National Grid PLC Q2 FY2025 Earnings Call

Good morning, and welcome to National Grid's Half Year Results Presentation. I'm Angela Broad, Head of Investor Relations, and it's great to have so many of you on the call today. Firstly, please kindly draw your attention to the cautionary statement at the front of the pack. As usual, the Q&A with John and Andy will follow the presentation. All of today's materials are available on our website. And of course for any further queries after the call, please reach out to me or one of the IR team. So with that, I'd now like to hand you over to our CEO, John Pettigrew. John?

Many thanks, Angela, and good morning, everyone. Thank you for joining us today. As ever, I'm here with Andy Agg. And once we've been through our respective presentations, we'll of course be very happy to answer your questions. As you know, in May, we updated our strategy, and announced the actions we'd be taking to make National Grid the preeminent pure play networks business. This marked the beginning of an exciting new area of growth with unmatched visibility on around £60 billion of capital investment in our networks over the next five years and clarity on financing well beyond that. Over the last six months, the pace of change in our industry has continued, as has the exciting momentum within National Grid. We successfully completed the £7 billion rights issue positioning our balance sheet to deliver this growth at pace. We're delivering on our major capital projects increasing investment to a record £4.6 billion in the first half. In the U.K., construction is already underway on five of our ASTI projects. And in the U.S., regulated CapEx increased 20% year-on-year as we've continued our $4 billion upstate upgrade program. And our policy agendas continue to move forward as well. We're encouraged by the start the new U.K. government has made against their energy priorities. As you would have seen, the National Energy System Operator, or NESO, was established on the first of October following our sale of the Electricity System Operator to £613 million. They've also formed mission control to help accelerate progress on energy projects needed for 2030. And at the end of this year, they will settle their action plan to achieve this taking into account the advice set out this week by the NESO. The NESO's report is a welcome milestone towards clarity on the steps needed to deliver against this goal and we'll continue to play our part alongside the government, regulator, and industry. The government has also commissioned NESO to develop a strategic spatial energy plan setting out where energy assets need to be built and when to meet the country's 2015 net zero goals. We're pleased that the King's speech in July included the expected legislation to reform the planning system. This will help to accelerate the delivery of critical infrastructure, something that we've long been advocating for. In the U.S., Massachusetts and New York policymakers are continuing to progress plans to align economic growth and system reliability needs with their clean energy and climate goals. Both states recognize the need for long-term holistic energy planning and we're encouraged that this is now underway. From a regulatory perspective, we've agreed new rates for our downstate New York gas business and for our Massachusetts electric business giving us even greater visibility on our investment plans. And in the U.K., Ofgem's publication of the sector-specific methodology decision marked the next step in the RIIO-T3 regulatory process. We've also achieved another important strategic milestone by completing in September the sale of our final 20% stake in our U.K. gas transmission business for £686 million. So as I say, exciting momentum and progress in the last six months that underpins our compelling investor proposition of delivering low-risk high-quality asset growth, strong earnings growth, and an inflation-protected dividend. Now turning to our financial performance for the first six months. On an underlying basis, that is excluding the impact of timing and exceptional items, operating profit from continuing operations was £2 billion, 15% higher compared to the prior year at constant currency. This reflects good performance across all of our regulated businesses, which drove an increase in underlying earnings per share of 8% to 28.1p. Our business delivered a record £4.6 billion of investment, up 19% year-on-year at constant currency. And in line with our policy, the Board has declared an interim dividend of 15.84p per share. Turning next to reliability and safety. Reliability remains strong across our U.K. and U.S. networks despite severe weather in most jurisdictions. Our teams restored outages rapidly and well within regulatory requirements, including in our New York region where during the most significant storms the average time to restore 95% of customers was just 12 hours. As we look ahead, NESO recently published its winter outlook report for the UK, in which they're forecasting an electricity capacity margin of 8.8%, slightly higher than last year's and broadly in line with recent winters. Overall, we are confident in delivering our usual high standard reliability across our networks in the months ahead and remain vigilant as we move through the winter in both the UK and the US. Safety, as always, remains a critical focus across the business. In the first six months, our Lost Time Injury Frequency rate was 0.1, in line with our group target. With our significant increase in capital delivery, we are recruiting new contractors working for National Grid for the first time and so we've reinforced our protocols to ensure that our high safety standards are maintained. Now moving to our operating performance across the group, starting with the UK electricity distribution. Capital investment increased by 6% to £647 million driven by increased customer connections, asset health workload, and network reinforcements. We've also made further progress to improve our customer service including in May when we launched ClearView Connect. This online tool provides visibility of grid supply point capacity, including a view of the generation connections pipeline to help prospective developers identify the quickest and cheapest connection points. And we've made good progress in reforming the connections process. By playing a leading role in the industry's technical limits initiative, we've been able to accelerate the connection offer date on over 280 megawatts of distribution generation. And as mentioned at our Connections investor event in January, by reviewing projects that aren't progressing, we've been able to remove 3.7 gigawatts of capacity from the contracted connections queue. Looking ahead, whilst we're still more than three years remaining in ED2, we're already thinking about the next regulatory cycle. Yesterday, Ofgem issued its framework consultation, which includes wide-ranging questions to help shape the ED3 price control, and we will respond early in the new year. Turning to UK Electricity Transmission, where CapEx increased by 43% to £1.3 billion driven by an increase in customer connections with 2.3 gigawatts of new customer connections in the first half. And good progress on our £1 billion London Power Tunnels project where we successfully energized a 2.5-kilometer circuit between Hurst substation and Crayford. Looking further ahead, we're seeing an increase in transmission scale connection requests for data centers that are driving significant investment for new and upgraded substations in the Southeast. On regulatory