National Grid Plc Q2 FY2020 earnings call

Management Statement and Operational Highlights

• Decarbonization Commitment: Set net zero emissions target by 2050. Progressed in reducing emissions through pipeline replacement, SF6 reduction, and low-carbon supply chain. Accelerating plans to further reduce own emissions and influence industry transition to low-carbon future.
• Financial and Operational Performance: Solid first half performance with operating profit £1.3 billion (up 1%) and EPS £20p (up 2%). Record £2.7 billion investment in networks.
• Safety and Reliability: UK and National Grid Ventures maintained injury frequency rate <0.1. Tragic US incident led to review. UK power outage on 9th Aug, report published with recommendations.
• US Business Updates: Invested £1.6 billion in networks. Metropolitan Reliability Infrastructure project near completion. Gardenville substation rebuild. New rates framework in Massachusetts.
• UK Business Updates: Capital investment program on track. Completion of Feeder 9 tunneling. London Power Tunnels 2 project awarded contracts. Cost-efficiency program on track. Ofgem's minded-to position on Hinkley-Seabank project.
• National Grid Ventures: Progress on interconnector projects (IFA2, North Sea Link, Viking Link). Completion of Geronimo acquisition, focusing on large-scale solar and onshore wind.

Segment Performance

• UK Electricity Transmission: Underlying operating profit was £583 million, up £27 million from the prior year. Invested £471 million in reinforcing networks and new connections. Return on equity outperformance expected slightly above the 200 to 300 basis points range.
• UK Gas Transmission: Underlying operating profit was £66 million, £25 million lower than the prior year due to lower net revenues. Capital investment was £167 million, £14 million higher than the prior year. Return on equity forecast around the allowed level for the full year.
• US Regulated Businesses: Underlying operating profit was £525 million, £94 million higher than the prior year. Capital investment was £1.6 billion, £411 million higher than the prior year. Expect returns to increase to at least 95% of the allowed return on equity.
• National Grid Ventures: Operating profit for the IFA interconnector was £21 million, £13 million lower than the prior year. Capital investment was £432 million, including over £200 million for the Geronimo acquisition. Other activities had an operating loss of £1 million (vs £76 million profit last year). Property business operating profit was £46 million, £8 million higher than last year.

Guidance

• Capital Investment: Expect asset growth at top end of 5%-7% range. US asset growth around 8% per annum medium term. FY '20 capital investment expected £5 billion.
• Dividend: Interim dividend 16.57p per share, 35% of last year's total.
• Regulatory Progress: Ongoing discussions in New York on gas moratorium. Progressing RIIO-T2 business plans. Good regulatory progress in US with Massachusetts Electric rates.

Risks

• New York Gas Moratorium: Uncertainty around resolving gas supply constraints in Downstate New York, potential impact on rate payers and regulatory actions.
• Regulatory Uncertainty: Risks associated with rate case filings, potential litigation in US rate cases.
• Decarbonization Challenges: Developing technologies like hydrogen production, electrolysis, CCUS for gas sector transition may face commercialization hurdles.
• Infrastructure Delays: Risks of delays in interconnector projects, Hinkley Point C connection, and other large-scale projects affecting investment and returns.

Question and Answer

Q: Christopher Laybutt on New York gas moratorium and regulatory filings A: John Pettigrew discussed the gas moratorium in Downstate New York, efforts to find non-pipeline solutions, and regulatory filings progress.

Q: Ahmed Farman on New York demand-supply mismatch and NY AG investigation A: John Pettigrew talked about the number of affected accounts, short-term solutions, and engagement with NY AG.

Q: Martin Young on RIIO-2 ROE and offshore wind connections A: John Pettigrew discussed RIIO-2 business plan, ROE stance, and offshore wind interconnection considerations.

Q: Mark Freshney on NESE pipeline costs and interconnector profitability A: John Pettigrew and Andrew Agg discussed NESE pipeline cost alternatives and interconnector profitability within cap and floor regimes.

Q: James Brand on New York supply near term and UK gas net zero vision A: John Pettigrew talked about New York supply near term considerations and UK gas decarbonization exploration.

Q: Unidentified Analyst on Geronimo and EV initiatives A: John Pettigrew discussed Geronimo investment plans and EV initiatives in US and UK.

Q: Deepa Venkateswaran on NY Governor's demands and rate payer costs A: John Pettigrew explained NY Governor's demands and cost considerations for non-pipeline solutions.

Q: Iain Turner on interconnector spending tailing off and SF6 in net zero A: John Pettigrew talked about interconnector spending timeline and SF6 reduction efforts for net zero.

Q: Dominic Nash on NY moratorium targeting National Grid vs others and market valuation A: John Pettigrew and Andrew Agg discussed NY moratorium targeting reasons and market valuation perspectives.

Q: Verity Mitchell on pension deficit and triennial valuation A: Andrew Agg discussed pension deficit movements and triennial valuation progress.

Q: Mark Freshney on funding growth and net debt A: Andrew Agg talked about funding growth through scrip option, cost efficiency, and net debt guidance.

Q: James Brand on Hinkley Point C connection risks A: John Pettigrew referred to EDF for Hinkley Point C connection risks.

Q: Fraser McLaren on Isle of Grain expansion, August outage reserve, Western Link, and NY relationship A: John Pettigrew and Nicola Shaw discussed Isle of Grain expansion, August outage reserve considerations, Western Link progress, and NY relationship management.

Q: John Musk on NY license revocation precedent and protections A: John Pettigrew discussed NY license revocation process and protections.