National Grid Plc · LSE:NG.
National Grid — Investor Presentation (October 2010)
23 slides from National Grid's investor presentation, October 2010
Slide 1: Investor Webinar: UK Transmission Incentives
Investor Webinar UK Transmission Incentives October 2010 1
Slide 2: Introduction and objectives
Introduction and objectives Why this webinar topic? What are we aiming to do for you today? How we intend to do this? 2
Slide 3: Why incentives?
Why incentives? Incentives have been utilised in National Grid’s Transmission regulation since the 1990’s Introduced for a number of reasons Drive positive and innovating behaviour in focus areas of operations Balance market behaviour through shared pain/gain Allows automatic corrections for some un
Slide 4: Aim of existing incentives in Transmission
Aim of existing incentives in Transmission Optimise costs Minimise the cost of energy we use and procure to run the networks Maximise the capacity in the networks at minimum cost Drive environmental performance Reduce costs of energy imbalance Minimise vented emissions of greenhouse gases from our p
Slide 5: Typical Incentive structure
Typical Incentive structure The cap and collar limit the Cap profit or loss, to avoid windfall profits or losses Outcome for National Grid X% Upside Sharing Factor Profit Sharing factors define National Grid’s share of profits Target or losses for a given level of performance. Balances the risk Y% D
Slide 6: How incentives fit within our current price controls
How incentives fit within our current price controls Maximum Base year RPI ‘K’ (timing Other 2009/10 allowed = x + Incentives* + adjustment) + Adjustments revenue indexation revenue ETO £1,512m = £987m x 1.240 + £26m + £(15)m + £276m** GTO £604m = £460m x 1.187 + £3m + £25m + £30m ESO £791m = n/a n/
Slide 7: Electricity Incentives
Electricity Incentives Electricity TO Transmission Network Reliability Incentive (“TNRI”) Sulphur Hexaflouride (“SF6”) emissions Innovation Funding Incentive (“IFI”) Electricity SO Balancing Services Incentive Scheme (“BSIS”) Internal costs incentive 7
Slide 8: Gas incentives including revenue drivers
Gas incentives including revenue drivers Gas TO Innovation Funding Incentive (IFI) Gas SO continued Constrained LNG procurement “Shrinkage” Gas SO Operating margins procurement Entry Operational capacity buybacks Residual gas balancing Incremental capacity buybacks Demand forecasting performance Inc
Slide 9: Electricity Incentives Performance 2009/10
Electricity Incentives Performance 2009/10 Strong incentive outperformance 20 15 £5m IFI TO Performance (£m) £2m 10 SF-6 £15m 5 £9m TNRI 0 TO incentives SO incentives -5 SO BSIS -10 9
Slide 10: Gas Incentives Performance 2009/10
Gas Incentives Performance 2009/10 Strong incentive 100 outperformance £81m 80 TO IFI £29m 60 Other: (Operating margins, website Performance (£m) performance, NTS Environmental, Internal gas) +£1m 40 SO Capacity buybacks +£12m Demand forecasting +£2m £24m Incentives £52m Residual gas balancing +£2m
Slide 11: Deep dive: UK Transmission Incentives
‘Deep dive’ UK Transmission Incentives Nick Winser 11
Slide 12: Incentive performance: Electricity Transmission
Incentive performance Electricity Transmission £40m IFI £30m TNRI £20m SF6 TO Performance BSIS £10m Internal costs £0m Net 2007/08 2008/09 SO 2009/10 3 year rolling -£10m Internal costs average -£20m 12
Slide 13: Incentive performance: Gas Transmission
Incentive performance Gas Transmission £30m IFI £25m TO Constrained LNG £20m Internal costs Buybacks £15m Performance Shrinkage £10m SO Environmental Operating margins £5m Demand forecasting Residual balancing £0m 2007/08 2008/09 2009/10 Website performance -£5m Net -£10m 3 year rolling average 13 ♦
Slide 14: Gas Transmission System Entry Capacity
Gas Transmission System Entry Capacity Hole House Farm Storage TPCR 4 revenue driver TPCR 4 TPCR 5 TPCR 6 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 42 month build window RIIO 8 year price control SO incremental capacity rights TO baseline capacity SO £m 2.5 5.1 5.
Slide 15: SF6 emissions reduction incentive
SF6 emissions reduction incentive Flat performance target of 0.2% of 3.5 ETO base revenue if pre-agreed target levels met or beaten 3 No sharing factors, no downside Leakage (as % of inventory) 2.5 Achieved for the past three years generating incentive revenues of: 2 07/08 £2.2m 08/09 £2.3m 1.5 09/1
Slide 16: Incentives drive outperformance
Incentives drive outperformance 2009/10 Allowed real vanilla return Achieved nominal RoE Achieved real vanilla return normalised for RPI* 5.05% Electricity Transmission 6.6% 14.2% 5.05% Gas Transmission 7.6% 16.8% 4.94% Gas Distribution 6.3% 14.2% 16 * Normalised for 3.0% p.a. long run UK RPI ♦ UK r
Slide 17: What does RIIO mean for Transmission?
What does RIIO mean for Transmission? UK Transmission Incentives Paul Whittaker Alignment between customers and shareholders Deep stakeholder engagement Incentives to deliver Drive for investment 17
Slide 18: RIIO: Incentives playing a larger role
RIIO: Incentives playing a larger role Price control set in advance to ensure: • Timely and efficient delivery Revenue • Network companies remain financeable • Transparency and predictability • Allowed returns reflect cash flow risk • Balance between costs paid by current and future consumers = Deli
Slide 19: The RIIO revenue model
The RIIO revenue model BASE INCENTIVES ADJUSTMENTS BASELINE REVENUE RULES to adjust RULES to adjust REVENUE COMMITMENT = ALLOWANCE (£M) + revenue in view of Company performance + revenues for uncertainty UNDER PRICE CONTROL RAV Rewards / penalties Capitalisation for delivery Specific re-openers depr
Slide 20: TPCR4 rollover high level timeline
TPCR4 rollover high level timeline 2010 2011 2012 May May Mar Nov Nov Mar Dec Dec Aug Aug Sep Sep Jan Jan Feb Jun Feb Jun Apr Oct Oct Apr Jul Jul Ofgem issues rollover FBPQ and supplementary questions 30th July 2010 Rollover data and narrative submitted to Ofgem 29th October 2010 Q&A and cost visits
Slide 21: TPCR5 high level timeline
TPCR5 high level timeline 2011 2012 2013 May May May Mar Nov Nov Mar Dec Dec Mar Aug Aug Dec Sep Sep Jan Jan Feb Jun Feb Jun Apr Oct Oct Apr Jan Feb Jun Apr Jul Jul TPCR5 main review Ofgem issues strategy document for consultation Ofgem issues future business plan questionnaire Data and narrative su
Slide 22: Summary
Summary Incentives are a familiar concept within Transmission and help us to drive more efficient outputs from the system We have a track record in delivery against incentives and achieving out- performance through innovation RIIO contains many recognisable features RIIO supports new investment and
Slide 23: Q&A UK Transmission Incentives
Q&A UK Transmission Incentives 23