developments, Ofgem published in July their decision on the sector-specific methodology, marking the next step in the RIIO-T3 regulatory process that will run through to the final determination at the end of 2025. We are pleased to see that the document included our commitment to streamlining the overall framework to enable faster decision-making on which projects proceed. Proposals for an advanced procurement mechanism, which enables us to secure supply chain capacity early and the introduction of mechanism similar to the ASTI approach to funding projects earlier than historically has been the case. As you'd expect, we're engaging constructively with Ofgem as well as wider stakeholders to agree the right regulatory frameworks that deliver a net-zero energy system and a fair return. Whilst we are encouraged by Ofgem's inclusion of a cost of equity range of 4.6% to 6.4%, the allowed return needs to be at the top end of the range in order to continue to attract sufficient capital to the sector. Ofgem also concluded on its inflation consultation with the introduction of a nominal return on fixed rate debt, which will add better matching of allowances to actual debt costs and faster recovery of cash. On the policy front, we've seen progress on connections reform and I'm pleased that we now have consensus with government, Ofgem, and NESO on the steps that need to be taken. In the second half of 2025, NESO is expected to implement reforms where projects must move through a two-stage process based on a combination of project readiness and alignment with the Clean Power Plan. Turning next to our strategic infrastructure business created last year to deliver the 17 ASTI projects. We're managing these projects in distinct waves. Wave one comprises the six most advanced projects and Wave two comprises the remaining land which are at earlier stages of development. We're well progressed with obtaining the required consents for the first wave of projects, and we expect to have all the key equipment and material contracts in place by early next year. As I mentioned earlier, construction has started on five of the first wave including the offshore EGL Eastern Green Links 1 and 2, Yorkshire Green, North London Reinforcement, and Bramford to Twinstead. With construction due to start shortly on the Grain to Tilbury project at the end of this fiscal year, we'll have broken ground in all six Wave 1 projects. Turning to our Wave 2 projects, we had a number of public consultations running over the summer, and with further consultations planned in 2025, we're progressing well through the consenting process. We're making good progress on procurement and are well advanced in securing the supply chain and we're submitting early construction funding requests to Ofgem on Eastern Green Links 3 and 4 in our sealing project to allow these projects to move forward at pace. Coming to the US and starting with New York. CapEx has continued to be strong increasing 29% to £1.6 billion in the first half. This reflects strong progress with our $4 billion upstate upgrade, including our Smart Path Connect project, which has reached the halfway point in construction well ahead of schedule. And the work approved under the Climate Leadership and Communities Protection Act, where construction on Phase 1 of the project is progressing well and we've just issued the procurement tenders for Phase 2. We've also increased investment in our gas network, replacing a further 161 miles of leak-prone pipe, as we continue to reduce our methane emissions. On the regulatory front, in August our three-year rate case settlement for our KEDNY and KEDLI gas distribution businesses was approved by the commission. We expect to invest $5 billion over the next three years with an improved ROE of 9.35%. And we filed for new rates in our Niagara Mohawk business in Upstate New York. The filing proposes transmission investment to integrate renewables, line and substation upgrades, and further investment in our leak-prone pipe replacement program. At the end of September, as usual, the PSC staff provided a rebuttal testimony including a 9.5% cost of equity against our current allowed return of 9% and smaller increases to our proposed capital investments. The filing will now continue to progress as we enter settlement negotiations and we're confident we can reach a constructive outcome by the spring. Turning to policy. In July, a draft report from the New York PSC acknowledged for the first time that New York State is likely to miss its target of 70% renewable generation by 2030. In response to the report, the Governor Hochul administration has taken several actions including reconvening the state energy planning board to draft a roadmap for the state to build a clean energy system for New York, taking into account resource adequacy and affordability. As a result, a more pragmatic dialogue has opened up. And as you'd expect, we're engaged in supporting the process, which provides an opportunity to shape a more balanced approach to the energy transition. In New England, capital investment increased by 7% to £814 million. This largely reflects the continued steady growth delivered through investment in grid modernization and asset health work and leak-prone pipe replacement activity. From a regulatory perspective, in September the DPU issued its rate case order for Massachusetts Electric business, approving a five-year plan with a revenue increase of around $100 million. The order includes a new regulatory recovery mechanism that provides timely funding for growing capital investment and updated performance-based rate mechanisms providing inflation protection for operating and maintenance costs and increased allowances to cover the increase in cost of storms. Taken together, these enhanced recovery mechanisms will enable us to earn closer to a low return of 9.35%. The DPU has also approved our electric sector modernization plan as a strategic roadmap to support decarbonization investments. As part of this, we filed for $2 billion of investment including upgraded power lines, transformers, substations, and technology platforms over the next five years. We expect to propose costs and recovery mechanisms will be agreed ahead of the program starting next summer. And over the past summer, Governor Healey's administration has been working to pass comprehensive energy and climate legislation. The proposed bill addresses critical issues we've been advocating for including setting out an accelerated timeline for siting and permitting of clean energy infrastructure projects, and we're hopeful it will progress before the end of the year. And finally, in National Grid Ventures, capital investment was 11% lower at £279 million following completion of the Viking Link to Denmark last year partially offset by increased investment in National Renewables and the Isle of Grain. We've made good progress on the Propel transmission project through our New York Transco joint venture which will help to deliver offshore wind power from Long Island to the Bronx in New York City and Westchester County. We've made further progress in the fourth phase of the expansion of our Isle of Grain LNG facility, which remains on track for completion next summer. And we've also commenced the sale process for National Grid Renewables. So as I said at the start, we've achieved significant progress across all areas of the business in the first half as we continue to support and invest in the energy transition. Let me stop there and hand over to Andy to walk through the numbers before I come back to talk about priorities for the second half. Andy?

