national grid half year results presentation 21 november...

National Grid Half Year Results Presentation 21 November 2013

National Grid - Half Year Results Presentation - 21 November 2013

NATIONAL GRID John Dawson, Head of Investor Relations Steve Holliday, Chief Executive Andrew Bonfield, Finance Director Nick Winser, Executive Director, UK John Pettigrew, Chief Operating Officer, UK Tom King, President of US Businesses QUESTIONS FROM Mark Freshney, Credit Suisse Dominic Nash, Macquarie John Musk, RBC Edmund Reid, JP Morgan Peter Atherton, Liberum Capital Bobby Chada, Morgan Stanley Lakis Athanasiou, Agency Partners Martin Brough, Deutsche Bank Peter Bisztyga, Barclays Iain Turner, Exane BNP Paribas


Introduction

John Dawson, Head of Investor Relations

Good morning welcome to King Edward Hall for the Half Year Results for National Grid for 2013/14

and thank you for joining online for those of you who are joining us. My name's John Dawson, Head

of Investor Relations for National Grid, and with us today of course are Steve and Andrew who will

go through our results presentation in a minute.

Before we start a couple of notices, please could you ensure you turn off all your mobile phones and

other electronic devices that would be very helpful. We will have a full Q&A session at the end,

please wait for a microphone before asking a question just so we can get it recorded and your

question can be heard online.

We may include forward looking statements in our presentation today, so of course please read our

cautionary statement in full which you can see here behind me now.

With that let me hand over to Steve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Steve Holliday, Chief Executive

Thank you John, good morning everybody. The running order for today begins with a few remarks

from me on the highlights of the first half. Then Andrew will take you through the details of our

financial performance for the first six months together with some comments on the financing of the

Group and the reporting implications of RIIO, some of which of course we introduced at our seminar

back in August.

I'll then return to talk about the investment environment and the implications for us at National Grid

as we see it today and of course our progress against this year's priorities and the outlook for the

rest of the year.

We've got with us this morning as usual, Nick Winser and Tom King; we're also joined by John

Pettigrew, who's our COO for the UK businesses.

We've made a solid start to the year as we begin our new regulatory arrangements in both the UK

and the US. And we finalised the important foundations in the US that are critical for future filings

and performance improvements. I'd summarise the year as we're very much on track.

In the UK we've made good progress managing our costs and outputs against the regulatory targets

in all of our businesses. We're close to completion now of a thorough reorganisation of the UK

business, providing costs and operating efficiencies. And in addition we've started to see the

benefits of cost and service improvements resulting from negotiations with suppliers and long term

partners, more on that in a moment.

In the US we're on track towards a robust and satisfactory full year outturn. The new rate planes in

Rhode Island and New York are providing a secure framework for key parts of the businesses. And

we're continuing to invest in network improvements and asset replacement required by customers

but driving growth.


In addition to the normal activities a significant amount of work is being undertaken to ensure

smooth handover of a LIPA contracting business to PSEG at the end of 2013. And I'd certainly like to

take this opportunity to thank all of our staff who are involved in that activity.

While that's going on we remain focused on finalising the important building blocks that will support

further improvements in our business, of which of course the SAP implementation remains key.

You'll recall that this system went live just over a year ago and presented us with major challenges.

In May we had expected to address these during the first half of this financial year. Frustratingly,

despite a significant amount of focus, this now coincides and overlaps with the LIPA separation and

it will not be fully completed until the middle of 2014.

But it remains an area where we can't be distracted, our legacy systems were complicated and un-

integrated and as such they were a major barrier to developing our business. These new systems

are essential, they'll maintain and underpin the health of our regulatory discussions and improve our

ability to manage the business efficiently.

Despite that extra work that's been caused by this our US operations have nonetheless made good

progress towards their Elevate 2015 targets, which I talked about briefly at our full year results. As a

result we're on track to deliver a strong performance on network reliability, emergency response

and other important measures of performance.

Looking at the first half financial results we're on plan, we've delivered a solid start to the year,

operating profits £1.57bn in line with our expectations. Profits before tax £970m [correction:

£979m], reflecting the temporary costs of pre-financing our growth at attractive interest rates.

Overall earnings at £761m, earnings per share at 20.4p, both down 1% on this period last year. A

satisfactory performance and a platform on which we can build in the second half of the year.

And I'm pleased to confirm that the Board have confirmed the dividend at 14.49 pence per share,

unchanged at the half year, in line with the policy that we announced back in March.

We've also taken the decision to suspend the scrip dividend alternative with this year's interim, a

decision that reflects strong underlying discipline around financing our growth and the high take up

last August. Andrew will talk about this in more detail, but before I hand over to him, let me just

cover a few important operational highlights.

Firstly safety - always at the heart of the way we operate and as you know over the last few years

we've sustained good standards. But we refocused our efforts, set ourselves a higher level of

performance as an ambition and in the UK we've delivered a significant improvement.

In October our benchmark employee lots time injury frequency rate improved again and is now

below 0.1 injuries per 100,000 man hours worked compared to an average of 0.12 over the last

three years. We've proven we can deliver performances up with the very best in comparable

industries. That benchmark should set the motivation to achieve even more.

In the US our safety performance is not yet seeing the same results, but we've redoubled our efforts,

particularly in the areas of training and safety communications and we're determined that we'll

bring the level of performance there to a similar high standard.


Our RIIO price controls provide a great opportunity for us to drive efficiencies in our UK businesses

and sharing those with customers and investors alike. Measurement of the progress at the full year

will focus very much on the returns that we're delivering. But let me try at the half year to give you

a little bit of a sense of the progress in the meantime.

In Transmission we've made excellent progress, transforming the gas and electric businesses to

perform optimally under RIIO. Last year's restructuring in gas distribution involved an 11% reduction

in headcount, with a further 5% expected as the full benefits of our new structure kick in.

