National Grid Plc · LSE:NG.
National Grid — Debt Investor Presentation (March 2009)
49 slides from National Grid's debt investor presentation, March 2009
Slide 1: European Roadshow March 2009
European Roadshow March 2009
Slide 2: Cautionary statement
Cautionary statement Unless otherwise stated, all financial data of National Grid contained in this presentation is as reported under IFRS.This presentation contains certain statements that are neither reported financial results nor other historical information. These statements are forward- looking
Slide 3: Financial results
Financial results Operating profit (£bn) (a) Full year Return on equity (%) (a),(b) Actual First half 3-yr avg. 3.0 12.0 2.0 8.0 1.0 4.0 0.0 0.0 2004/05 2005/06 2006/07 2007/08 2008/09 2004/05 2005/06 2006/07 2007/08 Earnings per share (p) (a) Full year Interest cover (x) (b) Target range First half
Slide 4: Strong growth
Strong growth Our business model… Strong investment Building on Driving out- Low risk pipeline driving future constructive regulatory performance and growth relationships creating value UK regulated asset value… US regulated rate base… 7% upstate NY 23% upstate NY 38% gas 38% electricity gas distrib
Slide 5: We are a very low risk business
We are a very low risk business… Risk factor Exposure Notes ~95% of our activities(a) are regulated Regulation Low Portfolio of ~20 main regulatory agreements Predictable revenues and cash flows UK asset base RPI indexed Inflation Low Variety of protections under US regulation Some exposure to mater
Slide 6: Our regulatory agenda
Our regulatory agenda… 2008 2009 2010 2011 2012 2013 2014 NiMo (electric) NiMo (gas) Rate case in progress New York KEDNY KEDLI New rate filing during summer 2009 (original plan Mass. Electric Company ran to 2019) Boston Gas Massachusetts Combined rate filing during Essex Gas spring 2010 Colonial Ga
Slide 7: ~£3bn annual investment for the foreseeable future, growing our asset base
~£3bn annual investment for the foreseeable future, growing our asset base… ~£3.2bn investment in 2008/09 ~7% annual UK RAV growth, ~5% annual US rate base growth(a) £bn $bn ~£0.5bn 20.0 20.0 ~£1.2bn ~£0.3bn 17.5 17.5 ~£0.4bn 15.0 15.0 ~£0.2bn ~£0.6bn 12.5 12.5 Transmission - UK Transmission - US Ga
Slide 8: Transmission – our activities
Transmission – our activities Transmission UK – electricity and gas Electricity We own the electricity transmission system in England and Wales. transmission Our assets comprise ~7,200km of overhead line; ~675km of owner underground cable; and 337 substations at 244 sites. Electricity We are the Gre
Slide 9: Gas Distribution – our activities
Gas Distribution – our activities Gas Distribution UK Gas Comprises four of the eight regional gas distribution networks in Distribution UK Great Britain Comprise approximately 132,000 kilometres of gas distribution UK Networks pipelines. We transport gas on behalf of approximately 33 active shipper
Slide 10: Electricity Distribution & Generation – our activities
Electricity Distribution & Generation – our activities Electricity Distribution & Generation operations Electricity We own and manage electricity distribution networks in New York, Massachusetts, Rhode Island and New Hampshire. distribution Our assets comprise ~116,000km of electricity circuits, ser
Slide 11: Non-regulated businesses
Non-regulated businesses Operating profit (£m)* Metering 2,500 National Grid Metering and OnStream provide installation, maintenance and meter reading services to 2,000 gas and electricity suppliers in the regulated and 1,500 unregulated markets respectively 1,000 Our metering businesses provide ser
Slide 12: Funding policies
Funding policies Counterparty risk Refinancing risk Controlled through credit limits, approvals and monitoring procedures Controlled through limits on the amount of financing obligations arising in any given year For multiple transactions with a single counterparty we usually use a master netting ag
Slide 13: Recent funding – loans and bonds