Thank you, John, and good morning, everyone. I'd like to highlight that as usual, we're presenting our underlying results excluding timing, UK deferred tax, and exceptional items, and that all results are provided at constant exchange rates unless specified. Our final 20% stake in National Gas is reported as a discontinued operation up until 26th of September when it was sold. As such all earnings from this business have been excluded from the underlying earnings of the continuing group. So starting with our overall performance in the first half. We've delivered strong results with underlying operating profit on a continuing basis at £2 billion, a 15% increase on the prior year, primarily driven by higher revenues across our UK and US regulated businesses and the non-repeat of a prior year environmental charge in our New York business, partially offset by a lower profit in National Grid Ventures. Underlying earnings per share of 28.1p was 8% higher than the prior year restated figure. This reflects the improved performance from across our regulated businesses and a slight decline in finance costs which more than offset the increased share count following the rights issue. As John said, we've made excellent progress with our capital program with investment from continuing operations at £4.6 billion, another record level and up 19% year-over-year. This has been driven by more connections in our electricity transmission business, accelerated delivery of our ASTI projects, increased pipe replacement across our US gas businesses, and a step-up in our Smart Path Connect and CLCPA transmission projects in upstate New York. In line with our policy, the Board has declared an interim dividend of 15.84p per share representing 35% of last year's rebased full year dividend. Turning now to our business segments starting with UK electricity distribution. Underlying operating profit was £573 million, up £10 million versus the prior year. Increased revenues were partially offset by higher controllable costs, which were £21 million higher as we prioritized activities to strengthen the business for the remainder of RIIO-ED2. This included spend on field customer and asset management teams and cost to implement new distribution system operator functionality. We expect the full year controllable cost performance to be broadly in line with the prior year. We're also on track to deliver our target of £100 million of synergy benefits by FY 2026, having delivered £58 million to date through leveraging our increased buying power, working more efficiently at the 48 joint transmission and distribution sites across the UK, and delivering savings from combining support functions. Capital investment was £647 million for the half year, an increase of £39 million compared to the prior period, primarily driven by higher spend on reinforcement work and asset replacement. In our UK electricity transmission business, underlying operating profit was £724 million, up £68 million compared with the prior period. A strong first half performance was driven by higher allowed revenues and lower controllable costs as we deliver further cost efficiencies. Capital investment was £1.3 billion, 43% higher than the prior period. This reflects work on our RIIO-T2 projects including customer connections as well as the step-up in investments in our ASTI projects notably Eastern Green Link 1, Yorkshire Green, and our North London reinforcement projects. Finally, in the UK, the electricity system operator delivered an underlying operating profit of £115 million. Moving now to the US, where underlying operating profit for New York was £288 million, £173 million higher than the prior year reflecting higher net revenue driven by an increase in rates and a non-repeat of environmental charge in the prior period. This was partially offset by an increase in depreciation, reflecting the new rate case in our downstate gas businesses KEDNY and KEDLI. Capital investment was £1.6 billion. This was £352 million higher than the prior year, helped by a further step-up in investments in the Smart Path Connect and CLCPA transmission projects in Upstate New York and increased investments in our gas distribution networks, reflecting the additional workload approved in our downstate gas rate case. In New England, underlying operating profit was £237 million, £26 million higher than the prior period. This reflects higher rates in our Massachusetts electric and gas businesses driven by the annual performance-based rate mechanism and higher rates from the capital tracker in the gas business, partly offset by higher depreciation