National Grid plc (NG) Earnings Call Transcript & Summary

[Presentation] Good morning, everyone, and a warm welcome to the 2023 Annual General Meeting of National Grid. I'm Paula Reynolds, Chair of the Board of National Grid, and it's lovely to see you all here. Thank you for joining us. Today's meeting is a hybrid one, which allows for live engagement for all attendees wherever you are, wherever your location. We'll cover the details of how to participate in a moment. But first, it's my pleasure to introduce you to the Board members who are in the room with us today. First, I'm joined on the stage by John Pettigrew, our Chief Executive; and Justine Campbell, our General Counsel and Company Secretary. The other Executive Director in the room is Andy Agg, who is sitting in the front row. So he'll raise his hand as will the other directors as I introduce them. Therese Esperdy, Earl Shipp, Ian Livingston, Ian Mackay, Tony Wood, Anne Robinson, Jonathan Silver and Liz Hewitt. We have 1 director for whom the airline gods did not cooperate. And Martha Wyrsch is joining us online for this meeting. So now the order of the meeting. I will shortly pass the podium to John, who will share with you what has happened in the past 12 months and a bit of a vision of where we go from here. Justine will then run through the formal business of the meeting where we'll consider the resolutions set out in Notice of Meeting. After those portions of the meeting are hand, we'll then take questions from attendees. We'll have questions online. We'll have questions in the room, and Justine will very skillfully alternate between in the room and online to get questions answered. Please remember that your questions are to be directed to the business of the meeting. If you have other general questions not related to the business of the meeting, please understand that we'll ask you to hold those questions until after the business meeting is formally adjourned. And John and Andy and I will be out in the lobby after the meeting. So if there are remaining questions, we'll be glad to get to them. As I said in the letter to you in this year's annual report, it's a time of unprecedented activity in the energy industry occurring against a amidst a global backdrop of significant geopolitical upheaval. In the U.K. and in the U.S. National Grid will be connecting new renewable power sources and be reinforcing the networks to enable consumers to electrify more of their end uses in their homes and businesses. You can see that in the video. Obviously, it's suggested there. And it's a digital world, and many of us feel a bit lost if we don't have our mobile phones with us at all times in charge. So ensuring a 100% reliable energy delivery is really integral to the modern world in ways that it wasn't in the past. The success of meeting the goals of net zero depend on decarbonizing power and then delivering that clean power when and where you need it. This is a massive undertaking of extraordinary complexity. And it's this very complexity and the scope of this that has drawn the individuals I just introduced to serve on the National Grid Board. We consider ourselves to be the stewards of the company. And of the work of almost 30,000 individuals who are employed by National Grid in the U.K. and the U.S. as well as thousands of contractors who would install and maintain facilities on our behalf. These dedicated professionals are through their work, setting about changing the world in a sense. And it's not just in the U.K. and the U.S., but because of the capability of high-voltage direct current cable, National Grid has contributed to the energy security for Europe as well through, among other things, our joint venture interconnectors business. So it's not just any board seat or time. It's really a privilege for me and for my fellow board members to be part of the extraordinary efforts that this company is undertaking as it innovates to meet the challenges in front of us. So to hear about the specifics of our strategy, our performance, please welcome our CEO, John Pettigrew, to the podium.

