The headline in last week’s Daily Mirror “Blackout fears mount as National Grid begs energy companies for more power”, is surely a taste of things to come. As the UK enters the winter of its tightest yet capacity margins, National Grid will be in the spotlight as never before. Meanwhile, the company is dealing with transformational change to the electricity system, a new and emerging policy landscape and challenges to its sizeable US business. Stepping into this quagmire is John Pettigrew, National Grid veteran and currently executive director, UK.
Pettigrew’s 25-year experience across all parts of the organisation will stand him in good stead as he grapples with a host of issues. National Grid has a diverse business, and each part faces challenges. The most obvious is in its role as system operator for the UK electricity grid, where it faces huge changes in the nature and volume of power distributed. Its US businesses are a sizeable chunk of the portfolio, and the challenges here are around perceived ongoing underperformance. National Grid also has a finger in the UK distribution pie, with its four gas distribution businesses – which are to be sold next year, it was announced this week.
First up, the changing landscape. Pettigrew’s predecessor, Steve Holliday, has been increasingly vocal about the nature and scale of the change facing power in the UK. Just last month, Holliday told World Energy Focus: “We used to have a pretty good idea of what future needs would be. We would build assets that would last decades and that would be sure to cover those needs. That world has ended. Our strategy now is centred on agility and flexibility, based on our inability to predict or prescribe what our customers are going to want.”
That is a big change – and according to the messages National Grid has been putting out ahead of its 2015 update to the System Operability Framework at the end of this month, it is coming even faster than thought. The company faces deep engineering challenges, for example around voltage and frequency – some of which are arising for the first time. The next couple of years will be a crucial time to find solutions that will last into the next decade and beyond.
As Holliday told World Energy Focus: “I made a comment to the energy minister four years ago that there was little probability we would have 20,000MW of solar in the UK. Now three of our scenarios have more than 20,000MW of solar by 2035.”
Meanwhile, the UK is entering a period of capacity crunch as the capacity market gears up. With its role at the centre of Electricity Market Reform (EMR), National Grid is responsible for managing the newly tight margins, and is firmly in the frame should anything go wrong. As one source close to government says: “We don’t want to be in a situation when government, Ofgem and National Grid are all pointing at each other.”
Fundamental questions about the management of the power system arise from these changes, and time to answer them is running out. One option is the introduction of a whole system architect. Certainly, as the system’s complexity increases exponentially, some kind of whole system approach must be agreed between government and industry. This will happen on Pettigrew’s watch and, given the concentration of engineering skill and know-how in National Grid, will be very much influenced by the organisation.
There remain perennial questions about the role of the company. Under Holliday’s leadership, it has become a trusted adviser on policy, with a key role in government initiatives such as EMR. Does this create a conflict of interest with its commercial objectives? The question has been raised a number of times, though one senior industry source comments: “If someone else were asked to advise, who would it be and where would they get their people from? The number of people who really understand this stuff is very small, and is concentrated in National Grid.” Nevertheless, Pettigrew will need to be alive to the debate. He will also be mindful of the drive towards greater competition in areas of the company’s business, and the culture change this would entail.
Though best known in the UK for its transmission role, National Grid is a diverse organisation, with its US operations making up a sizeable chunk of its portfolio. There have been ongoing concerns about the company’s performance in the US, particularly from the financial markets. While industry sources consider a disposal unlikely, Pettigrew will be looking to transform the fortunes of the US operations. Meanwhile, acquisitions elsewhere are not out of the question. One industry source observed: “National Grid has decided to position itself as a developed economy utility player focusing on the US and UK markets – it has a look at other markets from time to time.”
Pettigrew will not be able to meet these challenges alone – his senior team will be crucial. There have been some high profile exits from the company in recent years, most notably Nick Winser last year. Questions have also been raised over whether Andrew Bonfield, the respected finance director, will stick around, although he told Utility Week this week that he would. Getting – or keeping – the right people around him will be critical to Pettigrew’s leadership – particularly given his background as an economist rather than an engineer.