In the Transmission businesses by the end of this year we will likewise have reduced the headcount

by a similar 11%.

Improvements are being made in many areas, not least of course in the area of total expenditure, in

totex. For example major contract renegotiations are - have already delivered cost benefits,

particularly in some of our alliance arrangements. Let me try and give you just one small example

but typical of hundreds of projects that we do every year.

An original estimate for a package of new connections was approximately £40m, through improved

scoping of that, making sure the scope was absolutely only what was required and then smarter

design and a different way of tendering that project we reduced the cost to £26m, a 30% reduction

on the original estimate. And we have hundreds of projects like that across the UK. And of course

we share those efficiencies with customers, as well as investors, helping to keep bills down in the

UK.

In gas distribution we've been able to lock in a number of benefits in the period, supported by our

previous investment in IT systems, the reorganisation of our field force and last year's renegotiations

with a number of our suppliers.

From a field operations perspective, with the support of our people and their unions we're

introducing changes to working practices which overtime will have a major impact on customer

service, responsiveness and efficiency. And again under RIIO we'll share the benefit of those

changes, helping to keep bills low, but also driving up higher returns for investors.

In addition our new repex, the replacement programmes - strategic partnership arrangements have

got off to a really good start. We're well on track to deliver over 1,000 miles of replaced mains this

year, the benefits of rationalising our supply base and resetting those contracts have locked in unit

efficiencies on cost and a much stronger alignment to all of the incentives under RIIO.

And one of the most significant incentives in that business is the removal of risk from the gas system.

And at the half year stage we've already delivered over 70% of that risk forecast for the whole of the

year, so well ahead of our target.

As a result when we get to the full year, we expect to be able to report meaningful savings and

service improvements that will markedly approve versus the allowed returns.

Of course we're continuing to invest at significant levels in all of our regulated businesses, important

investment for customers, but growing our asset base that will underpin future earnings growth.


The current UK debate around the future cost of energy, while totally understandable is creating

uncertainty for potential investors, particularly in new generation. And I'll talk a little bit more about

that when I return and how we currently see that and our perspective on certainly how it affects our

own investment plans over the next few years.

Overall, we're made a solid start and we've laid the foundations for a good overall performance for

the full year. And with that I'll hand over to you Andrew. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Business Review

Andrew Bonfield, Finance Director

Thank you Steve and good morning everybody. Steve has highlighted that our results reflect the

steady progress we've made for the first half towards meeting our full year expectations.

But before I start I'd like to discuss how financial reporting and performance measures will be

impacted by RIIO. In the new world of totex measuring the performance of our UK business requires

additional information which is only produced on an annual basis. Analysis of IFRS operating profit

movements without this context doesn't give the full picture of the value we are creating.

At the full year you should expect additional more detailed disclosures around regulatory returns,

regulatory revenue movements and IOUs, and regulatory asset values. All of the items our UK CFO

Andy Agg discussed with you in August.

In the meantime operating profit remains the focus of our interim reporting, but as this does not

include the capital efficiency and incentive benefits that will be discussed at the full year results

we've reduced the amount of commentary in the interim statement.

You will have noticed a change in that we've split our UK Transmission businesses into two segments

reflecting the increased difference in the two price controls and you should expect to see that going

forward as well.

Let's look at our financial performance in the first half of the year and unless stated quoted numbers

will reflect business performance.

Electricity Transmission operating profit was up 12%, due to higher revenues from increase

regulatory allowances, including the link to RPI and increased profitability of the French

interconnector which performed very well in the first half of the year.

Gas Transmission operating profit decreased by 18% compared to the same period last year, this was

due to a change in the timing of permanent revenues and a reduction in the allowed return and the

higher gearing ratio required under RIIO.

Gas Distribution profits were up 12% reflecting increased regulatory allowances.

As expected profitability in our US operations was impacted by the loss of deferral income in Niagara

Mohawk, which reduced revenues by around £60m for the first half. As a reminder this has no

impact on our US GAAP returns.


We also had a significant timing effect as we under recovered revenues by £57m. This is seasonal

and we expect to reverse this by the end of the year.

These headwinds in the US were partially offset by revenue increases from new rate agreements,

storm recoveries in Massachusetts, and lower bad debts.

In the other activities segment our UK businesses were broadly unchanged from the comparable

period last year. Profitability in the segment as a whole though was impacted by the US system

improvement costs which Steve mentioned earlier and I'll speak more about in a moment.

At the Group level reported operating profit was slightly lower than the same period last year, driven

by the lower contribution from the US and US system costs.

Across all of our regulated activities in the UK and US we did see some pressure on controllable

costs. Our objective remains to keep these costs flat or lower in real terms but there were a number

of one off charges in the first half which impacted the results. Depreciation also increased as we

continue to grow the asset base.

Overall performance of the Group was slightly better than our internal expectations and as I

mentioned we remain on track for the full year.

Returning to US systems costs, the increased workload resulting from issues during the initial

implementation of our SAP system has continued for longer than we anticipated. This has been a

very complicated project touching around 90 different systems across the whole business. Resolving

the knock on impact of each of the issues we have identified is a complex process which is being

exacerbated by the need to separate the activities of LIPA. This means that the final changes to the

system are not now expected to occur until the first half of 2014/'15.

We are confident that the project plan we have in place will deliver the changes we need and we

expect costs in the second half to be lower than the £90m incurred in this period.

Reported financing costs were 9% higher than last year after adjusting for exchange rates. The

increase was driven by the higher cost of carry on our gross debt associated with pre-financing most

of our annual investment programme.