and controllable costs. Capital investment was £814 million, £50 million higher than the prior year. This was driven by increased asset condition work in our electricity distribution business and higher gas spend, including leak-prone pipe replacement. Moving to National Grid Ventures, where the underlying contribution was £207 million, including joint ventures. The decrease of £70 million compared to the prior year was primarily due to the one-off post-construction review adjustment on the North Sea Link interconnector in the prior period and lower profitability across the US Ventures businesses. Capital investments across National Grid Ventures was £279 million, £33 million lower than the prior period, largely reflecting the completion of the Viking interconnector, and partially offset by higher investment at our Grain LNG facility, as we move closer to completing the fourth phase of capacity expansion. Following the announced intention to sell Grain LNG and National Grid Renewables, these assets will be treated as held for sale for accounting purposes from the 30th of September. Our other activities reported an operating loss of £38 million, £25 million higher than the prior period. This was principally driven by changes in the value of National Grid Partners' investments, which are held at fair value, partially offset by a greater number of property sales in the first half compared with the prior period. Turning to financing costs and tax. Net finance costs were £670 million, down 4% compared to the prior year. The benefits of lower average net debt following the rights issue and lower inflation on index-linked debt were partially offset by the impact of higher refinancing costs, where we have issued £1.8 billion over the first half. The underlying effective tax rate before joint ventures was 11.9%, 180 basis points higher than the prior year, principally due to a change in profit mix reflecting the one-off charges impacting the U.S. business last year. Underlying earnings were £1.27 billion with EPS at 28.1p. On cash flow, cash generated from continuing operations was £2.7 billion, down 12% compared to the prior year. This decrease is driven by timing as we returned to prior year balancing charge over recoveries in the system operator. Excluding timing, cash flow from operations is £570 million higher due to improved cash generation across the U.K. and U.S. regulated businesses. In total, net debt decreased by £5.1 billion to £38.5 billion compared to the prior year-end reflecting a net cash inflow from continuing operations of £3.5 billion, including the receipt of the rights issue proceeds. Beneficial movements in exchange rates and other non-cash movements of £1.4 billion, and receipt of £686 million from the final 20% sale of National Gas. For the full year, we expect net debt to decrease by around £1.5 billion from the March level, assuming a USD 1.3 exchange rate. In terms of forward guidance, we've included detailed guidance for the full year in our results statement, as usual. Relative to our guidance in May, we expect a slightly stronger operating profit for the full year, reflecting the high ESO contribution prior to sale and higher net revenues in our New York business, partially offset by a weaker US dollar outlook. Therefore, we continue to expect strong operational performance and year-on-year operating profit growth of around 10%, as well as reduced financing costs due to lower average net debt. We anticipate this improved performance to be largely offset by the additional share count. Before I hand back to John, I wanted to return to the five-year framework we set out in May, where we anticipated an investment of around £60 billion will drive group asset growth of around 10% per annum over the next five years, and a strong underlying EPS CAGR of 6% to 8% from an FY 2025 baseline. Our framework is underpinned by a supportive regulatory and policy environment, and increasing levels of certainty over our multiyear investment program, and a track record of delivery both operationally and financially. Alongside this, we set out a comprehensive financing plan, which supports our investment program and allows us to maintain our strong investment-grade credit rating. And looking ahead, with an expected asset base of around £100 billion by FY 2029, funding clarity, strong earnings growth, and an inflation-protected dividend, we've further enhanced what I believe is a compelling investor proposition, delivering value creation through both higher asset growth and an attractive dividend yield. With that, I'll hand you back to John.