Thank you, Paula, and good morning, everyone. So as I reflect on the last 12 months, NG has certainly been in the spotlight, not least due to the affordability issues caused by much higher commodity prices. We've seen this galvanized governments and regulators resolve to accelerate the energy transition as they look to manage the current affordability challenges, increase the level of renewable generation and deliver greater levels of domestic energy security. National Grid is at the heart of this push, empowering change through investment in critical energy infrastructure. And with the completion of our strategic pivot our portfolio is repositioned to capture attractive growth for many years to come. But we're also delivering the energy transition right now through record levels of investment across the U.K. and the U.S. Northeast. For example, in the last 12 months, we've energized the world's first T-Pylons as part of the Hinkley Connection project, which will connect 6 million homes and businesses to low-carbon electricity. And in the U.S., we broke ground on our $600 million Smart Path Connect transmission project, which will bring clean energy from the Upstate New York to demand centers Downstate. And our significant investment has driven strong financial performance. But before I turn to our financials, I'd like to share with you some of the actions we've taken as a responsible business to play our part in helping people, customers and communities through such tough times. We're aware that help is needed right now. And that's why we announced the early return of GBP 100 million of interconnected income, where we collected revenues above our cap. And that's on top of the GBP 200 million of revenues we'd already committed to return early. We launched a GBP 50 million energy support fund in the U.K. to support people struggling with energy costs and have helped 30,000 households to date. In the U.S., we launched our Customer Assistance program, contributing $6 million so far to help support vulnerable households. And we'll continue to do what we can to provide short-term relief to our customers and communities. But it's clear that the only way of solving the energy crisis and bringing customer bills down in the long term is through significant investment in the clean energy transition. So let me now turn to our financial performance. On an underlying basis at constant currency, operating profit rose by 10% to GBP 4.6 billion. This reflects a full year of earnings from U.K. Electricity Distribution, good operational performance across all of our regulated businesses and strong performance from National Grid Ventures. This was partly offset by the sale of our Rhode Island business and the energy support fund we launched to help our vulnerable customers this winter. Capital investment from our continuing operations was a record GBP 7.7 billion, 8% above the prior year at constant currency. We've also delivered a further GBP 236 million of savings within our cost efficiency program on top of GBP 137 million previously announced and within close reach of our GBP 400 million target. And in accordance with our policy to grow the dividend in line with U.K. CPIH, the Board is proposing a final dividend of 37.6p per share. This takes the total dividend for the year to 55.44p, an increase of 8.77%. So let me now turn to our operational performance. Starting with New York, where we achieved a return on equity of 8.6%, 96% of the allowed level. We delivered capital investment of $3 billion, an increase of $340 million resulting in a strong rate base growth of 9.9%. We received an additional $2.8 billion of funding to enable over 2 gigawatts of renewable generation in Upstate New York in support of the Climate Leadership and Community Protection Act. In New England, we achieved a return on equity of 8.3%, up 30 basis points on last year. We delivered capital investment of $2 billion, which excluding Rhode Island was $276 million higher than last year with rate base growth of 6.3%. And over the last few months, we received over $1 billion of funding outside of our rate cases for new clean energy investments. In the U.K., our electricity transmission business continued to perform well. Capital investment increased by 9% to GBP 1.3 billion. The business delivered a return on equity of 7.5%, 120 basis points above the allowed return of 6.3%. And in December, Ofgem confirmed the award to National Grid of 17 major onshore transmission projects to connect more offshore wind generation. In our U.K. Electricity Distribution business, we delivered a return on equity in the final year of ED1 of 13.2%, which includes 360 basis points of outperformance. Capital investment grew by 10% to GBP 1.2 billion, driven by increased customer connections for renewable generation and electric vehicle charging infrastructure. And in March, we accepted the new 5-year RIIO-ED2 price control, which started on the 1st of April. Lastly, at National Grid Ventures, we delivered capital investment of GBP 906 million. Our North Sea Link to Norway has completed its first full year of operation and our Viking Link interconnector to Denmark is on track to commission by the end of the year. Grain LNG had a record year of utilization with 102 ships offloaded, supporting energy resilience in the U.K. and in Europe. And in the U.S., our offshore wind joint venture with RWE submitted proposals to NYSERDA, and we expect them to announce the winning bid in the coming months. And we achieved this whilst maintaining over 99.9% availability across all of our regulated networks and despite a year of challenging weather and storms. We also delivered improvements in our safety performance with a small reduction in our lost time injury frequency rate. However, following the tragic event in Massachusetts last May, when an employee suddenly lost his life, we've been focused on ensuring the lessons have been learned and are shared across the organization. Safety continues to be an area of close attention for management to ensure we improve our performance further. So with that, let me now turn to the priorities for the year ahead. First, let me say, this is a hugely exciting time to be part of the industry. I can't think of a time in certainly my 30 years where there's been so many opportunities for growth. As these opportunities become a reality, National Grid can deliver cleaner, more resilient and more flexible systems that in turn will help to lower cost for consumers and create jobs across the economies we invest in. On prior to the progress that we've made already, and I'm optimistic about the future, but it's also clear that greater urgencies needed by government, our regulators and the industry to achieve the clean energy goals. In the U.K., one of our key priorities is to help drive the significant regulatory and policy changes that are needed. And that's why in May, we published a policy paper setting out the 5 key priorities that require action by government and regulators. First, that the planning system needs to be reformed. Second, on regulation, a more agile regulatory process is needed. Third, the way generation connects to the Grid needs fundamental change. Fourth, a consistent community benefits framework is needed to ensure local people see value from hosting critical infrastructure. And finally, to deliver the scale of infrastructure required, there needs to be investment across the country in supply chain capacity and in green skills. These priorities are already resonating with politicians and stakeholders, and I'm optimistic about the progress that we can make as we continue to drive these 5 areas forward. So moving to our U.S. priorities and starting with our gas businesses. As regulators and policymakers consider the pathway to net zero and the debate continues about the pace and feasibility of delivering greater levels of electrification, we're making it clear that our gas networks have a vital role to play in ensuring reliable and affordable options for customers alongside electrification. And we're taking action to deliver a hybrid clean energy future through our ongoing program of pipeline replacement with pipes that can handle decarbonized gas, delivering the $2.1 billion in energy efficiency measures across New York and Massachusetts and continuing to progress our Northeast hydrogen hub proposals. Turning to our electric business. At the federal level, the Inflation Reduction Act and Infrastructure Investment and Jobs Act have the potential to dramatically accelerate the energy transition. However, like the U.K., this will only happen if a company by the significant permitting and siting reform needed to enable investment at pace. And as you'd expect, we're working at the federal and the state level to advocate for reforms to streamline these processes. On the regulatory front, we filed for new rates in Downstate New York in April. These proposals were aligned with the state's clean engine goals whilst ensuring continued safe operation in the network and affordability for customers. And lastly, in Massachusetts Electric, we're preparing our next rate case and expect to file this October for new rates effective in October 2024. So to conclude, it's been another year of exciting progress for National Grid. We've executed against our key priorities, whilst investing a record GBP 7.7 billion as we continue to build the clean energy infrastructure that's critical for the future. Our positive collaboration with governments and regulators on both sides of the Atlantic has helped to improve understanding of the scale of the task ahead. National Grid is delivering the energy transition today, and we're uniquely positioned to meet the scale of the challenges ahead to drive forward a clean, fair and affordable energy future. So thank you very much for your attention, ladies and gentlemen. I'll now hand over to Justine, who will explain the formal business of the meeting.