Now let me just talk a little about our outlook for interest costs and our strategies for managing

these probably very topical after last night's minutes. Over the last six months, long term interest

rates have increased by around about 100 basis points. This increase only brings us back to 2011

rates and they are still a long way from where the levels where they were before the 2008 financial

crisis.

Despite the increase in interest rates we still expect to be able to outperform against our cost of

debt allowances.

In the US around 80% of our operating company debt is fixed. This reflects the way allowances are

set as these typically reflect the embedded fixed cost. So maintaining fixed operating company debt

matches the allowance and manages risk.


The majority of this US debt matures post 2015, so we have limited exposure to rising rates in the

short term. If interest rates continue to increase and are higher when we refinance, we have the

option to re-file these rate cases and request more appropriate allowances.

In the UK our regulated debt allowances for our operating companies are now reset annually using

the 10 year iBoxx tracker. Over the last year the index yield has averaged a real rate of around 1.5%.

As we’ve explained before we are able to issue at rates below that level.

As the tracker rolls forward it uses today’s lower rates to replace higher rates from 10 years ago. So

this year’s average real rate of 1.5% replaces the 2003 rate of 3.5%. As a result, the 10 year tracker

allowance for next year will be 2.7% as I have shown on the pink line. This remains higher than the

average real cost of our existing UK debt.

Much of the debt that matures over the next few years reflects the rates that existed before the

financial crisis. So if interest rates stay where they are, when we come to refinance we will do so at

a lower cost.

As interest rates move, both the tracker and our average cost will move to reflect the new market

conditions. Because of this we do expect to outperform our cost of debt allowance.

The tax rate for the half year was 400 basis points lower than last year, an effective rate of 23%. This

movement reflects the lower portion of US profits in the half year and the 1% lower UK corporation

tax rate. Reported earnings were down £5m and earnings per share decreased by 1%.

Our new dividend policy is to grow the dividend at least in line with RPI inflation for the foreseeable

future. As we advised in March when we announced the new policy, we will hold the interim

dividend flat at 14.49 pence.

The full effect of the new dividend policy on this year’s total dividend will be seen in the final

payment for the year which is due next August. In future we intend interim dividends to be set at

35% of the previous year’s total payment.

Our scrip programme has been a popular option for many of our shareholders and the take up for

the final dividend was over 45%.

In May, I set out our approach to financing our organic growth programme. Doing this successfully

should enable us to deliver attractive total shareholder returns. An important part of that is

maintaining our A- credit rating.

As we go through the first few years of the investment programme, the transition measures on

depreciation impact our revenues and cash flows. As I mentioned in May, the benefit of the scrip on

our retained cash flow to debt metric is an important underpin of the rating. However, if elections

are higher than expected, the additional capital provides little value.

We are suspending the scrip at the interim due to the strong take up at the final. This will limit this

year’s overall scrip uptake to around 30% of total dividends. However, you should expect us to offer

a scrip alternative with the final dividend payable next summer.


Looking to the cash flow, our operating cash flows of just under £2bn were around 5% higher than

the prior year. This was partly driven by year on year weather impacts on working capital and

recovery of last year’s US storm costs.

Net debt remained unchanged at £21.4bn, reflecting a net cash outflow of around £700m offset by

around £800m of favourable foreign exchange movement on our US dollar denominated debt.

Finally our technical guidance for the year, which remains largely unchanged. We updated our

guidance in July for additional US system costs and a number of positives including the French

interconnector.

The French interconnector has performed very well in the first half of the year. We expect this to

continue, but not to the extent seen in the last six months.

As I mentioned earlier, US system implementation costs will continue, albeit at a lower rate in the

second half.

And we are now expecting a lower full year tax rate of between 26 and 27%.

At the Group level we expect capex to be lower than previously guided at around £3.5bn. And we

also expect net debt to increase slightly less than our original forecast, and are now guiding to an

increase of £1bn, excluding foreign exchange.

So overall I'm pleased with the progress we've made and there are no material changes for our full

year outlook. With that I'll hand you back to Steve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Strategy, Growth and Returns

Steve Holliday, Chief Executive Officer

Thank you Andrew. Now while we have been focused on execution and delivering the benefits of

our new regulatory arrangements, the news flow in the UK, in terms of energy policy, generation

margins and potential price caps, has created a huge amount of uncertainty; all of which I'm sure

you're very aware - and in particular around the timing of new power generation.

This is in contrast to the US, where, interestingly, the focus seems to have moved the other way. All

three states in which we operate are focusing on customers’ needs for future investment.

Net net, we still see plenty of opportunity for organic investment, in other words - where we can

invest at 100% of RAV or rate base on both sides of the Atlantic and drive sustainable value.

Let me take you through these in more detail starting here in the UK. To remind you of our thinking

only last year when we were in the process of agreeing our forecast expenditure allowances for the

RIIO period with Ofgem. The headline allowances for totex were set based on our Gone Green

scenario with a number of agreed overlaid adjustments.

Broadly, this meant that over a ten year period, the eight years of RIIO and a further two years

34,000 megawatts of new generation would connect. With 2,000 megawatts a year expected for the


first three to four years of that period. And the headline allowances for those early years reflected a

growing amount of load related expenditure and a relatively flat profile for non-load related

investments; together of course with the previously agreed large strategic reinforcement projects.

Since then, unsurprisingly, we've seen a slowdown in the start of new generation construction.

Currently, just under 2,500 megawatts of new generation will require connecting to the transmission

system over the course of the next two years. We've always known from experience that not all of

the contracts that we have for generators to connect ultimately leads to a connection, but compared

to this time last year we've seen a substantial change to this profile of contracted generation.

This means that as things stand today the currently low level of connection is likely in our view to

continue for the next few years as many projects are potentially delayed.