Many thanks, Andy. Before we move to Q&A, I want to spend the final few minutes setting out our priorities for the remainder of this year, as we continue to focus on efficiently delivering our investment program. Starting with the US, where nearly half of the £60 billion investment will be spent between now and 2029. Following the result of the US presidential election earlier this week, National Grid is looking forward to working with the new administration. As a reminder, the vast majority of our investment is determined at the state level, so we'll also continue to focus on working closely with state regulators and policymakers to deliver the infrastructure needed in both our gas and electricity businesses. From a regulatory perspective, we have three key priorities for the remainder of this year. Firstly, having now filed the new rates in our Niagara Mohawk business, and received the determination in September, our aim is to reach a settlement next spring. Secondly, with the new rate plan and enhanced recovery mechanisms in place for our Massachusetts Electric business, our priority is now to work to earn closer to the target return. And thirdly, we're focused on agreeing the costs and recovery mechanisms for our recently approved electricity sector modernization plan in Massachusetts. Turning to policy. As mentioned earlier, in New York, the governor is developing a new state energy plan, which we expect will supplement the CLCPA scoping plan and address important issues such as resource adequacy and affordability. We're working closely with our stakeholders to ensure it's a comprehensive roadmap to a clean, resilient, and affordable future for our customers. Alongside this, the New York PSC is now working to identify urgent and long-term infrastructure projects to support transportation and building electrification, ahead of deploying integrated gas and electricity planning processes. We've advocated for this proactive approach and we expect to file our response, identifying the near-term infrastructure needs at the end of the month. Finally, Massachusetts will file our Climate Compliance Plan next spring. This will set out the investments required in our Massachusetts gas network over the next five years and beyond to align to state decarbonization goals, whilst maintaining safe, reliable, and cost-effective service for our customers. Moving to the UK, where our priorities are squarely focused on the delivery of our suite of major projects. As mentioned earlier, we expect to have construction underway on the first wave of ASTI projects by the end of this year. Our priority for the second wave is to finalize supply chain contracts. We're already well progressed on this and I'm confident that by early next year, we'll have secured the Tier 1 supply chain contracts for all 17 of the ASTI projects. This includes awarding the HVDC and converter station contracts raised in Green Links 3 and 4 and Sea Link. We also expect to finalize our £59 billion HVDC framework, which will ensure we have a route to market for procuring materials for offshore projects in the 2030s and beyond. Outside of the ASTI portfolio, we continue to make good progress on the Hinkley connection. We expect the majority of works to be completed by the middle of next year. And on our London Power Tunnels project, we'll commission the Littlebrook to Crayford section over the winter. And finally, we're on track to connect a total of 4.5 gigawatts of clean energy this year, including the Sofia Offshore Wind Farm and the Green Link interconnector. On the regulatory front, a key priority will be the development of our RIIO-T3 business plan, which we'll submit in December. Our totex submission will comprise two elements: a baseline where we have a high degree of cost certainty, including the first wave of our ASTI projects; and a more extensive pipeline covering the second wave of ASTI projects, as well as further projects aligned to the holistic net-zero pathway in the NESO's future energy scenarios. In submitting this plan, we expect the outputs of the government's Clean Power Plan and changes driven by connection reform to impact our totex submission to a degree. However, we don't anticipate significant change to our £23 billion of expected investment in electricity transmission to 2029 given the high degree of clarity we have over the first few years in RIIO-T3. The second priority will be to continue to engage with Ofgem to ensure they recognize the intense level of international competition for capital by putting forward evidence to support the requirement for an attractive financial framework, including returns being at the high end of Ofgem's range, appropriate cash characteristics, and further opportunities for incentives that will drive value for consumers and National Grid. When it comes to policy, our priority is to continue to work closely with DESNZ and the newly created mission control as they develop their plan for clean power by 2030 and beyond. We'll continue to advocate for prioritizing a fast track consenting route for electricity transmission projects as part of a broader set of reforms to the planning regime, bringing forward with urgency a community benefits framework for electricity transmission and developing a clean energy skills pipeline, including reforms to sequential funding. So in summary, a new and exciting era of growth is firmly underway at National Grid. Having set out our strategy for the next five years, we've started to deliver on a £60 billion network investment on both sides of the Atlantic. Major capital projects in the UK and US are well underway and the business is organized and focused to sustain this progress going forward. This momentum combined with the unparalleled visibility on our investment plans underpins our investment proposition of low-risk, high-quality asset growth, strong earnings growth, and an inflation-protected dividend. This is a huge and exciting time for our industry that will continue to create significant opportunities for National Grid today and for many decades to come, a bedrock from which we will deliver long-term value and returns for our shareholders. So let me stop there and give you the opportunity to ask me and Andy any questions.