Recent funding – loans and bonds $/£=1.45 £m 1,400 NGUSA 1,200 NG NGET NGGas 1,000 800 600 400 200 0 Aug-08 Nov-08 Jan-08 Feb-08 Apr-08 Jun-08 Jul-08 Sep-08 Oct-08 Dec-08 Jan-09 Feb-09 May-08 Mar-08 Total funding for January 2008 to February 2009 was £5,845 million. 13
Slide 14: Liquidity support – committed bank lines and cash
Liquidity support – committed bank lines and cash Total Amount (£m)* Group Committed Facilities 4000 3500 KeySpan Corp 3000 2500 New England Power 2000 NG Gas 1500 NG Electrcity 1000 Transmission 500 National Grid plc 0 Nov-08 Jun-09 Jul-09 Nov-09 Jun-10 Jul-10 Nov-10 Jan-09 May-09 Aug-09 Jan-10 May
Slide 15: National Grid structure with Group borrowing facilities
National Grid structure with Group borrowing facilities National Grid plc National Grid USA Group Short-term funding programmes: $2bn NGUSA commercial paper programme: Nil outstanding USCP $3bn: Nil outstanding €4bn NGUSA EMTN programme: €0.1bn ECP $1.5bn: c. $848m outstanding issued €15bn EMTN prog
Slide 16: Credit ratings and possible funding plans of main issuing entities
Credit ratings and possible funding plans of main issuing entities S&P Moody’s Fitch Possible Future Funding (to be discussed …….) NG plc BBB+/A2 Baa1/P2 BBB+/F2 NGET A-/A2 A3/P2 A/F2 NGG A-/A2 A3/P2 A/F2 NGUSA BBB+/A2 A3/P2 Not Rated Continued commitment to A range ratings at UK OpCos 16
Slide 17: and finally…Treasury contacts
and finally…Treasury contacts Malcolm Cooper (Group Tax and Treasury Director): D: +44 (0)20 7004 3340 malcolm.cooper@ngrid.com Andrew Kluth (Assistant Treasurer, Funding): D: +44 (0)20 7004 3365 andrew.kluth@ngrid.com Andy Mead (Senior Corporate Banking Manager): D: +44 (0)20 7004 3369 andy.mead@ng
Slide 18: nationalgrid
nationalgrid
Slide 19: Appendix
Appendix wy, f nationalgrid The power of action:
Slide 20: Regulatory process… …many common elements to rate agreements
Regulatory process… …many common elements to rate agreements Common elements Return on asset base Opex allowance Pensions and tax allowance No commodity exposure Incentive mechanisms US specific UK specific Some residual volume drivers No volume exposure Protection from uncontrollable costs Indexati
Slide 21: Transmission is a very low risk business
Transmission is a very low risk business Factor Exposure Notes Inflation (revenues) Zero UK revenues RPI indexed Some exposure to materials / contractor price inflation above RPI Inflation (capital investment) Low New England Power files monthly formula rates at actual cost – therefore no inflation
Slide 22: Transmission – how we earn our money
Transmission – how we earn our money UK Transmission Owners (electricity & gas) Transmission operating profit (£m) Revenues driven by return on regulatory asset value Regulated by Ofgem 1,000 Five year price control to 31 March 2012 UK System Operator (electricity & gas) 750 Revenues mainly incentiv
Slide 23: UK Transmission Owner price controls… …determining the revenue allowance
UK Transmission Owner price controls… …determining the revenue allowance Step 1 Estimated TO regulatory asset value (£bn, nominal) Revenue allowance is derived from five ‘building blocks’: 5.1 5 year movement in the net present value of the 10.0 4.6 4.9 4.1 4.4 regulatory asset value (RAV) 3.3 Capit
Slide 24: UK Transmission Owner price controls… …the regulatory formula
UK Transmission Owner price controls… …the regulatory formula maximum base year RPI ‘K’ (timing other allowed = x + incentives + + revenue indexation adjustment) adjustments revenue Incentives Base year revenue Revenue adjustment for transmission owner incentive Set by Ofgem at the start of the pric
Slide 25: UK Transmission Owner price controls… ...flexible allowances drive additional revenue
UK Transmission Owner price controls… ...flexible allowances drive additional revenue UK transmission price control approach Revenue driven Adjusted allowances for changed connection demand (mainly gas related) ~£650m Gas entry/exit capacity remunerated through auction regime Investment (and return)
Slide 26: UK electricity transmission load related investment
UK electricity transmission load related investment Future Scenario Further offshore wind leasing targeted to deliver 25GW by 2020 Political will for nuclear replanting EU directive for greater interconnection Target of 30 – 40% generation from renewable (i.e. wind) sources could require a plant mar