But while that's going on, interestingly our total contracted generation out to 2023 list has grown,

showing that customers are still looking to invest but are waiting and looking to do so when they

have certainty and certainly later than we previously expected. So it's not unreasonable for us now

to plan for the scenario where our connection investments are low for the next few years.

Nevertheless we'll still be investing significantly in load related and strategic projects. We'll be doing

extensive pre-works, continuing to invest to reduce constraints and finishing our major

reinforcement project like the Western High Voltage DC link from Scotland to England and of course

the huge investment in power tunnels under London.

At the same time our non-load capex continues at a material level, reflecting the underlying age of

the grid and the need to replace critical infrastructure. Non-load related capex last year was around

£500m and is expected to be broadly the same this year. And this of course is appropriate at a much

higher level than at the start of the previous price control period.

In Gas the agenda has been different for some time. Our plans for Gas Transmission always had our

major investment loaded towards the end of the eight year period and this still looks like a

reasonable assumption.

In Gas Distribution the focus remains on the repex agenda, replacing or lining aging metallic pipes

and removing risk from the system. In this respect the RIIO base plan should remain unchanged,

adjustments only arising from changes to the Health and Safety Executive in the prioritisation of

these activities.

And of course we clearly don't have a crystal ball so some things could even accelerate investment,

what might they be? Possibly the new strike prices when they're finalised, or could it be when the

secondary legislation for EMR is actually enacted in 2014 and firm contracts are signed?

To summarise our view though the overall eight year UK investment programme still feels about

right, but it's clear it's going to be phased more towards the latter years.

Importantly when certain outputs are required the totex allowance will flex, so RIIO was designed to

handle exactly this sort of uncertainty. That ensures importantly that customers do not fund

outputs that have not been delivered yet, helping to minimise any increase in bills, despite what

some might suggest.


And we've built even further flexibility into our financing, our supplier arrangements and indeed into

our own management and engineering capabilities. So regardless of these current uncertainties, we

expect us to invest a significant amount in essential assets over the next two to three years. And this

will afford our business the opportunity to outperform our regulatory contracts, driving growth and

generating good returns for shareholders.

If I look out to the medium and the longer term growth expectations remain strong. The chart I

showed earlier demonstrated there's a strong pipeline of generation projects that have signed a

connection agreement. Even in the event the UK electricity transmission capex remains at this level,

right through to 2015, we'd still expect the RAV growth in that business to be between 8 and 10%

per year and overall for the UK to be at 6%.

Turning to the US where longer term growth opportunities continue to expand. Six years ago we

were investing $750m a year. Since then we've more than doubled that to $1.8bn and enshrined in

the existing agreed rate plans this grows further to $2bn next year. And we now expect with future

filings and requirements that will progressively increase over time to around $2.5bn a year.

What's causing that? What's behind that? Firstly shale gas, it continues to drive the desire for

network expansion to meet the demands of many customers who want to convert from oil to gas.

Secondly, again partly related to shale - significant changes in the mix of generation, more gas

generation being built, and a significant drive towards renewables, all requiring the build out of new

transmission.

And lastly and thankfully we're not talking about a major storm today, although as I say that I worry

I'm tempting fate, it's the first year for a while that we've not had a huge storm in the first half of the

year. But the last few years of recent extreme weather have undoubtedly put a real focus and a

right focus on the resilience of network and the modernisation of infrastructure that has become

old.

In part those drivers will be reflected in increased investment allowances in the rate bases of our

electricity and gas network businesses. But in addition our business development pipeline continues

to grow. Generation in Long Island is now well positioned to move forward with repowering. It's

been talked about for a number of years. We're now in advanced discussions around a possible

investment of up to $1.5bn in the Barrett facility with a decision to proceed expected sometime

during the course of 2014.

Staying in New York State for a moment the New York Transmission Consortium has been working

on a super highway to connect Downstate demand with Upstate generation, particularly renewable

energy. And it's progressing well. This is a $1.3bn project of which we represent a 21% share. It's

currently expected to be finalised with state support in early 2014.

And finally the Clean Line projects, in which last year we purchased an option to invest. They've

made good progress, just this past month the state of Kansas granted planning permission for one

project, known as the Grain Belt Express Clean Line, construction work on that $2bn project is

targeted to start in 2016 with commissioning in 2018.

All in all an exciting range of opportunities - decisions yet to be taken, but potential for attractive

secure long term returns. So together with our UK investments our programme of organic growth

options remains strong.


But let's turn back to this year and this year's priorities - unchanged. This year is and continues to be

all about execution. In the UK we've made good progress, streamlining the organisation the focus

now is on making sure we get the benefits from that. Delivering the outputs and driving

outperformance.

In the US, as I said earlier, while ensuring we perform under our new rate plans, we must maintain

this focus on completing the SAP implementation. Getting that system in place was the foundation

for further performance improvements, it's going to drive both customer service and importantly it

will generate opportunities for efficiencies to drive higher returns.

As Andrew said our expectations for the full year are unchanged with that we shared with you in

May. First off is a solid start, we're confident of delivering the returns and the growth that are

necessary to underpin our longer term ambitions. And with that we'd be delighted to take your

questions. And I think there are, as John said, some microphones that will be available. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Questions and Answers

Mark Freshney, Credit Suisse

Just two questions, for you Steve, if a future UK government were to impose a price cap on retail

and business bills, and you were asked to contribute towards that, what kind of legal redress would

you have and how can you be sure that your revenues really are firm?

And for you Andrew I have a question on the one off costs relating to restructuring and I think the

gas holder provisions, will those be included within the ROE estimates that you put out at the year

end? Thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Let's, if I may Mark, just use your question just to talk about this issue for a second, shall we?