Thank you, John. Good morning, everyone. I can confirm that we have the quorum of shareholders necessary here in the room and electronically on the virtual platform, so we can proceed with the formal business of this year's Annual General Meeting. The resolutions for today's meeting are set out in the 2023 Notice of meeting. I propose we take those as read. Thank you. Thank you to all of those who have registered their votes in advance. And as is our usual practice, voting on all resolutions will be by way of a poll. For those of you attending in person today, you'll be voting using the handsets that you've been provided with. The handset won't be activated for voting until the poll is formally opened by Paula as Chair of the meeting at the start of the question-and-answer session. At that time, instructions will appear on your handset or you kind of refer to instructions that you will have received during registration. If you do, however, have any problems, please raise your hand and someone will come to help you. If you have already cast a vote via a proxy, then you do not need to vote again. But if you do choose to vote again today, your votes cast at this meeting will replace any proxy that you previously lodged. For those of you attending electronically, once the vote is declared open, please first click on the voting icon, which will appear on your navigation bar. This will allow you to cast your vote on each resolution. If you need any more guidance on how to cast your vote by the platform, then please refer to the instructions on the home page or there's also a user guide available on the documents tab. Please note that for all AGM attendees, voting will remain open until 10 minutes after the close of the meeting. So turning now to the business of the meeting. Resolutions 1 to 19 (inclusive) are proposed as ordinary resolutions, resolutions 20 to 23 (inclusive) are proposed as special resolutions. The Board is unanimously in favor of each resolution proposed and recommends that you vote in favor of all the resolutions. I'll now hand over to Paula to formally open the voting.

Thanks, Justine. So the poll is now open for voting and will remain as Justine said, until 10 minutes after the conclusion of the meeting, which will be announced. So we'll now move into the Q&A session. And as I said earlier, Justine will be coordinating between online and in the room. To be fair to all participants, she will alternate. And if there are questions that have been pre-submitted that are similar and thrust, Justine may group them together to be efficient in providing the answers. So the other thing we ask you is to please keep your questions short and concise and avoid any statements or speeches so that we can make sure that we get to all of the questions and have a constructive meeting for everybody who's here with us today. And we also ask you to limit yourself to 1 question. All questions should be relevant to the business of the meeting. So for those of you in the room, if you have general interest questions and they don't -- they aren't part of the business of the meeting, but they're on your mind, John and Andy and I will be out in the lobby after the meeting concludes and glad to speak with you to answer any questions. For those of you who are participating online with general questions, we will reply to those questions by e-mail after the meeting concludes. If anyone has a question about your individual shareholding, you can also separately put that question to our registrar, Equiniti. So Justine, over to you.

Thank you, Paula. For those of you who joined electronically, if you have not already pre-submitted a question, you can submit a question by selecting the messaging icon that sits in the navigation bar at the top of your screen. Type your question into the text box at the top of the page. For those of you who are here in person, I know many of you have already registered your questions at the desk. If you didn't register a question earlier, but you do still wish to ask 1 please make yourself known at any point to 1 of our representatives. They'll take you to the question point and inform you when it's time for you to ask your question. When you do ask your question, please begin by giving your name and direct all questions to Paula or to me. I'll make sure that we try to go between the questions on the platform and the questions asked in the room by those attending in person, so that as Paula said, everyone has an equal opportunity. We do have quite a lot of questions coming in, so I'll try to be efficient. So let me start by a question that's been submitted online by Mr. John Stewart [ Paton ]. It's about fire safety and the lack of regulation in respect of lithium battery storage -- sorry, in respect of lithium battery storage energy systems and that are being a rapidly growing public concern. Our proposed BESS site at [ Cicero ] comprising 480 units and within 100 meters of housing, that is much of a way with a highly toxic gas bloom in the event of thermal runaway. This would be 30x the size of a normal 50-megawatt BESS. While designs improved to reduce the risk of thermal runaway, the risk cannot be eliminated and the industry has yet to commission the building research establishment, to research, test and quantify this. Battery failures go largely unreported so there is inadequate data to support proper risk modeling and U.K. standards. Given the huge risk and National Grid's ethical duty to ensure the safe operation of the nation's electrical infrastructure, can the Board confirm that they will not allow connection of lithium BESS units located within 5 kilometers of residential areas until such time as U.K. research and regulation is in place?

Mr. Paton, thank you very much for that very thoughtful question. And not surprisingly, I'm going to turn it to our CEO to offer an answer.

Thanks, Paula. Well, first of all, Mr. Paton, thank you for the question. Electricity storage and battery storage actually is going to be a massively important part of how we operate networks with the increased intermittency of wind as we move forward. As people know, National Grid role is to transport energy from where it's produced to where it's needed. So we don't actually own generation or storage. And in fact, in the U.K., we're not allowed to own generation or storage. What we do have though is a license obligation to connect anybody in a non-discriminatory way who wants to connect to the system. Where they locate is down to the planning authorities and the local authorities, and of course, agencies such as the HSE, health and safety executive will be responsible for ensuring that it's done safely. So from our perspective, we're not in a position where we would be able to determine where the location of battery storage is because it would be a breach of our license, which would be unacceptable. So thank you for your question.

Thank you, John. We have a couple of questions in the room from a couple of shareholders who have registered their question, but don't want to ask them themselves. So I'll read them out. The first is from Mr. John Higgins. He would like to know if National Grid is strong enough to support the electric vehicle network?

Maybe I'll start with this one, John, and then give it to you. Don't worry. Mr. Higgins, thanks for the question. Because it's the question of the day and you read in the media about the challenges of connecting both at the transmission level and distribution. And John can speak to it. I just wanted to make a comment because there was an article in the paper yesterday of a homeowner. It was in the Times Living section, and it was a homeowner complaining about how long it was taking them to get their solar panels connected up into the grid. And it was quite a long story, and there were many comments, as you would guess. But what's interesting, the other day our Head of Distribution, Cordi O'Hara, talk to investors about everything going on in our distribution business. And she pointed out that with our online tool, you could log on and in 2 seconds, you can actually begin the process of interconnection if you need to upgrade for whatever EVs or heat pumps or whatever electrification requirements you have. So really, our distribution business has already thought ahead about ease of doing that. But of course, from making the quest to actually getting the physical infrastructure becomes more challenging. But I would just ask, when you see these articles about the utility didn't get in touch with us or it took too long, we do have an online tool. And if you are in our distribution service area, then, in fact, you can go look up your premise and see that we're there and able to begin to start that process for you. So with that.

