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National Grid has ruled out using the proceeds of the sale of its gas distribution businesses to lower the transmission charges applied to customers’ bills.
Following the release of the company’s 2015-16 full year financial results today revealing an increase in pre-tax profit of 15 per cent to £3 billion, up from £2.6 billion the previous year, chief financial officer Andrew Bonfield confirmed to Utility Week the proceeds from the sale would be distributed to shareholders.
Bonfield said: “These are assets that are owned by shareholders and returning the cash to them is what you would expect us to do, it is not a profit it is just merely returning the capital that we have actually invested in these businesses over the years.”
National Grid said its gas distribution business had made “good progress” on the activity needed to create a standalone business.
Bonfield quashed suggestions made in national media this week that regulator Ofgem could put pressure on the transmission operator to cut its rates, saying Ofgem has already ruled out a mid-term review of the price control for gas distribution, through which such changes would have to be made.
Network operators have come under criticism for the level of outperformance being achieved against their price control, meaning some have called for the opportunity of a mid-period review to be used to reopen the price control.
Bonfield said: “One of the things Ofgem said is as part of RIIO they expect good performing companies to be able to deliver returns at the 200-300 basis point, above the allowed return, and that’s the sort of range we continue to target.”
Maxine Frerk, formerly acting senior partner for networks at Ofgem said at Utility Week Live this week: “Gas distribution and transmission companies have outperformed in the early years…that’s what you would expect them to do, they have very strong incentives to try to beat the control.
“To try to drive for efficiency, that’s what we have set up the regime to incentivise them to do, and customers do get a share of the benefits during the control.”
National Grid’s UK regulated businesses’ “solid operational performance” has allowed customers’ share of savings achieved through efficiencies to reach £330 million.
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