Affordability is a real issue, it's not a joke it's a serious issue, but it's only one of the issues that we

clearly have to address. Reliable energy supply is an equally very important issue, not just for the

consumers, but also for the economy. And of course we've got our desire to ever progressively

clean up the mix of energy. I mean that trilemma exists in the UK, it exists all over the world.

Getting the debate and getting the balance and the trade off right is something that needs to

happen and happen pretty quickly.

Our business of course has just been through, as you know all know, a really rigorous review by

Ofgem and by stakeholders of the costs of running our business, providing reliable safe networks day

in day out, as well as stress testing the £26bn of investment that we need to make. So we've just

been through that two year review period. And that's contributed an £11 increase to the increase in

bills this year; so for the hundred odd pounds that we're all paying as consumers extra this year if

we're average bill payer, £11 of that is associated with the beginning of the RIIO period.

For the next seven years that's an increase of £1 real per year for the next seven years. That's all it

is, which allows us to run these businesses in the way that we have in the past and equally invest

£26bn of critical investment that's required, so that's what we need people to actually focus on.


But it's right there's a debate about the balance of - you know how quickly should we clean up our

energy mix, but we clearly need to make sure, as I was remarking that generation gets built in this

country. So pretty quickly getting back to what needs to happen, get this energy bill through

Parliament, that piece of legislation is crucial to give investors the clarity for the future.

And let's not forget just how stable the UK has been for such a long period of time. The World

Energy Council actually do a ranking you know on sustainable energy investment environments to do

with policy and regulation. The UK is in the top five, that's not surprising we're attracted a huge

amount of investment over the past. We're now entering a phase where we need more investment

than ever, so creating confidence, real stable environments, the right incentives and the confidence

that our regulatory environments that have worked so well for a long period of time, aren't

interfered with with short term initiatives is hugely important.

Andrew do you want to pick up? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Yes Mark on exceptionals we have never included exceptionals within ROE calculations that's never

been part of the calculation methodology.

On the gas holder costs part of the reason why they have been classified as exception is for the size

of them, it is a one timer because effectively now we are in a situation where we'll be demolishing

them over a period of time and we'll actually receive some return from Ofgem, but it will be spread

out. But because a decision has been taken to transfer them out of cash distribution into the

property company, effectively it triggers the charge, so effectively that's what's triggered it. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mark Freshney, Credit Suisse

Okay, thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dominic Nash, Macquarie

Two question as well please, the first one is a follow on from Mark's question - what proportion of

your revenues come from retail and if the credit ratings of UK retail gets cut is there any credit

impact on yourself or your ability to raise debt?

And secondly on interconnections as the carbon tax starts to really kick in and the UK power price

diverges from Europe, do you see further opportunities in building interconnectors and could this be

quite a major profit driver for you going forward? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


So let me pick up the second one and Nick you might actually pick up the complexity of the way the

retail charges flow through and the assurance that we have actually of who picks up those charges.


But let me just take the second one first because it is an important point in the overall context of

securing the lowest possible cost reliable energy supply as we can in the UK. And it's been very clear

for a long time that the UK is under interconnected against the position that it would like to be and

there were a number of projects, as you well know that have been in my part on the drawing board

for a long time, a long time. And we need some of those to actually come to fruition. So certainty

around the regulatory regime is important.

We've just actually had a piece of independent work done by a consultancy to look at, if we were

more interconnected, if three extra gigawatts of interconnection was available what might the

benefit be to the UK? That analysis says a billion pounds a year potentially for 20 years. By

equalising prices and allowing customers in the UK access to lower cost electricity.

So we're very determined Dominic to try and find the right regimes around an opportunity to build

more interconnectors as soon as we can. They are challenging from a technical front, but we've

proven that we can do that. And I think it's a big piece of the mix and the jigsaw for the future,

ensuring we get reliable supplies, but likewise doing that at the lowest cost to customers.

Nick the way our retail charging works and others pick up if - by implication, somebody fails I guess is

your question Dominic? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nick Winser, Executive Director, UK

So the arrangements in the industry are designed to include provisions for the failure of say a DNO,

for a distribution company there are special administration powers in there, they are included in

there to give certainty that the industry will continue to function in that way.

So ultimately that the assurance that sits in the whole of the regulatory structure against - I mean I

think it's a remote possibility, but against the failure of a distribution company or a supply company

because of a price freeze of some form. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

John Musk, RBC

Two sort of numbers questions, firstly on the scrip dividend and I guess related to capex, which is yet

again coming in a bit lower than what you would have guided a few months back for this year and

for next year, how does that balance into decisions around the scrip dividend because it would

appear that the savings from capex are roughly equal to come of the savings on the scrip dividend?

So does that pay into your decision on maintaining the scrip dividend over the longer term?

And then secondly just a simple one on the SAP implementation costs, can you just update on what

the total costs are now for the SAP implementation and is there any way you can talk about a

payback period on those costs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Andrew cost overall and I'll do payback. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Okay, on the scrip dividend first to start that, on the where we are on that is the RCF to debt metric

is not impacted by capex, so it's a pre capex measure, RCF to debt is probably the most important of

the credit metrics which scrip benefit is from. So to be honest with you the capex change has no

impact on decisions relating to that.

As regards SAP costs, we've capitalised about $240m of spend which is actually going into rates and

that will be recovered through other future rate filings, but it's already in for example Niagara

Mohawk and we will be recovering that.

Obviously the expenses last year was about £112m [correction: £117m] and the £90m [correction:

£92m] we've incurred this year to date, will actually just be - basically will not be recovered through

rates. The quickly we get things obviously running up and forward the quicker we can actually move

into a more regular rate filing process. So that will be the way we get the payback John, through SAP

as well as obviously efficiencies from running the business better. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

John Musk, RBC

Sorry, so is the total cost the 240 and we can add on the 112 [correction: £117m] and the 90 [£92m]

as well?