Yes. Thanks, Paula. Just to pick up on the media articles, quite often you'll see in the media that, if everybody bought an EV tomorrow and charge it at 5:30 at night, the grid will have a problem. Well, the reality is that not everybody is going to have an EV tomorrow. And actually, smart technology will allow you to actually charge the vehicle away from that peak. National Grid's primary role is to plan out the networks. And actually, what we see is gradually the increase in the number of people want to connect EV. So actually last year in our distribution business in the U.K., we connected more electric vehicles than we had in all the years previously. So a massive increase. We're planning to do over 1 million in our distribution network in the next 5 years. But our engineers are busy focusing on what do we need to do to the network to support the evolution of transport moving from petrol and diesel to electric. So you can be rest assured that that's a piece of work that we're doing, and we'd be confident we'll be able to meet the demand as we move forward.

I have another in-room question here, again from a shareholder who would rather I ask the question. What are the future plans regarding the gas transmission business if we have only retained 40%? Are the plans solely to focus on electricity transmission and not gas transmission? Can we have some background on who are the companies that have both 60% of the business?

So John, if you want to take that one up too, please?

Yes. So I'll give a little bit of context actually. So as a Board, we spent a significant amount of time 2 or 3 years ago, really looking at the energy transition and how we saw that unfolding over the next 10, 20, 30 years. And we took the decision to make a strategic pivot with regards to National Grid, acquiring the largest electricity distribution business in the U.K., because as the previous question indicated, we expect to see strong and certain long-term growth in those distribution networks for many years to come. And to fund that, we took the decision to sell a 6% stake in our gas transmission business. Overall, having sort of move forward 2 years, we're now in a position of having completed that strategic pivot where National Grid is 70% electric, 30% gas and broadly 50% U.K., 50% U.S., which is, to us, the right shape for the group going forward. The original 60% was sold to Macquarie, and they actually have an option to buy the remainder, 40%. That option is until the end of this month. So we'll find out later this month, actually whether they choose to do that. But ultimately, the strategic pivot has positioned National Grid, I think, to be truly at the heart of the energy transition, both here in the U.K. and in the U.S.

Thanks, John. We have another question in the room from Ms. [ Jillian Kale. ] Kale, over to you.

Hello, can you hear me?

Yes.

I'm going to ask a difficult one, I think. There's a big push for renewables. There's a big push to push the planning regulations. But not all of the renewable energy is very sympathetic to its area. And we've heard nothing so far if you put it in across the country as to how it's going to be destroyed because in 5 or 10 years' time, renewables, their buildings and everything may look entirely different. And there are many heritage sites who are looking at your position with some horror at the moment to see that they might be landed with innovation for immediate need that they're then stuck with for many years after it's no longer in use because another technology has come along.

Well, there's a lot in that question, and thank you for raising it. I think you want to just talk some about how we're thinking about these challenges.

I think, I think everybody is clear about the direction that's not just the U.K. but many countries around the world are taking in terms of moving to cleaner energy. National Grid's role in that is to connect that generation, whether it's offshore wind or onshore wind or solar or other new technologies. And we have to follow a very defined process for considering what's the right solution to do that. That process is set out in the Planning Act. And what National Grid does is, it has to assess what's the right solution, taking into account economics, environmental issues, engineering issues, aesthetics and also the views of local communities. And we try and do that in a very balanced way by consulting with local communities over a very elongated period of time. Ultimately, we have to make an application to the planning authorities and quite often for really large infrastructure projects like offshore wind to the secretary estate, and they assess whether we've got that balance right. One of the things that we've been or 2 things actually that we've been doing more recently is, 1, advocating that local communities should see the benefit of hosting renewable energy and infrastructure. At the moment, they don't get that enduring benefit. But also in the areas that we're responsible for and the land that we're responsible for making sure that we're doing what's right in terms of the natural environment as well. So quite often in a lot of our substations, we're returning the areas outside of those substations, the natural habitat working with local communities.

So you do have a cleanup plan where they're no longer needed?

Well, if it's in National Grid's territory, absolutely. If it's within the generator, then that responsibility will sit with a generator. But when it's National Grid's assets, we always have a plan to remediate those sites.

Thank you. The next question has also been pre-submitted, but it's from Mark Mansley on behalf of the London -- sorry, the Local Authority Pension Fund Forum. Mark, do you want to ask your question in person. Thank you.

Yes. Thank you. The Local Authority Pension Fund Form is a collaboration of the vast majority of local authority pension funds in the U.K. LAPFF [indiscernible] welcome to reduced exposure to gas in the business as a result of recent transactions. However, we know that the National Grid appears to have a continuing commitment to gas and its longer-term strategy and gas is a major focus of current capital expenditure. This exposure is justified by company statements challenging the viability of replacing gas entirely for domestic use. Yet these statements appear at odds with net zero commitments. In particular, your argument supporting low carbon gas seem to ignore key problems such as end-user emissions and the cost and viability of using green hydrogen for home heating. The wider concern is this may be making National Grid reluctant to invest in electricity network to support it and potentially create reputation risk. LAPFF, we therefore ask the Board to update their strategy to ensure they fully reflect the challenges of low carbon gas and to provide clearer guidance on the extent of the company's exposure to gas as we move forward to net zero.

