Changing of the Guard at National Grid

The announcement that Steve Holliday will be stepping down as chief executive at National Grid was no great surprise, although the identity of his replacement, John Pettigrew, was less widely predicted.

Having taken up his role in January 2007, Holliday can feel extremely satisfied with National Grid’s progress in the intervening years.

At the operational level, one of his enduring achievements has been to ensure that the lights have stayed on, despite ever lower plant margins.

With virtually no base-load plant currently under construction, Holliday’s successor will inherit the unenviable mantle of being the ultimate UK electricity ring-master.

Indeed, only last week, there was near panic as National Grid used its ‘last resort’ powers to dampen down demand – a story that was covered by Utility Week.

But Holliday will be less satisfied with the US part of National Grid’s business, which – at one time – sought to emulate Hanson by being ‘a company from here doing rather well over there’.

The diverse US operations still need attention, despite some improvements of late; they are not helped by seemingly ongoing regulatory issues.

For investors, Holliday can rightly point to a very impressive performance during his near nine-year tenure, especially as much of it has overlapped the deep recession from 2008 onwards.

National Grid’s total shareholder returns are up by over 130% during the period, equating to a near 10% year-on-year growth: generous dividend payments have accounted for much of that increase.

Whilst National Grid has undoubtedly benefited from strong and effective leadership under Holliday, two external factors have been crucial.

First, the advent of the recession in 2008 highlighted the benefits of defensive earnings and assured dividends – an investor scenario seemingly tailor-made for National Grid.

By contrast, many electricity generators have incurred serious losses due to falling energy prices, as RWE’s woeful share price performance has demonstrated.

Secondly, in 2013, National Grid unquestionably secured a very attractive eight-year regulatory settlement from Ofgem for its core UK electricity transmission business.

But taking over as Chief Executive will be no sinecure. For Pettigrew, getting through the next few winters on the basis of very tight plant margins will be challenging, especially if there are several contemporaneous plant outages.

He will also preside over a c£3.5 billion annual investment programme, most of which is UK-centric. 

And interestingly, National Grid is becoming increasingly involved in interconnector projects, with the planned 450-mile Norwegian link being the most important.  

As for Holliday, he is leaving the EU’s most valuable utility on a high.

After all, National Grid was originally privatised in 1990 – almost as an afterthought – within the 12 Regional Electricity Companies (RECs) which were valued at just £5.2 billion.

National Grid’s market value alone is now c£35 billion. 

Nigel Hawkins (nigelhawkins1010@aol.com) is a Director of Nigel Hawkins Associates which undertakes investment and policy research