[Note: see technical guidance in the press release re costs in H2 of 2013/14] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Yes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


And the important point in there you know is this is not our finest hour, you know the cost of

remediating this system are to our account, the investment in the system originally that will benefit

customers and replaces systems that had to be replaced were enshrined in lots of rate plans. But all

the remediation is to our cost actually.

And yes, when we're through it we'll get the benefits, but as I said, you know we had to replace

these whole systems, the new systems will deliver benefits, but they don't deliver any benefit until

we get these problems resolved and get the system working properly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Edmund Reid, JP Morgan

Two questions, the first one is on US Transmission, I believe there was a ruling earlier this year about

ROEs in US Transmission and I wanted to understand what the meant going forwards in terms of the

return? And then secondly I don't want you to go through the entire presentation you gave earlier

this year, but the impact of lower UK capex on your earnings under RIIO? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Let's do the first one and make a remark and then Tom and pick it up. The challenge to ROEs is

continuing, you know that has not yet run its full course actually in terms of the decision. So Tom

can comment on exactly where that is, that's been going on now for 18 months plus.

In terms of future investments I talked about these things as opportunities intentionally, you know,

when those projects come to fruition and they go through a filing and we know the return then we

have a decision to make about whether that return we believe is adequate for us to invest, so you

know that's a decision that's pending for the future Ed obviously. But the challenge to ROEs in the

northeast that's been going on now for, as I said, at least 18 months and continues. Tom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tom King, President of US Businesses

Ed, it is a challenge in the northeast, I think now it's national. As you know there's been other

regional challenges to it. So ultimately where the US sits relative the ROE decision is really the

composition of FERC. We now have a chairman that is leaving, there was a chairman nominated,

that's been withdrawn.

So where the FERC finds itself is in basically a four commissioner chairmanship, excuse me -

commission, the expectation is this issue doesn't really move forward until we get a new

commissioner named and they get confirmed by the Senate and then this issue will pick back up and

be a large debate within the US.

Ultimately the debate gets to the broader issue of commission policy on incentives and returns to

attract investment in transmission. I think that will play out in 2014, and we really won't get a

decision until the second half of calendar 2014.

As to your term, the decision reached within our filing, that was only an administrative law judge

recommended decision. So it's basically been put aside waiting for the commissioners to be names

and the commission to move forward with the overall major policy issue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


And the administrative law judge ruling would be less than $10m impact on revenues, so it's very,

very small. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Peter Atherton, Liberum Capital

Three questions but they're all pretty simple you'll be pleased to know. Firstly on SAP obviously

there's cost implications of a difficult implementation, but are we going to have any secondary

implications around customer service levels or regulatory information flows that could lead to other

actions onto the company in the future?

On Labour's sort of proposals, one of their proposals is to abolish Ofgem and replace it with

something else. Now I'm sure you would hope and expect that Ofgem Mk 2 would just pick up the

current regulation and carry it forward, but have you had specific discussions with Labour yet about

that and have you received direct assurances from them that that wouldn’t be the case?


And then thirdly on the sort of hiatus in new build generation in the UK, how long before you move

from sort of - I use my own words, but a sort of amber alert on security supply to red alert, in other

words how long can that pause go on for before you start to get particularly concerned? Thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Good questions, I'm not sure they're short questions Peter either but nevertheless, short to ask. SAP

I mean the simple answer is no, you know we did have some serious issues at the beginning of last

year to do with payroll systems not working, we've worked through all of that and in the US they did

lead to some challenges from outside, in both New York and Massachusetts, all of those have been

fully resolved and that system is now working, it's just the rest of the system we've got to continue

to get implemented and then get into our rate filings.

And this will, as I said, I mean one of the benefits of this system ultimately is the amount of double,

treble checking we've done on our rate filings to make sure that data is absolutely accurate, that's

one of the things that when the SAP system is working it will relieve those costs in the future.

Ofgem, it's not for me to comment on the future of Ofgem that's clearly a political decision. I guess

the only observation I would make the fact that Ofgem do quite a lot of things don't thing and I don't

think that's widely understood. You know their focus on the regulation of monopoly networks,

which of course is our piece of the business, I think if you go round the world they're held in really

high esteem actually - for the way investment has flowed to the UK, their introduction of incentive

based regulation is something that many others have copied elsewhere in the world.

And RIIO already looks as if it looks quite sensible in terms of mechanisms of flexibility that have

been put in place, and not least the fact that everything we can do to drive down costs will benefit

bills in the future.

But their other duties around the operation of markets, the monitoring of markets and E-Serve and

things, you know there's a lot for others to decide and I don't think it's for us to really comment on.

Red alert to amber alert, you'll follow this as closely as anybody, the position we're in as we go into

this winter and Nick and add to it if he wants to, is the same next winter. So if we manage through

this winter, which is a 2008/'09 replica in terms of the margin. As you know we're consulting on two

new tools for use next year, one - to have incentives for mothball generation to make themselves

available in the peak of the winter. Two - for demand side response actually. And of course we're

always talking about the peak, you know, the worse day of the year, that few hour period around

the peak.

So we'll see how those go during winter '14/'15 I think before we speculate about - well what does

'15/'16 look like and you know how tight are things getting. Unquestionably it's tight for the next

few years, and in my view, and our view, you know getting EMR in and getting generation to begin to

be constructed clearly is something we urgently need to get on with, we really do.

Nick do you want to add a comment around next winter or anything? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Nick Winser, Executive Director, UK

The only thing I'd add over the five year period is it's sort of - it depends on GDP. And Ofgem ran a

good sensitivity actually in the Winter Outlook on GDP, I mean broadly at the projections that we did

at Winter Outlook that we picked up on the forecast economic growth then. You set up these sort of

tight, but you know, manageable margins right through, through to the end of the decade, as long as

all of the existing generation stays on, because basically you've got electricity demand gradually

easing away.

