National Grid has seen a drop in operating profits after taking a £117 million hit from the coronavirus pandemic, primarily from its US operations.
Underlying operating profits for the six months to the end of September fell to £1.15 billion – a 12 per cent decrease compared to the same period in 2019. Pre-tax profits were nevertheless up 78 per cent to £720 million due to the revaluing of US commodity contracts.
The company said the £117 million reduction comprises £56 million of bad debt provision, £41 million of shortfalls in regulated revenues and £20 million of direct costs. It has maintained its earlier forecast that the impacts of Covid-19 will cost the group around £400 million over the full financial year.
National Grid chief financial officer Andy Agg told Utility Week: “The vast majority of that is within the US business so the impact on the UK business is relatively small.”
He said its UK arm did incur around £10 million of additional operating costs “in the earlier months as we worked through the initial impacts of the pandemic” but said the company has already caught up the majority of deferred work and is “confident that should continue given we’re now used to working in a lockdown scenario”.
“Unless there are significant shifts in government policy in either jurisdiction, we don’t expect see change to that delivery going forward,” he added.
National Grid said its transmission businesses in the UK relieved suppliers from £11 million of charges over the six months, whilst the electricity system operator (ESO) allowed them to defer £16 million of balancing charges. Agg said the financial support provided through Ofgem schemes falls outside of the £400 million figure and will be recovered “in the coming year or so.”
The electricity transmission business reported a 10 per cent fall in underlying operating profits to £524 million, while the figure for gas transmission was up 66 per cent to £108 million.
National Grid reiterated its concerns over Ofgem’s draft determinations for the RIIO T2 price controls, saying the regulator’s proposals would reduce the reliability and resilience of networks, jeopardise progress towards the net zero target and erode regulatory stability.
Agg welcomed the Competition and Market Authority’s preliminary decision to raise returns for investors in the water sector following appeals by four companies against Ofwat’s final determination for PR19, in particular its focus on finding “the right balance between short term customer bill impacts and the need to invest in the system for the long term”.
He said its view was ““very much in line with our own thoughts and feedback to Ofgem” and that: “There is some read across in our eyes.”
As part of its draft determinations, Ofgem proposed in June to disallow around half of the expenditure requested by National Grid’s transmission businesses for RIIO2. The regulator said they had failed to provide sufficient evidence to justify much of the spending and imposed combined penalties for the quality of their business plans of around £91 million.
Agg said the company does not accept that it failed to meet the requirements set by Ofgem but it has since provided “many thousands of pages of additional evidence that they’ve subsequently asked for.”
He said: “Overall, we remain optimistic that we can continue to work towards a sensible outcome and that includes getting back to a sensible level of totex spend.”