Hi, everyone. Good morning. Thank you for taking my question. I've got two, please. Firstly, can you remind us when you will be submitting your business plan for the RIIO-ED3 period? And is there any early flavor you can give on what we should be expecting especially when it comes to the mix of CapEx, how you're thinking about baseline versus uncertainty and how that ties into your five-year frame? And then my second question is on any comment you have on the outcome of US elections? And do you expect this to change your plans for US investment to 2029? Thank you.

Yes. Thanks, Pavan. Well, in terms of the business plan, the timetable is we do submit the business plan in December this year at the end of December, then we'd expect to get a draft determination from Ofgem in the summer, probably June next year, and then final determination in December 2025. In terms of the flavor, as I said in my speech, effectively the plan is separated into two halves. The first half is a baseline, which includes all the projects that we've got full confidence that are going to be moving forward or full confidence they're going to be moving forward and also certainty on cost, so things like the ASTI Wave 1 projects. The second bit will be a pipeline that will include all the projects that are aligned with the NESO's future energy scenarios and we're doing that because that's the request from Ofgem in terms of how they want to see the business plan submitted. As I said in my speech, I think different to previous business plans we've had at this stage because some of the CapEx will be impacted by the connections reform in terms of the location of substations, for example, and also by where the government gets with the Clean Power Plan following the advice from NESO this week. Some of that pipeline will vary. We don't think it will impact on the £23 billion that we set out as part of the £60 billion that takes the CapEx to 2029. But we will see some change in that in the early months of next year as we see the outcome of the connections reform. So it's slightly different than what we've seen typically, but at a high level, it's split into two levels: a baseline and then a pipeline that will give us the confidence we can deliver what we need right out to the end of RIIO-T3. In terms of the US elections, I mean, first of all, to say we're looking forward to working with the new administration. As you know, energy in the US is important both at the federal and at the state level. We've heard from the new administration how important it is to keep energy prices low and how important security of supply is. From our perspective, the vast majority of our capital investment program is determined at the state level with state policymakers and state regulators. So we're not expecting it to have a significant impact on the £60 billion that we set out in May that we'll deliver between now and 2029.

Thank you for taking my questions. I have three questions. Two are about ED3 and one about ED. Regarding ED3, you mentioned wanting the ROE to be at the upper end of the range. What are your expectations for the operational incentives the package needs to deliver? I'm asking because you clearly want to limit your downside on the ASTI, which suggests the upside on Totex might be lower. Could you explain how you envision beyond the allowed return where you might achieve some extra returns? My second question is about the nominal debt allowance in ED3, which is beneficial for cash flow. How is National Grid approaching fast money versus slow money in the business plan? Any early insights would be helpful. Finally, I need clarification on ED. You've generally mentioned 100bps to 125bps of operational outperformance in that business. However, in your latest regulatory financial performance report, you forecasted 70bps for ED2. Can you clarify the divergence, especially since it appears that synergies are on track? Thank you.

Okay. Thanks, Deepa. I'll take the first and then I'll ask Andy to cover the second two. I mean first of all, in terms of ROE, as we said in May, we were pleased to see as part of the sector-specific methodology decision document that Ofgem had recognized the importance of the regulatory framework being one that is attractive to investors. In the words that they used within the document itself, the range that they set out which is 4.6 to 6.4. They talked about the fact that there are reasons where it potentially could be at the top end of that range. And obviously one of our focal points going forward is to have that conversation and dialogue with Ofgem about why that's so important. Outside of the rate of return in terms of the incentives, we think and going to continue to have dialogue with Ofgem on that, there are a number of incentives Deepa that would be beneficial to consumers and would be obviously if we perform well beneficial to National Grid shareholders as well, which is in areas like delivering projects early. So obviously with the size and scale of the capital program we've got, clearly being incentivized to deliver those projects as early as possible makes a lot of sense and it'll create value for customers. And secondly, things like constraint management. So as you've seen over the last few years, the cost of balancing the system has increased. There are potentially actions that we can take as a constructive maintainer of the assets that potentially could reduce those constrained costs. So we think there's an opportunity for incentives in those areas as well. So those are the types of things that we're discussing with Ofgem at the moment.

Yes, thank you. Regarding the question about the ED3 or ED2 around the range of 100 to 125, we always expect some discrepancies between our overall five-year forecast for the rate case or price control and what is reported annually within the RRP. There are several factors contributing to this. One is the variations in how RoRE is calculated. Additionally, our efficiency plans and the timeline for achieving these efficiencies will affect the reported returns, as we will realize these improvements in the later years. Therefore, not all benefits will appear in the initial years of the RRP. As mentioned, we will provide updates as we progress through the later years.

Hi there. Good morning and thanks for your presentation. Just a couple of questions from me kind of following on from earlier ones, I guess. Firstly, on your earnings expectation of the 6% to 8% out in your business plan. I mean, clearly you're using the exchange rate and CPIH that may or may not be looking a little bit on the high end. But coming back to the ED3 review, how much wiggle room do you have to manage your own earnings going forward in light of a nominal return on debt and then your capitalization ratios sort of moving from the natural rates? And how will you be looking at putting that through in order to sort of manage your earnings? And subsequent on that one there, do you expect ED3 to also have a nominal cost of debt? My second question is on the U.S. election. Could you just remind me again how much of your capital spend in the U.S. is from imported goods? And what impact and what mitigation strategies could you put in case if there was a material increase in import tariffs? Thanks.

