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 baseload plant currently under construction, Holliday’s successor will inherit the unenviable mantle of being the ultimate electricity ring-master. Indeed, only last week there was near panic as National Grid used its “last resort’” powers to dampen demand.
But Holliday will be less satisfied with the US part of National Grid’s business. The diverse US operations still need attention, despite improvements of late. They are not helped by seemingly never-ending regulatory issues.
For investors, Holliday can rightly point to a very impressive performance during his near nine-year tenure, especially because much of it has overlapped the deep recession from 2008 onwards. National Grid’s total shareholder returns are up by more than 130 per cent during the period, equating to a near 10 per cent year-on-year growth: generous dividend payments have accounted for much of that increase.
While 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.
Second, in 2013, National Grid unquestionably secured a very attractive eight-year regulatory settlement from Ofgem for its core transmission business.
But taking over as chief executive will be no sinecure. For Pettigrew, getting through the next few winters on 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.
As for Holliday, he is leaving the EU’s most valuable utility on a high. After all, at privatisation in 1990, it and the 12 regional electricity companies combined were valued at £5.2 billion. Today, National Grid’s market value alone is c£35 billion.
Nigel Hawkins, director, Nigel Hawkins Associates