National Grid is to invest between GBP3.2 billion and GBP3.3 billion ($5-5.2 billion) this year, sustaining capital spend in its regulated power and gas transmission activities, the UK grid company said Tuesday in an interim management statement.
"Longer term, our growth will continue to be driven by an increase in our UK investment program," the company said.
In November, UK energy regulator Ofgem published final proposals for the one year (2012-13) transmission price control rollover. National Grid accepted the proposals in December, it said.
"These included real increases in revenues for electricity and gas transmission next year and a base real 'vanilla' return of 4.75%," National Grid said. "The revenue increase partly reflects the capital investment we have made over the current control period which forms part of our forecast total UK RAV [regulated asset value] at March 2012 of over GBP22 billion."
National Grid submitted a business plan in November as part of the RIIO (Revenue=Incentives+Innovation+Outputs) regulation process for agreeing new eight-year price controls for its four UK gas distribution networks.
The plans recommend a baseline total investment of around GBP13.5 billion over eight years from April 2013, including GBP6.7 billion of operating costs, GBP5.4 billion of replacement and GBP1.4 billion of capital expenditure. "We expect to receive Ofgem's initial assessment of the UK Gas Distribution business plans in March," it said.
National Grid mentioned the UK Government's December update for the Electricity Market Reform bill, expected to be passed into legislation during 2012.
"The changes envisaged by this legislation will be instrumental in shaping investment in new generation capacity over the coming decade," it said. "It is proposed that National Grid assume responsibility for administration of both the new capacity mechanism and the feed-in tariffs that will replace the existing framework for renewable and low carbon power generation payments. This additional responsibility is not expected to have a direct material financial impact on National Grid."
In its US transmission businesses, meanwhile, a restructuring program is on track to deliver annualized cost savings of $200 million by the end of the current financial year, National Grid said. US investment would be focused on "the improvement and renewal of our existing infrastructure, the delivery of improved customer service and the addition of new customers."
In December, the New York Public Service Commission approved National Grid's request to recover $240 million deferred costs and a portion of recent storm costs in our Niagara Mohawk electric business, it said.
Chief executive Steve Holliday said the company planned to deliver nominal dividend growth of 4% for the 2012-13 financial year, "which represents real growth in the dividend based on forecast inflation of around 3%. We expect to announce a longer term policy in 2013 once we have clarity on the key regulatory outcomes and the resulting medium term growth and investment needs."