Mark, thanks for the question. And of course, you and I have talked about this very recently. And I want to make a couple of overview remarks, and then turn it to John who might put more color onto the issue from a more detailed perspective. And I think that the first comment I'd make is that we have to separate in our strategy, the difference between being right for the long run and being practical about the short run. And that practicality of course, is that in our U.S. jurisdictions where we provide natural gas at distribution, there are real questions about affordability of changing out the infrastructure of natural gas for many of our customers in the near term. And so the long run commitment to Net Zero and to electrification, we believe is unquestioned, and we've been on the record, not just in this country but in that country of supporting policies that lead to electrification. But at the same time, in the short run, we do object to situations that create a cost for our customers that we know that they cannot bear. And when you think to JP's opening remarks, he didn't really go to the energy issues. He went to the affordability issues first, because that is front and center the reality of what's on the ground today. So we feel that our strategy right now is trying to find balance. And we realize that there are people who want to see these changes come into effect immediately. But given all the issues that we talk about, about everything from permitting and support of communities to the reality of these are individual decisions that consumers make around how their energy is provided that we feel that we have to take a very judicious view. What I would say to you is that the fact that we are a combination company in the U.S. In other words, we serve both gas and electricity in the states in which we do business, is also part of the way that we try to pave the way to say, of course, we're for electrification. And when you look at the investments that we're making in electric transmission and distribution in the U.S., they are as important, in fact, will over time increase relative to the amount of capital that we're putting into the gas system. That gas business CapEx is, of course, really for safety's sake, it is not an expansion of our footprint at all, but rather it's the replacement of old pipes that do provide a safety risk and, of course, do also create emissions through leakage. So trying to find that balance, trying to be right by our customers and trying to make progress around things like hydrogen, where there is quite a bit of subsidy in the U.S. right now to try to pioneer that technology. But I can assure you that the Board will continue to be looking at how we're doing this balance, try to be very clear about what our intentions are. But I think importantly, we are doing everything we can to go with this trend towards electrification, but to do it in a way that's appropriate for the consumers because we serve inner cities, we serve rural areas where affordability is paramount to the consumer's frame of reference and support for policy. But it's a moving question and the Board considers it on a very ongoing basis. And so the commitment that you have is that as the strategy continues to develop, that we will make sure that we're going to dialogue with you. Because we do appreciate your support and your guidance and your input.

And the only thing I'd add, Paula, is -- I mean, first of all, absolutely, there's no reluctance to invest in the electricity journey to net zero. National Grid between '21 and '26 is investing GBP 40 billion, GBP 29 billion of that aligns with the EU taxonomy and is driving the energy transition in the electric network. So we are, I think, now the biggest green investor in the FTSE 100. In terms of the vision that we've laid out for our gas networks in the U.S., and we'd love to share it in more detail with you. It starts with driving energy efficiency, which is the most effective thing you can do to help the environment. But we do think, as Paula has laid out as part of this transition, there is an opportunity to reduce the carbon impact of gas networks through things like blending hydrogen and renewable natural gas. And I think the Inflation Reduction Act, which I think has got a huge subsidy will drive that technology price down over the next few years. I think today, it's about $4 a kilogram. I know the aspiration is to get it to around $1 a kilogram, which would be competitive with other technologies. So we're very much focused on making sure that we can play our role in the energy transition and our gas networks do that as well.

Thanks, John. Thanks, Paula. So the next question is from Mr. Neil Dudley. Mr. Dudley, I think you're in the room.

Good day. Thank you, Neil Dudley. I'd just like to ask following on from the press reports in the U.K. of extremely long delays for connection of new renewable generation into the Grid. Why is this? And what can be done about it?

If you have several hours, I'm sure we could really answer this question, but JP, go at it.

I'll try [ and is interesting. ] Thanks for the question, Neil. So can I put the context on it, first of all. So currently, if you look, there are about 300 gigawatts of generation looking to connect the grids in the U.K. at the moment. So just to put that into context, the peak demand on the grid system in the winter is about 60 gigawatts. So there's about 3x more generation want interconnect to the system and is actually needed to meet any of the net zero targets that have been set between 2030 and 2035. The reason for that is we have a very strange regulatory system in the U.K. that means that people can connect. There are no consequences of getting a connection agreement. It's a first come first serve. And the reason there's a delay is actually those at the front of the queue, even if they have no intention of developing actually hold up those people who are behind the queue. So National Grid working with the electricity system operator and with Ofgem have been advocated that we need a new regulatory framework to accelerate the ability for people who genuinely got projects they want to get on to the system to get to the front of the queue. And about a month ago, we launched a program of 5 changes that we're going to make to remove those people that are getting in the way and have the ability to do that, but also change some of our planning processes. That will be sort of tactical changes, which will help, but it won't solve the bigger problem, which is the grid was built to meet the demand for today in the next few years. It doesn't have huge surplus capacity to deal with 300 gigawatts of new generation. So we are going to have to build out the grid significantly over the next few years, as you heard in my speech. So we are also advocating for more fundamental reform of the connections process, so we get the right people at the front of the queue that can connect as quickly as possible.

The next question is from Mr. Nick Steiner, also in the room, I believe. Mr. Steiner.

Nick Steiner, private shareholder. Looking at your chair statement, you identify regulation and permitting, planning policy as being sort of key things. That's working with governments, governments change, and so it's a long process. So are you identifying the work that you need to do right now. And if you are identifying, are you identifying the areas where difficulties like heritage and things are going to be so it can actually then identify the community that you need to talk to and identifying the community you need to talk to can be quite difficult.

