Monday, 16 July 2012

Ofgem to back £44bn National Grid deal

National Grid is proposing spending more than £21bn on its electricity transmission network in the eight years from 2013 to connect new power plants across England and Wales. It will also spend £9bn on gas pipelines.

With the announcement imminent, analysts have warned that Ofgem, the energy regulator, is not likely to allow National Grid to charge consumers as much as it would like under "price control" regulation which governs the level of expenditure and rate of return. National Grid has suggested bills could increase by between £15 and £20.

This will raise the prospect of National Grid having to cut its dividend, raise capital or sell off assets to access the funding. National Grid's chief executive, Steve Holliday, faced criticism from investors for his handling of a £3.2bn rights issue in 2010.
National Grid believes it will need to spend another £13.5bn on its four regional gas distribution networks and has argued for a 7.2pc cost of equity. But analysts believe that Ofgem could set out stricter terms.

It could limit the cost of equity to 7pc or less, and has hinted it could demand greater efficiency from National Grid to deliver the infrastructure at a lower cost.

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