We need to keep an eye on that and see what's happening in terms of updating those GDP growth

figures and just see how that comes into play and we'll do that annually in the normal process. But I

think that's the additional thing to watch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


It is and just FYI, demand on the electricity transmission system in the UK first of the year on last

year on a weather normalised basis, down 0.7%; going in the right direction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bobby Chada, Morgan Stanley

I just wanted to follow up on some of these investment options that you've been talking about, or

have highlighted in the presentation. So there's the Long Island Generation - is that something that

you would expect to go into rate base?

The same for the transmission project, I assume that's going into rate base and will you have to file

and agree those with the state regulators in advance?

And then on Clean Line is it going to be a pure regulated transmission piece, or will there be a

merchant aspect to it? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Rate base, rate base and some merchant, it will be a PPA on Clean Line where the capacity will be

bought by someone to transmit their renewable energy for a 20 year period, a bit like an

interconnector actually.

But no decision has been made on any of these yet, I just wanted to give you an update from - it's

quite interesting actually how some of these things are clearly accelerating in the course of the last

six months.

Our investment thesis is not changing, you know we like investing in regulated assets, we don't put

our cash to work until we totally understand the way in which we'll collect our revenues and that

those revenues are secured, that's exactly the way that we'll look at all three of those opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bobby Chada, Morgan Stanley

And to follow up on Dominic's question about interconnectors and the carbon arbitrage if you like.

Do you see much demand from people to sign up because I assume you wouldn't do an


interconnector unless you had committed effectively take or pay contracts, just like on some of the

Clean Line stuff? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


That's the whole debate that's going on to a certain extent about - you know do you wait for

customers to come, or is the benefit for the UK of interconnectors so much actually that we should

be investing as a society in that important infrastructure and underpinning that investment

somehow.

So Ofgem are out thinking about the different mechanisms. They're doing the right thing asking

what's the mechanism that ensures that we get these investments made and how do we make sure

that customers aren't paying too much for it. We do need a framework created pretty quickly

though because as I've said I think those are important. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lakis Athanasiou, Agency Partners

If I read what you're saying correctly on capex in the UK this year and next you seem to be on a

trajectory that is significantly below the base line by a few hundreds of millions of pounds, it looks to

be mainly in electricity transmission. Could you give a flavour of what that's coming from? Is it in

terms of outputs, in terms of short term re-phasing and in terms of efficiency? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


There are two things going on here so we'll talk about efficiencies at the full year, that's exactly what

we'll talk about at the full year because we're only half way through. So what will affect that

number overall as we signalled before is if we're successful it will be lower, that's what totex is all

about actually, these benefits will get shared to investors and customers.

But I'm identifying very clearly that the connections piece is reducing. Only last week we announced

the postponement of a project across Suffolk - Bramford to Twinstead, it's a hundred plus million

pound project. You know not huge in the context of things over many years, but that's indicative of

the fact that connections have gone back.

So the reduction in capex is purely associated with connections reduction, but then our savings and

we'll cover that off very fully in the full year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lakis Athanasiou, Agency Partners

So there hasn't really been any short term re-phasing stuff, it's a mixture of connections and

efficiency? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Yes it is. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Martin Brough, Deutsche Bank

A couple of questions, one on smart meters and the rollout of the timetable got pushed back a year,

now obviously it's good for the legacy gas meters, but in terms of the gas distribution obligations to

facilitate some of the rollout and the costs that might be incurred, could you just talk about those

costs over the next few years and whether you'll have to sort of go back and ask for some of that to

be recovered?

And then the second question was Boris and his island, the Isle of Grain, have you spoken to him

about that? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Well on the first question we have no costs associated with the smart meter rollout at all, we're not

in that business. The business - it doesn't affect our regulated business at all, clearly the run down

on meters as you rightly identified the retirement of the old gas metres continues to - every year you

look at it and it seems to go back slightly. But we will not be investing in anything that's associated

with the implementation of smart meters. The business we had that might have been on stream we

sold two years ago. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Martin Brough, Deutsche Bank

As I understand it - or some of the other gas distribution networks seem to think that they'll have

more callouts and more costs and that there isn't a mechanism in the control … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Well if you're assuming that a contractor who does a smart meter then doesn't install it properly and

there's a gas leak we might get more callouts I agree. It's not something that we've looked at at all

frankly. We expect the supply companies that are responsible for the rollout to ensure that the

metres are correctly and safely installed.

Your second point, the Isle of Grain, we have done a lot of communication for a number of years

now to explain that airport actually is close to the Isle of Grain LNG terminal in which we've invested

just shy of a billion pounds, it potentially inputs 24% of the UK's gas.

So if you're thinking of building an airport there you just have to have a broader thought process

about that’s going to need moving somewhere and it's going to cost rather a lot of money. I think

some of the publicity recently has come through to sort of identify that to a few more people than

perhaps had realised it before. And it's not just our facility, there are a lot of other industrial

facilities as you know on the Isle of Grain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Peter Bisztyga, Barclays

Two questions, firstly about the US, as you see demand for new gas connections grow over time, is

there a risk - is there going to be a growing risk of a mismatch between when you spend the money


and when you get the returns for it, or do you expect the regulation to evolve in the US in a similar

way to that which it has done in the UK?

And then secondly, just going back to the UK politics has the Labour Party engaged with National

Grid at all on any of their sort of proposed policies and what the implications of delayed generation

investment might be? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


On the second one no is the answer, I don't think they've come up with a fully thought through

policy yet actually, that's what I understand they're working on, so we've not been in debate on that.