Well, Mr. Steiner, thank you for the question, and it's sort of part of the whole spectrum of these questions around how is the grid going to be built out. And so the answer to your question simply is yes, yes and yes. But it partly goes to why the company has come out with its 5-point policy statement at the high level, because until you have that high-level infrastructure in place around permitting reform and this whole idea of getting the queue cleaned up, you don't even know where to start, right? Because you don't know where the power is coming in, let alone how it's then going to go through communities. So the 5 points partly deal with that. They partly deal with community benefits, how will a community get some benefit from it. And then it goes down to the detailed discussion of how we get consent and how we ultimately work with communities before we apply for planning permission, including how do we protect heritage sites and the like. So JP might want to add, but I think it's a whole process that starts with at the high level, do we even know what we're trying to connect and then comes all the way down to the very local level and how well we try to work with communities. And so it's a little bit of a moving target -- to a certain extent as to exactly which community and which route. But we've been given permission by Ofgem to build a basic backbone with 17 segments. So we have a pretty good idea of the broad root, and it really gets to the fine-tuning of the route that is being worked through. And this is a several year process. So it's being done, I think the Board believes that it's being done thoughtfully. It's being done, I think, with consideration. And it's being done at the recognition that we're not going to make everybody happy in all of this, but that we're going to do the best we can to mitigate the impacts so that people can feel that they were properly handled and that the greater good of being able to bring in renewable resources is being properly balanced against their personal needs and preferences.

And the only thing I'd add, Paula, is that at the national level, the government is consulting on the planning process at the moment. So National Grid is feeding into that. Looking at how they streamline it because it's a very elongated process at the moment. So typically to build a transmission line in the U.K., it takes about 10 years, 7 years of it is in the planning process and 3 years in construction. So they're looking at streamlining it. They're also looking at the national policy statements to make sure that they're very clear. And then finally, 1 of the things that National Grid been advocating for, as Paula mentioned, is community benefits. So in the event that our community is hosting infrastructure. And quite often, that infrastructure has been hosted on behalf of the whole of the U.K. as part of the energy transition, then we believe communities should see some benefit from that, whether it's lower energy prices or direct investment into the community or job creation. And that should be a dialogue that goes on between the local community, companies like National Grid and some of the offshore developers as well as the government.

The next question is also in the room from Mr. [ Hugh Mortimer. ] Mr. Mortimer?

My question is this. My attention was caught by headline in the Times newspaper on Wednesday, June 7, 2023. The headline read: Lifting price at Loch Ness power plant earns monster fine for SSE. That's electricity generator and transmission and distribution company, and this is the article here. The article was by Helen Cahill, who reported that SSE had been fined GBP 9.7 million by the regulator Ofgem for overcharging National Grid for constraint payments when turning down the hydroelectric power station at Loch Ness. It continued with a Bloomberg investigation reveal that energy companies, including SSE, had received more than GBP 500 million by using training methods that have used the balancing mechanism. The article with its clever punning headline reminded me that there's a government review underway. The review of electricity market arrangements or REMA, for short, a U.K. Parliament post code note number 694 dated May 2, 2023 on the subject has been published. Our future government consultation this autumn, will put forward proposals of packages for reform. I should like to have National Grid's view on this review. And the ideas of reform, which have been discussed to date. And what changes, if any, they would like to see as a result of the review?

Thank you for your question, Mr. Mortimer, and we are familiar with the article and the situation and obviously, also the market arrangement consultation going on because this has been an area of keen interest for the electric system operator, which National Grid is part of National Grid right now. And JP will go through some of the detail to respond to your question, but maybe just a moment, which is we've had the system operator function since forever when we were in the generation business and ran a comprehensive business. In recent years, there's been the sense of regulators and stakeholders that we should separate out the system operator. So we separated it out as an independent entity, but owned by us. But there still was the sense that it needed to be truly independent and not owned by National Grid. So a couple of years ago, we said fine, if government would like to come up with a plan to separate the electricity system operator, that we would agree to that. And that process is going on. So there's something else going on. And you'll see headlines that will say that National Grid being -- a portion of National Grid is being nationalized. And I want to be clear that we agreed with government that in order to create a smoothly functioning electric market in the future that we would seed that entity to government and that government would reconstitute it and that is going on. So when John talks a bit about this market reform, keep in mind that a lot of this has to do with how the grid is being run from an overall energy standpoint, not specifically about our transmission business per se. So with that.

Thank you, Paula. And the only thing I'd add as well on the electricity system operator, that part of our role as the electricity system operator is to identify anomalies in the market and then report them to the regulator. So that's one of the things that we do as National Grid. In terms of the electricity market reform, probably the main issue of debate that's going on at the moment. And if you've seen the newspapers today, there was an article about it, which is locational marginal pricing, which is whether actually, at the moment, you have a national price for electricity traded in the U.K. And the debate is whether there should be a move away from that and actually different regions have different prices. And there are pros and cons to that. There are other operators and other networks in the world that use it. So New Zealand is usually the one that's quoted. The impact would be, it would raise the cost of connecting generation in the north of the country, massively reduce the cost of demand in the country and then the reverse in the south. And the intention of that is to encourage investment to where the generation is, to encourage demand to go with the generation is or vice versa. We set out, we think there are pros and cons to that. So the challenge is in a country in which predominantly the decision around where generation is going to be located, has already been made. Where the locational marginal pricing will actually provide a strong enough signal. It will certainly do it in the day-to-day, but it won't necessarily influence the level of investment. So as you can imagine, my team, some of them are here today, are busy discussing that with the U.K. government and with those stakeholders as well. But that is probably the key thing that the reform is going to be focusing on over the next 2 years.

So are you undecided at the moment on your position? Or have you made your mind?

I think our position as a National Grid is that it's probably very complex. And given the decisions on long-term investment already been made, there are probably simpler ways of getting to some of the issues.