Slide 27: UK Transmission Owner price controls… …incentive schemes
UK Transmission Owner price controls… …incentive schemes Electricity TO incentives Incentive schemes - indicative cumulative envelope of the best/worst possible outcomes Reliability incentive at +1% / –1.5% of revenue (£m, 2004/05 prices) Potential roll-forward of scheme for years 3 – 5 SF6 leakage
Slide 28: UK System Operator price controls
UK System Operator price controls One year price control to 31 March 2009 Estimated SO regulatory asset value (£m, nominal) Internal schemes (electricity and gas) Revenue allowance is derived from five ‘building blocks’: 100 42 38 35 39 43 Regulatory depreciation of regulatory asset value (RAV) ‘Van
Slide 29: US electricity transmission regulation
US electricity transmission regulation Member of New England RTO New England Power RoE (nominal) FERC order (effective 1 November 2006) established 14% allowed Return on Equity (RoE) for New England transmission owners 12% 11.4% RoE* (including the 50 basis point RTO participation incentive) for rec
Slide 30: Gas Distribution is a very low risk business
Gas Distribution is a very low risk business Factor Exposure Notes UK asset base RPI indexed Inflation Zero Variety of protections under US rate agreements (index linked rates and exogenous cost allowances) No UK demand exposure Demand Low Exposure under some rate plans, diminishing risk as new rate
Slide 31: UK gas distribution price controls… …determining the revenue allowance
UK gas distribution price controls… …determining the revenue allowance Step 1 Estimated Gas Distribution regulatory asset value (£bn, nominal) Revenue allowance is derived from five ‘building blocks’: 5 year movement in the net present value of the 10.0 regulatory asset value (RAV) Capital expenditu
Slide 32: UK gas distribution price controls… …the regulatory formula
UK gas distribution price controls… …the regulatory formula maximum base year RPI ‘K’ (timing other allowed = x + incentives + + revenue indexation adjustment) adjustments revenue Base year revenue Incentives Set by Ofgem at the start of the price control Revenue adjustment for incentive scheme perf
Slide 33: UK gas distribution price controls… …incentives and adjustments
UK gas distribution price controls… …incentives and adjustments Reduce Incentive / adjustment Reward Penalty risk Volume drivers are excluded from the revenue setting allowance Volume driver removed Weather effects on revenue collection are timing issues only Lost ~£50m during the last price control
Slide 34: US gas distribution rate plans… …the headlines
US gas distribution rate plans… …the headlines Existing rate plans Our US gas rate base* (total US rate base $15.2bn KeySpan Energy Delivery New York (KEDNY) as at 31 December 2007) Assumed 5-year term from 1 January 2008 15% KeySpan Energy Delivery Long Island (KEDLI) Assumed 5-year term from 1 Jan
Slide 35: US gas distribution rate plans… …KeySpan Energy Delivery New York (KEDNY)
US gas distribution rate plans… …KeySpan Energy Delivery Long Island (KEDNY) Assumed five year rate plan from 1 January 2008 Assumed rate base ($bn, nominal) Rate of return 3.0 9.80% cost of equity (nominal) Assumed equity ratio of 45% 2.0 Base delivery rates 2.17 2.24 2.29 2.34 2.39 1.0 The rate pl
Slide 36: US gas distribution rate plans… …KeySpan Energy Delivery Long Island (KEDLI)
US gas distribution rate plans… …KeySpan Energy Delivery Long Island (KEDLI) Assumed five year rate plan from 1 January 2008 Assumed rate base ($bn, nominal) 3.0 Rate of return 2.0 9.80% cost of equity (nominal) 1.0 1.92 2.00 2.08 2.16 Assumed equity ratio of 45% 1.75 0.0 2008 2009 2010 2011 2012 Ba
Slide 37: US gas distribution rate plans… …KEDNY & KEDLI incentives and adjustments
US gas distribution rate plans… …KEDNY & KEDLI incentives and adjustments Incentive / adjustment Potential benefit Off-system sales/capacity release sharing $15m Interruptible, transportation and ‘temperature control’ sales revenue sharing $20m Property tax refund sharing program $3m Gas cost incent