On Gas in the US we're working with two of regulators in particular, in fact all three in reality, but

certainly in New York at the moment and in Massachusetts about how can these investments to

expand that gas system get made in a strategic sense. Because it needs - these aren't about

connections, the simple, easy connections are the ones that are being done. But there are still just

under a million consumers in our franchise areas who today are heating their homes with oil who

can use gas. But to capture them the networks need some pretty big expansions.

Of course this happened in the UK a very long time ago, you know how to you socialise the funding

of those big expansions? Those discussions are alive at this very moment, to put in place the

regulatory arrangements so that we are incentivised to get on with those investments. And they'll

certainly be a big part of what's called Kedli the old Key Span business on Long Island where there's a

huge chunk of customers there, almost 450,000 who want to get at gas and can't today. So it will be

at the heart of that rate plan, which we're expecting to file in the second half of 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Iain Turner, Exane BNP Paribas

Can I just ask a couple of questions, firstly what does half a billion dollars of SAP expenditure actually

look like on the ground, it seems an amazing amount of money for new IT systems and putting them

right?

And then secondly on the capex and the kind of slippage, you've talked about how you think over

the eight year period you'll catch up with it and I just wonder to what extent that's a little bit of

wishful thinking. Because if you look at things like gas storage, the government is not going to

support that now with the subsidy and I from memory and it is a slightly hazy memory, there was

about 800 million of capex in your GT1 business plan for connecting up storage?

And then things on the generation side of things, like new nuclear that seems to be slipping back to

the right hand side of the screen as well. And again there was a lot of money in your plans for things

like in East Anglia for Bradwell and Sizewell, connecting those up, and those all seem to be shifting to

the right. So I just wonder to what extent that's wishful thinking that the capex programme will end

up around about the same number as you thought it was going to be for the eight year period? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



If you look at that chart that I showed, where it's dipped and it goes back up again, because we've

actually got today, would you believe it 101 gigawatts of connection agreements out to 2026. I don't

think we've ever had that in our history actually. The question is how much of that is going to come

forward.

I think we need to be very careful about knee jerking on six months information. As I said, you

know, things can change very quickly and I hope they do actually, I hope EMR really does put an

impetus into the generation market, back to Peter's question earlier.

On the gas stuff we actually had a number of these things that weren't in our baseline plans actually,

although we did apply for them, you're quite right. So our gas allowances as I said feel about right to

us at the moment, they do. You know there were some things that might be in, some things that

might not be. And awful lot of our capex is to do with compression replacements and

reinforcements around there.

So it's still - it's just too early to tell Iain, I mean your points are well made, I don't have a huge

defence, are you right, are we right, I don't know, we need to handle this as we go forward. The

important thing is this what RIIO was designed to do though actually, to flex, to make sure that

customers aren't paying for things they don't need and our revenues will flex when all of a sudden

we're investing an awful lot more in 2015 than was originally forecast, etc.

But our job for investors is to just keep giving you the best information we've got today I think

without any question.

On SAP? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


I mean SAP as we said, tried to say is incredibly complex, this is not just a financial systems SAP that's

been implemented. It goes beyond that, it goes into things like storm management systems and

front office systems, how we do accounting for revenue versus capex and opex and so forth. So it's a

hugely complex system which is one of the challenges.

So when you had the knock on impact of the storm and the issues around the payroll a lot of work

has had to be done about remediating, actually getting data back and corrected. So a lot of the cost

actually associated, particularly on the remediation side is unfortunately very expensive consultants

who are coming in to actually do work for us, because effectively everybody was out actually on

storm duty at the time last year.

So that's one of our challenges, which has been to get them out and get internal resource available

to do that work. And that's part of the process, which has continued, it's on going.

As we say it's slightly exacerbated by LIPA because at the time we did - in May when we actually

announced the results were weren't expecting LIPA to take over the SAP, or PSEG to take over the

LIPA - our version of SAP for LIPA. They've actually elected to do that, so it shows that the base

system is good, it's just unfortunately not in the situation yet where we've actually got it stable and

operating 100%. But that's delayed some of the final fixes, because then you get into the year end


and stocks reporting and so forth. So that's all been part of the challenge we've been trying to deal

with. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


We've just got to see this thing through and get it finished. Last question, Ed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


Two questions, one of which is exceedingly boring so I apologise in advance; you changed your tax

guidance to 26 to 27% I believe, what's driving that and would you expect it to continue into next

year?

And then my second question is sort of re-asking my second question from last time, which is the

lower capex and when it feeds into your earnings numbers? So from memory I think there's a two

year lag, so it would feed into the '15, '16 revenue numbers, but I was just wondering if you can go

through that in a bit more detail? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


On the tax guidance the principal driver is the mixed profits, UK/US, UK tax rate has continued to

reduce, obviously that's benefitted slightly this year, although we were aware of that at the time

when we did the May. But most of it really relates to purely just the mix of profits, UK versus US and

that's a big driver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


And on your other question, I'm going to be slightly cheeky Ed if I may, you're right about the two

year lag, so the allowances or fixed, we'll pay back, and one of the things that Andrew alluded to in

the seminar, we can't do it at the half year, it doesn't make any sense at all.

But at the full year we will do a reconciliation in line with the seminar, in terms of these IOUs. So

how much - back to Lakis' question, how much have we actually saved that are savings that we'll

benefit from and customers will benefit from versus delays and how much is therefore going to go

back to customers in two years' time. So we'll true all those things up with our full year results.

If you'd like to go through the seminar again, my cheeky remark is I know Andy Agg is here, he

carries those charts with him at all times, he'd be delighted to run you through them again

afterwards, I'm sure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


A very good punishment thank you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



Thank you everybody, thanks for joining us this morning, we appreciate it.

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END

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national grid half year results presentation 21 november...

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