Okay. Well, why don't I let Andy take the first and I'll take the second. I'll do the second first, Andy. I mean, in terms of our CapEx in the U.S., the vast majority of it is sourced domestically. So, historically, when I look back, a relatively small proportion of it has been imported on things like steel, but the vast majority of the equipment comes from domestic equipment manufacturers like GE. So it doesn't impact us hugely if there are any changes to trade tariffs. Andy?

Thank you, Dominic, for your questions. Regarding the overall impact of T3 on earnings, if you reference our May commentary about the 6% to 8% range, we indicated that our assumptions over the five years were considered reasonable and prudent. This included expectations from the initial steps we observed during the SSMD consultation at that time. Specifically, with nominal debt, you shouldn't automatically assume it will have a positive effect. What's crucial for the T3 plan, as John noted concerning the scale of CapEx, is to achieve an overall result that aligns with Ofgem's guidance for being both financeable and investable. This will inherently involve appropriate cash characteristics, whether it stems from the usual debt effect or factors like fast slow or capitalization rates. We will keep focusing on this to ensure it is framed correctly regarding its earnings impact. Additionally, in relation to your question about the flow of nominal debt into ED3, this approach is now being applied by Ofgem across the sector, so I don't see any reason why it wouldn't carry over into ED3.

Hi, thank you very much. I have a couple of questions. First, John, could you provide the numerical details regarding the Tier 1 supply chain and what it means for the total CapEx associated with the 17 ASTI projects? Secondly, Andy, two questions for you. Regarding the U.S., if I recall correctly, your earnings guidance is based on a pre-deferred tax for the U.K. but not for the U.S. Could you discuss what effect a reduction in the U.S. tax rate might have on the deferred tax line and, consequently, your earnings on a hypothetical basis? I believe we had a similar conversation during Trump 1.0, but could you remind us of the expected direction there? Lastly, on the ESO, there’s significant cash already recognized due to timing. Could you provide an estimate of the actual cash you expect to receive upon closing the ESO, so we can accurately assess our net debt figures? Thank you.

Okay. Thanks, Jenny. Well, let me pick up the first and then leave this two and three to Andy. Let me sort of give a broader sort of perspective in terms of where we are in the supply chain, because I know it's a key issue. So I think hopefully people are aware that over the last 18 months or so we've fundamentally reviewed the way that we engage and contract and procure with the supply chain. So we've made really good progress. So we've talked in the past about how we ensure that we've got the contractors we need in terms of the work resource. And I was really pleased that we put in place what we call the Great Grid Partnership with seven of our supply chain, which is a £9 billion home contract that gives them the visibility to the work that we want them to do and gives us access to that work, gives us confidence that we'll have the contractors that we need. We've also been progressing, as I mentioned in my speech, the HVDC and converter station framework agreement, which is a £59 billion contract. And actually I've been really pleased with the response that we've had all the major cable manufacturers and converter station manufacturers have responded to that framework agreement and we're hopeful that will be in place very, very soon. And then when you get down into the individual projects, we've separated ASTI into the first wave of six projects, five of them we have contracts in place already and are already in the process of starting construction. And the sixth, which is The Grain to Tilbury project, we will have planning in place by the end of the calendar year and the contracts in place by the end of the fiscal year. So for that first wave, we feel very confident that we've got the contractors and the equipment that we need. We're then moving on to the second wave. So these are projects like EGL 3 and 4, Norwich to Tilbury, those types of projects. And again, we're working through the procurement process. We're looking at opportunities to standardize equipment so that we have more access to the supply chain. We're actually extending the length of contracts that we have. So across the group actually more than 50% of all the transformers that we need have already been procured out to 2030, which puts us in a very strong position. We'll also have agreement with Ofgem that we can actually make upfront payments to the supply chain to lock in capacity that we need for manufacturing. So again, when we look across all of that we feel confident for the Tier 1 contractors that we'll have everything we need in place early next year for all of the 17 ASTI projects.

Yes. Thanks, Jenny. Firstly on U.S. and potential tax changes, I mean clearly it's very early days and there's been lots of things talked about or muted that may happen. We will of course have to wait and see precisely what does or doesn't happen in the New Year. But as a quick reminder, as you said, when the rate was changed a few years ago, it's effectively economically neutral for us because the way U.S. regulation works is effectively tax, the net tax charge is included with the amounts we're allowed to collect from customers and therefore a change in the rate will effectively flow through into rates as well. So net-net, there's no underlying earnings impact. And of course, in terms of cash impacts that will need to be worked through based on what we see if any rules do change and then how that's reflected in regulation. But we wouldn't expect any significant earnings impact from that. And in terms of the system operator sale, the actual cash received was very close to the 630. If you look back in the depths of the results statement this morning, we're very clear that the provision for the remaining return of the over-collected recoveries from the previous year is included in the held-for-sale business as is the cash that was associated with giving that money back. So that was already stripped out of our numbers. And therefore, we did receive very close to the 630 and therefore that's what you should allow for in your net debt projections.