Slide 38: Electricity Distribution & Generation is a very low risk business
Electricity Distribution & Generation is a very low risk business Factor Exposure Notes NiMo (electric) rate plan exogenous cost allowance for inflation over 4.5% Mass. Electric rates are indexed to other regional utilities, so as other Inflation Low utilities raise rates to keep up with inflation,
Slide 39: US electricity distribution rate plans… …the headlines
US electricity distribution rate plans… …the headlines Main existing rate plans Our US electricity rate base* (total US rate base $15.2bn NiMo – upstate New York as at 31 December 2007) Combined electricity and gas, transmission and distribution rate plan 5% 1% 5% Assumed 10-year term from 2002 Mass
Slide 40: US electricity distribution rate plans… …upstate New York (NiMo)
US electricity distribution rate plans… …upstate New York (NiMo) Assumed 10- year rate plan from 2002 NiMo return on equity (nominal) as at 31 October Rate of return 10.6% cost of equity (nominal) Assumed equity ratio of ~40% 12.5% Base delivery rates Base delivery rates frozen at 2002 levels over r
Slide 41: US electricity distribution rate plans… …New England
US electricity distribution rate plans… …New England Massachusetts Electric Mass. Electric return on equity (nominal) 20-year rate plan from 1999 as at 31 December 12.3% Rates indexed to regional peers through to 2009 10.5% 1.6% increase in 2007 9.5% 1.9% increase in 2008 10.0% Earnings sharing thro
Slide 42: Long Island Power Authority (LIPA) contracts
Long Island Power Authority (LIPA) contracts Generation agreements 4.1GW of generation assets $692m rate base as at 31-Dec-07 Rate of return 9.5% base RoE on 4,000MW 10.5% with incentives 10.75% base RoE 160MW Commodity pass through Managed Services Agreement Manage LIPA’s T&D network Indexation of
Slide 43: US – main rate plans: Gas distribution
US – main rate plans Gas distribution Downstate Long Upstate Boston Essex Colonial Rhode New New York Island New York (MA) (MA) (MA) Island Hampshire Base ROE 9.8% 9.8% 10.6% 10.2% 11.2% 11.2% 11.3% 10.4% Rate Base $2,239m $1,715m $1,084m $1,328m $168m $641m $578m $265m Actual 14.9% 10.4% N/A 7.4% 2
Slide 44: US – main rate plans: Electricity
US – main rate plans Electricity Upstate Rhode LIPA New York Mass. Elec. Island NEP Generation Base ROE 10.6% 11% 10.5% 11.2% 9.5%** Rate Base $4,882m $1,373m $682m $800m $692m Actual 8.4%* 9.5% 6.9% 11.9% 9.5% Return 100% to 11.75% 50% from 100% of $70m Sharing 50% to 14% 10.5 -11.5% Extras 100bp s
Slide 45: External debt… …facts and figures on the Group (IFRS)
External debt… …facts and figures on the Group (IFRS) Gross external debt* at 30 September 2008 £bn (IFRS) National Grid plc, NGG Finance plc and other 6.23 National Grid Electricity Transmission plc 3.50 National Grid Gas plc** 6.99 National Grid Grain LNG 0.29 Total UK gross external debt 17.0 Tot
Slide 46: Predictability of regulated cash flows is a key factor in our ratings
Predictability of regulated cash flows is a key factor in our ratings – Group credit ratings Senior Unsecured / Short-Term ratings Moody’s1 S&P Fitch National Grid plc Baa1/P2 BBB+/A2 BBB+/F2 National Grid Electricity Transmission plc A3/P2 A-/A2 A/F2 National Grid Holdings One plc Not rated BBB+/A2
Slide 47: Pensions and other postretirement benefit obligations IAS19 data
Pensions and other postretirement benefit obligations IAS19 data ESPS (mainly £m NGUK PS US NG total NGET) At 30 September 2008 Market value of assets 1,273 12,176 3,318 16,767 Present value of liabilities (1,623) (11,137) (4,616) (17,376) (Deficit) / surplus (350) 1,039 (1,298) (609) Deferred tax 9
Slide 48: National Grid… multiple regulated utility businesses in our corporate structure
National Grid… … multiple regulated utility businesses in our corporate structure National Grid plc Guarantee over preference Baa1 / BBB+ / BBB+ shares National Grid USA National Grid Holdings One plc NGG Finance plc A3 / BBB+ / NR NR / BBB+ / NR KeySpan Corp Baa1 / A- / A- National Grid Lattice Gro
Slide 49: nationalgrid
nationalgrid
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