cost of equity 7.0% 6.8% 6.7% Cost of debt Index Index Index Gearing 60% 62.5% 65% WACC (using 3.03% cost of debt) 4.6% 4.4% 4.3% Transition measures 1 period (8 years) NA Totex capitalisation rate 85% Base Totex 53% Incremental Totex 90% 1 period repex, stepped % variable Paul Whittaker UK Director of Regulation 15

16 Electricity Transmission Initial proposals financing package Cost of equity 7.0% Cost of debt Index Gearing 60% WACC (using 3.03% cost of debt) Transition measures 4.6% 1 period (8 years) Totex capitalisation rate 85% IQI ratio 108 Totex incentive rate 48% Paul Whittaker UK Director of Regulation 16

17 Gas Transmission Initial proposals financing package Cost of equity 6.8% Cost of debt Index Gearing 62.5% WACC (using 3.03% cost of debt) Totex capitalisation rate 4.4% Base Totex 53% Incremental Totex 90% IQI ratio 122 Totex incentive rate 45% Paul Whittaker UK Director of Regulation 17

18 Gas Distribution Initial proposals financing package West Midlands London Cost of equity 6.7% Cost of debt Index Gearing 65% WACC (using 3.03% cost of debt) 4.3% East of England North West Transition measures 1 period repex, stepped 50% to 100% Totex capitalisation ratio 37%-59% 37%-64% 37%-57% 36%-56% IQI ratio Totex incentive ratio 64% 61% 63% 63% Paul Whittaker UK Director of Regulation 18

19 Regulated Asset Values Initial proposals RAV bn* Electricity Transmission 10.3bn 21.4bn Gas Transmission 5.5bn 10.1bn Gas Distribution 8.4bn 10.6bn * Based on c.3% inflation assumption Paul Whittaker UK Director of Regulation 19

20 Awaiting further information Cost efficiency assumptions Cashflow modelling Benchmarking analysis for gas distribution networks Incentive regime detail Process for additional revenue for uncertainty mechanisms and revenue drivers Paul Whittaker UK Director of Regulation 20

21 RIIO Initial Proposals Group Context John Dawson Investor Relations Director

22 Group capital expenditure (nominal) Initial proposals v submission bn National Grid submission Initial Proposals /11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 John Dawson Investor Relations Director 22

23 Regulatory next steps RIIO Regulatory Timetable Transmission Gas Distribution 21 Sept 2012 Consultation period ends 17 Dec 2012 Final proposals April 2013 New price controls commence John Dawson Investor Relations Director 23

24 IR activities: second half of 2012 August September October November December 21 Sept Consultation closes 15 Nov Half Year 17 Dec Final Proposals General availability Conferences Seminars US UK US UK UK Planned roadshows Japan Dublin US Mid-west close period Typical postresults John Dawson Investor Relations Director 24

25 RIIO Initial Proposals Q&A