Thanks. Should we go to Mark Freshney? And after Mark, we'll go to Robert at Morgan Stanley. So, Mark, can we have your question please?

Thanks for taking my question. So, when I listen to your response to earlier questions, the potential change in Ofgem remuneration of debt costs moving to a nominal cost, potential lower deferred tax charge in the U.S., less netting that off on the asset base which was in response to the last question. It seems to me that if I add up all of these things within the five-year frame, there's certainly a lot of upside pressure on earnings. And my question to you is, would you agree with that? And just secondly, you spoke about being in a strong position on transformers, which I think is one major, major crunch point. But if I had to really try to pin you down, John, I mean we know that one customer has basically taken up all of one supergrid transformers for two years and has caused a lot of panic with some of your competitors in the U.S. In one word, are you confident of getting all the transformers you expect to get through to 2030?

Thanks, Mark. Let me take the second and then I'll ask Andy to take the first. I mean the simple answer is Mark that we've always known or we've known for a couple of years now that there was going to be an elongation in the lead time for supergrid transformers. You would have seen some articles this week that people talked about three to four years. But we've been adjusting for that for quite a while now. And therefore, we do have confidence that we can gain access to the supergrid transformers both in the U.K. and in the U.S. that we need over the period. As I said, we've been extending the timeframes that we're sharing with the equipment manufacturers so they've got visibility of what's needed. And when we come to the procurement process, we found that actually we have been able to get access to and procure those supergrid transformers. Let me just to add a little bit more flavor to it. One of the things we have done in the last 12 months is build up a stronger relationship with the equipment manufacturers outside of the sort of normal contracting process and separating out quite often the procurement of equipment from the EPC contracts. And in the U.S., we've also been extending the supplier base for transformers and bringing in new manufacturers which we started about 18 months ago. So, we remain confident that we are able to access the equipment, albeit we didn't recognize the lead times are longer, but we're reflecting that in our planning processes.

Yes. Thanks Mark. I mean to try and pull together sort of the elements of your question. I think again go back to when we set out the 6% to 8% guidance for our five-year earnings CAGR back in May. Of course, it was deliberately designed to be robust to a range of different outcomes. And nothing that we've seen since then has moved us outside that range. So it remains our very clear guidance today. As I said in answer to one of the earlier questions, of course, we made sensible assumptions around regulatory outcomes based on what we knew at the time. And so you shouldn't assume that things like nominal debt are automatically additive. And as I said in answer to the earlier question on U.S. tax, over time, we would expect that broadly to be neutral from an underlying earnings perspective with albeit sort of one-off changes in deferred tax flowing through earlier. So no, I think we're very clear that the 6% to 8% remains our guidance today. And we will of course, if it does change, we will update that down the track but that's very clear in terms of where we stand today.

Thanks. Good morning everyone. Just one question and following up on the theme of supply chain. Way back at full year results though when we sat around the table, you indicated there was a £59 billion framework agreement for the supply chain on which HVDC was the topic of the moment. Correct me if I'm wrong but I don't think we've seen an update on that. Is that still expected to be closed in terms of signing before the end of calendar 2024? And could you give a bit of a comment around the HVDC side given you've already covered the transformers? Thank you.

Yes. Thanks, Rob. So I did mention it in the speech but just giving you a bit more flavor on it. So we launched the procurement process for the Framework agreement early this year. As I said, it was a major Framework agreement that will cover not just the CapEx that we need and the supply of HVDC cables between now and 2029 but actually take us well into the 30s as well. We've been really pleased with the response that we've had from all the major cable manufacturers in the world. And we are hopeful that that framework agreement will be in place either by the end of the calendar but certainly by the end of the fiscal year. So we've had really good progress and a very strong response and we feel very confident about it. In terms of just again, just going down a level, so in terms of the first wave of ASTI projects, the contracts are in place for giga 1 and 2, which are the major HVDC contracts that we needed as part of Wave 1. So again, we're in good shape on that. Those contracts have already been let. As I said earlier, we're already in the construction phase on those.

Yes. Thank you for taking my questions. Can I just kind of go back to ED3? You clearly discussed and given us quite a lot of color on your confidence and visibility that you have and talked a lot about supply chain and procurement. Could you also give us some perspective on the consenting and planning visibility do you have on ED3 and put some numbers around it? Is there sort of a Phase 1 does that already all consented and you have all the approvals in place to deliver that? That would be helpful. And maybe tie it into that the spatial energy plan, how critical that is to the delivery of the plan? And what do you need to see and the timing of that, that would be super helpful. And just finally, I'll be interested in your perspective on the 2030 Clean Power Plan. Anything particularly notable within that, how does that compare to your CapEx plan that you set out to us earlier in the year? Thank you.