The chief executive of National Grid has warned that Labour’s renationalisation proposals would hold back the UK’s move to cleaner energy and mean higher prices for customers, as the company reported an £1.8bn annual profit.
National Grid, which runs the UK’s national electricity network, said its profit for the 12 months to 31 March was down by nearly a third from £2.7bn the year before. It wrote off £137m of costs spent to connect two nuclear UK projects in Cumbria and Wales that were cancelled, and also took a financial hit from a seven-month labour dispute at its US business.
Mounting a staunch defence against Labour’s proposals to renationalise the FTSE 100 company, John Pettigrew, the chief executive, described them as a huge distraction.
He indicated that nationalising power networks could lead to higher costs, which would be passed on to consumers, who pay for energy transmission through their utility bills.
“It’s very clear that it will not either accelerate the decarbonisation agenda in the UK, not will it result in lower costs for customers. It will delay the decarbonisation in the UK and potentially increase costs for customers.”
National Grid became a commercial business in 1990 when the UK’s electricity industry was privatised. It listed on the London stock exchange five years later.
Pettigrew said when he started out in the industry 30 years ago, there was “slow decision making, bureaucracy and it felt like Yes Minister”. He added: “You need operations that are nimble and can make decisions quickly.”
He said the UK had a world-class energy network and stressed that National Grid was ramping up investment to £5bn a year, from £4.5bn last year. It is putting £2.2bn into interconnectors – transmission cables for electricity to other countries – and 90% of the energy delivered by them will be clean.
Labour argues that taking the companies that control the UK’s £62bn energy infrastructure back into state ownership is key to decarbonising the economy, and would end the rip-off of customers, with shareholders paid £13bn in dividends over the past five years.
Nationalisation would affect National Grid and the network arms of Scottish Power and SSE, which control the pipes and cables that supply homes and businesses with gas and electricity.
Labour and consumer groups have criticised National Grid and other energy infrastructure firms for making big profits and paying out large sums to shareholders, while consumers pay for the cost of maintaining the network through their bills.
Rebecca Long Bailey, Labour’s shadow business and energy secretary, said about National Grid’s results: “These figures speak for themselves … As a country we face a huge challenge to rapidly decarbonise our energy system while bringing costs down for households – and we simply cannot afford to continue with a privatised monopoly that puts the public at such a structural disadvantage.”
National Grid paid £1.2bn in dividends to shareholders last year. Pettigrew acknowledged that the regulatory environment would get tougher.
Ofgem wants to reduce the amount of cash which is flowing into the pockets of shareholders, by setting the rate of return paid to investors at 3% to 5%, rather than the current 7%. However, National Grid argues that a fair return would be 5.5%.
Russ Mould, investment director at stockbroker AJ Bell, said: “Statutory profit is down markedly, returns on equity are under pressure and the company is hit by a write-off relating to cancelled nuclear power plants.
“At least the inflation-protected dividend is intact and reassuringly the company has renewed its commitment to grow the payout in line with RPI inflation going forward.”