While challenges abound, National Grid remains the great success story of energy privatisation. The trick for Pettigrew will be to build on this track record, maintaining stability as the landscape around the company changes beyond recognition.
Holliday’s Legacy
“Steve is full of charisma. He’s one of those people you notice when they walk into a room.” So says a former National Grid staffer, voicing an opinion shared by employees, national media and the financial markets alike. After nine years at the helm of National Grid, 59-year-old Steve Holliday’s reputation as a big personality with a steely strategic mind and a knack for keeping the markets on side is secured.
But what will he be remembered for? During his time as chief executive, and in his six years at National Grid preceding the top job, Holliday has steered the business back to its core operations. He has put the company at the heart of policymaking, working hand in glove with government on such key initiatives as Electricity Market Reform. He has seen shareholder value soar, with returns of 136 per cent over the period, and the company now trading 80 per cent higher than when he took the reins. Despite the odd blot on an otherwise stellar record (the ongoing underperformance of the US operations, the unpopular rights issue a couple of years back), Holliday leaves the company in good shape, with the warm satisfaction of a job well done.
His strategic influence on the company predates his time as chief executive. Holliday joined National Grid as board director responsible for the UK and Europe in 2001. One of his first actions was to sell four of the gas distribution businesses for £6 billion following the merger with Lattice Group in 2002, creating the gas distribution landscape as we know it today.
Holliday won the top job when Roger Urwin left in 2006, taking the reins at the start of 2007. He will be remembered for placing National Grid at the heart of policymaking, ensuring the company had a place at the table. One former staffer recalls how in the early days he used to say: “We want to be welcomed for our presence rather than noted for our absence.” The strategy worked. A source close to government tells Utility Week: “National Grid is more at the heart of energy policy than ever before.”
Holliday saw the business through a period of organic growth, successfully navigating it through the introduction of the RIIO regulatory settlement.
Holliday, who has also championed the skills agenda, steps down with reputation and track record firmly intact. As John Pettigrew will be only too aware, he will be a hard act to follow.
Who is John Pettigrew?
National Grid staffers have been known to call themselves “Griddies” – and they don’t come much Griddier than John Pettigrew. With 25 years at the company under his belt, he’s steeped in the culture and history of the unique organisation.
Pettigrew has had a varied career at National Grid, with stints in all the major business areas. He’s also enjoyed a rapid rise through the ranks, being appointed director of engineering in 2003; chief operating officer for the US business from 2007-10; chief operating officer for the UK gas distribution businesses from 2010-12; and UK chief operating officer from 2012-14. The CV reads like a checklist for the top job, and indeed Pettigrew has long been seen as a potential successor.
Pettigrew is well liked and respected by colleagues – though his marked difference in personality and style from current boss Steve Holliday has been cause for comment. “Steve is an extrovert; John is much more introverted,” says one former colleague. “He loves detail – as a manager, he’s insatiable for detail and loves process.” Pettigrew has been instrumental in rolling out process excellence across the business, and is known for his focus on metrics and numbers.
His challenge will be stepping out of the detailed delivery required of an efficient Number Two, and into the more hands-off leadership role, which requires greater interface with politicians, media and the markets. As one former colleague says, “When you’re the chief executive of a FTSE top 25 business, you need to present a different face to the world.” This is particularly true as the UK enters a time of tight capacity margins and transformational change to the system, when the role of the company’s chief executive as a figurehead will be more important than ever.
Pettigrew’s inexperience relative to Holliday’s lengthy record has been noted by investors. On the announcement of his appointment, one fairly typical quote, widely reported, from Jefferies’ Peter Atherton was: “One concern over the appointment will be the relative lack of experience of Mr Pettigrew, who was only appointed to the board of National Grid in 2014.”
That said, Pettigrew is a safe and popular choice for Holliday’s replacement – and the industry is unanimous in wishing him well.