Thanks John, sorry. The next question is also in the room, it's from Mr. Peter Arban. Mr. Arban.

Peter Arban, private shareholder. This is not so much a question, it's a compliment. Shall I continue?

Please. It's been a while since we had one. Yes.

Well, you're going to get one now. If you recall the ball last year, myself and other fellow shareholders, we did raise the question of the meeting time. And I'm very pleased to see it's been altered to 11:00, for which I thank you.

You were heard Mr. Arban. So, yes.

It's so convenient for a lot of shareholders, not all of them, but a lot that come here. It's very convenient. It's in fact, so when I left home this morning, before I left home rather, I managed to read the newspaper and had 2 cups of tea. Now a very short, sharp question. Last year, I raised a question of shareholder visits to transmission stations. Have you considered that further?

Well, thank you for reminding me of that. And we actually have, and I think that there's a couple of things. And one, I don't mean to imply anything other than security around our facilities has become an increasing issue. And of course, it is an issue all over the industry and all over the world. And so we have chosen not to admit people to our facilities any longer if they don't have a direct connection. And I said, don't mean to imply anything it's. You don't appear to be a terrorist or anybody who is intent on doing harm to the company. But we've established a policy that says that you don't come into our facilities any longer. So I do apologize that we can't give you that bird's eye view anymore that was part of the company's practices in the past.

Well, thank you for that. I won't raise the issue anymore.

Thank you, Mr. Arban. The next question is from Mr. Laurence Corbett.

First of all, thank you for having the meeting in London rather than Birmingham. The other thing is the lack of seating, a lot of the shareholders, as you look out are fairly of an older age. And with very little eating out in the main area, refreshments were a bit disappointing. The other thing is the format of the meeting. I have never been to an AGM where all I see is the back of the other Board members, the back at their end. I like to look them straight in the face when I'm asking a question which might concern. So can you arrange that for next year. You've got plenty of space there, just 2 seats. Have you run out of seats up there or something? The other thing I want to bring up to you is corporate governance. What are your directives is still on the resolution to be re-elected and yet to have been on the Board for over 8 years. So when are they going to be replaced? Another question is, I am a shareholder since National Grid was privatized. And I see Illinois, when I see directors on the board, of which there are 3 which have no shares in the company whatsoever. And I'd like to know why have they got no fate in the company. So I shan't be voting for them. And I never do. I'm a shareholder in quite a few companies. And if I go through the AGM report and stuff like that, and I see any directors on the company, which don't have shares, I do not vote for them. Because if they're on the board, they should at least show that they trust the Board and they expect it to continue in business. And as my other friends has said in the papers, I've read loads of times about solar farm and wind farm, cannot get connected to the National Grid network. I know you've answered that question before. But as your colleague, Mr. Pettigrew said that there's a surplus of power waiting to come on to the Grid. Now it's being reported...

Mr. Corbat, I think we have other questions. Could we just actually handle anything beyond the 4 questions that you've asked outside because we do have a number of questions yet.

I understand, yes.

Okay. Thank you. I mean, I hate to interrupt, but we did ask everybody to stay to 1 question.

No charge. I've been given this and it hasn't turned on.

Okay. Could somebody please just.

For a power company...

Okay. Now somebody else will work on your handheld. Yes. So let me start with format of the meeting. And I'm sure we can arrange some seating in the anti-room, the lobby area in advance, a good catch that we should have been more aware of, and we'll make sure we do that in the future. But I think in terms of -- what we are trying to do is we're trying to have a conversation and try to get rid of that. We're up on a dais, we're all behind a desk and we're somehow an impenetrable fortress and instead try to get to a conversation. We have directors who are mic'd up, if a question is directed to them and their capacity is a chair of a committee they will come up to the podium and answer that. So far, we have not had anything that was a committee related question. In terms of the issue of shareholding, in this country, you are not allowed, for example, to be compensated in shares. And that comes from the idea that government has a bit of a mixed view about what's the role of a director. In other words, should they be completely independent and not be a shareholder so that they are not influenced by where share price goes that it's a completely neutral question or should they be invested in the company. That's the governance framework in this country that says, we don't prescribe this that somebody has to hold shares. And we have directors who believe that they are exercising their independence in the best way possible by not holding shares. And we respect that because the government respects that point of view. So we will not impose a minimum shareholder requirement on our directors. We simply recruit them for the best possible expertise they can bring to us, and we feel quite thrilled by the quality we have in this particular slate. In terms of one Director's independence, as we wrote in the governance report, we are relatively new as a Board because since I joined and became the Chair 2 years ago, we've changed out 5 directors. People reaching their retirement or choosing to take on a different responsibility. So we're still a relatively new board and the director whom you referenced has served the 9-year maximum term, but we are in a comply or explain environment here in the U.K. in our governance, which says that we have to either comply and exit a director at the time or explain. And the explanation that we've included in the governance report is that our director who's reached 9 years is also our Senior Independent Director, which is the person who advises me, gives me continuity, gives me feedback. And I'm reluctant to lose that expertise as we're still a board that is forming up. And so the Board has considered the nomination of our Senior Independent Director and deemed that she is still independent. And I can assure you in the boardroom, she's certainly is. And she will leave the Board at the end of the year as we identify a candidate who can come in. But the Board felt we needed a little bit more time, time to identify a candidate that we wanted. And therefore, that was the reason that the Board considered and explained that we've asked this director to stay until year-end and fulfill responsibilities as the Senior Independent Director. Your last question goes to the issue of connections. I think that we've actually answered it pretty completely around why it seems to take so long. And certainly, John will be in the lobby afterwards and any specific question you have about whether it's a distribution connection or a connection of renewables and how that's all working, he can certainly answer in specific detail. So, I thank you for your continued questions. So next one, Justine.

Thanks, Paula. There's a question here from someone in the room who would like me to ask the question about what engineering expertise we have on the board?

Well, I can answer that one very quickly and actually ask him to raise his hand. Tony Wood, who is on the board is the former CEO of Meggitt and formerly Rolls-Royce. He is a member of the Royal Academy of Aeronautical Engineering, which, of course, is a very challenging field in and of itself that makes him a pretty good engineer. In fact, a very good one. And Tony has also been highly immersed in visiting our facilities. In addition, I believe that Earl Shipp, while not an electrical engineer, has had a career in the chemical and basic industry oil processing and chemical industry, which makes him also deeply qualified. He shares our Safety and Sustainability Committee and he also is deeply active in visiting our facilities, talking to our engineers and really understanding the context in which they operate. So I think that when we look across our Board, we've got a good mix of engineering, finance, general management, stewardship and trying to just be as well rounded as we can be in terms of advising this as a very capable management team.

Thank you, Paula. And the next question is online, and it's from Mr. Val [ Brungesky ]. He's actually submitted 2 questions. I think 1 is very small, but I'll go for the first one. It's about whether the Board thinks it's appropriate to increase National Grid staff pay rise by 9.8% and the Board of Directors' remuneration by 20%, when pensions have only been increased by 5%. In the 1990s, when inflation was as high as it is now, National Grid used its discretionary right to increase pensions by more than the 5% cap. Why have the Board had the remuneration increased by 20% when the share price performance has been appalling.

Well, there's certainly a lot in there, Mr. [ Brungesky ]. And I think first of all, we probably need to correct some of the numbers, and I'll start with the Board, and then I'll turn it back to John to talk about pay increases for our staff. And in fact, the Board's compensation went up 4% year-over-year. And that is lower than the average workforce increase by a substantial margin. And in fact, obviously, doesn't keep pace with inflation. But our policy is that we will do an automatic increase if the organization gets an increase and that, that increase will be held below the organization. So I'm not quite sure where the 20% came from, but I can assure you that the board increase was 4%. We did make a change in 1 of the committee chair remuneration, but that also is not a 20% increase by any means. So John, I'll give the rest to you.

Yes, I'll pick up both staff pay and the pensions. With regards to staff pay, actually, across the organization, we've got collected bargaining arrangements with different trade unions, both in the U.K. and the U.S. And over the last 12 months, we probably had 6 or 7 agreements with different trade units and the range of pay agreement has been from around about 3% to about 9%. What's important to National Grid is not just the cost of living. We obviously take that into account when we negotiate new pay settlements. But also, as you've heard today about the context of what we're facing going forward in terms of green skills and the volume of work that we need to do. We need to be an organization that retains the fantastic talent that we've got, but also attracts talent. So we always compare our salaries against the market to make sure that we are competitive. And as I said, that resulted in a range from 3% to about 9% across the different businesses at National Grid. In terms of pensions, again, National Grid has got multiple pensions and our defined benefits pensions are hugely attractive and very competitive. Each of those pension agreements has different benefits. They're all very different and distinct, quite often based on the legacy companies that now form National Grid. A couple of those pension schemes do how the cap in terms of the increase to 5%. Those benefits were very clear. So everyone have signed up to those pensions. But it does also say that there is the potential for the sponsor to take discretion, the sponsor being National Grid. This year, we considered it very carefully. Obviously, we need to take into account the affordability, the fact that the cost of those pensions go forward to go through to customers. And we also have to take into account the views of a regulator. And we decided in the context of some of the things I talked about in my speech today around affordability and the energy crisis, it wasn't appropriate this year to take any form of discretion, which resulted for those 1 or 2 pension schemes for the increase to be limited to 5%.

Thanks, John. Mr. [ Brungesky ] also has 1 quick question, which is alternating the AGM locations. Could we consider alternating them between London and Birmingham on alternative years?

Well, I have to say that this issue of location is one that's very much on our minds because it's been raised by you. And we can't seem to satisfy all of the people all the time for everybody who prefers to come to London and get up, read the paper, have their tea first. There's somebody who would prefer to have it in Birmingham. We actually thought that we would, depending on the size of the in-person attendance that we might actually put it right in our Warwick facilities, because the expense of having a hall and having all of the audio visual and so on is effectively a cost of the business that we all bear. And you've been such a great turnout today that we don't think that we actually have enough room and Warwick for you. We don't have a facility ourselves. So we do think that we should try to take it around the system, but we're also in a period of time where we're trying to be very judicious about how much we spend. We're just continuing to try to consider what the right answer is here. So point taken, but I can't tell you that we are going to do an alternating right now. We're just continuing to try to think it through. Thank you.

The next question is from Ms. Sofia Howard in the room, I believe.

Thanks. Good morning, Yes, my question is about majority shareholders, and it's something that does get put in the annual report, but usually at the back. And my question is if possibly in future annual reports, the -- any majority of shareholders could be put more at the front, maybe in the Chairman's report or the Chief Executive's report because there's criticism that majority shareholders can be like backseat drivers, and we don't actually get to vote to them. We vote for the directors, but we can't choose who gets to be a majority shareholder.

Want to help me with that one?

Yes, certainly. So, Ms. Howard, I mean, our way of identifying our shareholders complies with U.K. corporate governance. It is, as you say, on the back of the annual report. It's not for the other shareholders to vote on who the major shareholders are. It's an investment decision as opposed to the appointment of directors. But I'm not -- the information is available in the annual report, if it's helpful, we can certainly talk to you about where that is located after the meeting. So that'd be helpful. Sorry, could I just ask would you mind just -- sorry, because I can't see you.