National Grid PLC Q2 FY2026 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 can I draw your attention to the cautionary statement at the front of the pack. As usual, a Q&A 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 do feel free to 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. Good morning, everyone, and thank you for joining us today. Well, as you know, this is my last set of results, and I'll be handing over to Zoe, who becomes Chief Executive on the 17th of November. So before we get started with the results presentation, let me pass it over to Zoe to say a few words.

Thank you, John, and good morning, everyone. Today's results are an important moment for National Grid and for me personally, as I pick up the baton from John. I want to take a moment to recognize his remarkable contribution over a decade as CEO. The strong foundation he leaves behind is a testament to his leadership and the dedication of our National Grid team. Since joining as CEO Designate on the 1st of September, I've had the privilege of meeting with many colleagues and stakeholders. What stands out to me is the scale and ambition of what we're delivering, transforming our networks and investing at pace. Our GBP 60 billion capital investment is not just a number. It's a commitment to future-proofing networks so we can meet the surge in demand we're seeing and ensure the millions of homes and businesses we serve have the reliable and clean energy they need at a price they can afford. As I step into my role in the coming days, my immediate focus will be on maintaining momentum, staying focused on performance and delivering safely and responsibly. I will approach this with a clear-eyed view of the challenges and exciting opportunities ahead. I believe in the vital function energy companies play in driving growth and prosperity. I'm committed to ensuring National Grid plays its part with an unrelenting focus on operational excellence and capital discipline as we continue to deliver for our customers and create value for our shareholders. I look forward to meeting all of you in due course, but for now, I'll hand to John and Andy to take you through the results.

Thank you, Zoe. So turning to our half-year results. As ever, I'm here with Andy Agg and once we've been through our respective presentations, we'll be happy to answer your questions. It's been a really positive first half as we've continued to build on our strong foundations to deliver excellent operational and financial performance. The investments we're making in our networks have never been more important to ensure continued resilience, enable economic growth, deliver cleaner energy and meet growing power demand. And it's these drivers that underpin the strong visibility we have in our investment program, supported by our regulators. This, in turn, gives me huge confidence in National Grid's ability to carry on delivering a compelling investment proposition with investment growth around 10% per annum and underlying earnings per share growth of 6% to 8%, whilst maintaining a strong balance sheet and delivering an inflation-protected dividend. Before I come to our performance, I want to highlight three key areas which reinforce my confidence in our ability to deliver on our plans. Firstly, the strong progress we've made in securing the supply chain to deliver record levels of investment. As you know, a big focus over the last two years has been to secure the supply chain for our largest suite of major projects in the U.K., the accelerated strategic transmission investment or ASTI. Today, I'm pleased to say we're in a really strong position. All six of our Wave 1 projects are already under construction with work progressing well. Our GBP 9 billion Great Grid Partnership covering the delivery of the eight onshore projects within Wave 2 is now up and running with our seven strategic partners. And we're making great progress with the remaining three Wave 2 offshore projects where we've completed the contracting for Sea Link and announced the preferred suppliers for Eagle 3 and 4 with contracts expected to be signed in the next few months. Once complete, we'll have secured the supply chain for all 17 ASTI projects, a significant achievement. And as a result, over three-quarters of our GBP 60 billion investment plan is now underpinned by delivery mechanisms enabling us to ramp up our capital delivery. We've invested over GBP 5 billion in the first half, another record for the group, and we remain on track to deploy over GBP 11 billion of capital investment this year, in line with our guidance. The second area to highlight is the continued momentum we're seeing from both a regulatory and policy perspective. On the regulatory front, we've built on the strong foundations we set last year in the U.S. with around 75% of our 5-year investment plan approved within our rate cases. We've also seen some important policy developments. As you know, New York State announced last year that it's likely to miss its target of 70% renewable generation by 2030. As a result, we've seen a shift in the last half towards an all-of-the-above approach when it comes to balancing clean energy goals with affordability and reliability. For example, in September, following submission of our long-term gas plan, the PSC issued an order supporting the proposed Northeast Supply Enhancement or NESE pipeline. If built, the capacity provided by the pipeline would materially enhance reliability and resilience whilst also potentially reducing energy costs for New Yorkers by up to $6 billion. In the U.K., I'll come to regulatory developments shortly. But on the policy front, the government is continuing to look at different ways to support faster delivery of infrastructure and accelerate economic growth. Alongside their planning reform legislation targeted at large infrastructure projects which should support delivery of projects in the 2030s, they've also launched consultations, which include proposals to allow electricity distribution network operators to carry out simple reinforcement activities without full planning permission and a revised fast track consenting process. If implemented, this could have important benefits for future transmission projects. So it's clear we're seeing strong regulatory support for the investments we're making as well as the policy progress to assist in the delivery of future projects. And then thirdly, the near-term actions we're taking to support load growth in the U.K. We're working with the government and industry, including U.S. big tech companies, as they seek to develop the U.K.'s AI infrastructure, including the creation of data centers within AI growth zones like the recently announced ones in Cobalt Park. These projects represent tens of billions of pounds of investment in U.K. infrastructure and are evidence of the demand growth we forecast in our RIIO-T3 business plan, which is designed to connect up to 19 gigawatts of additional demand over the five years to March 2031, around half of which is expected to be connecting data centers. We're now working hard to facilitate these connections, including working with the government through the AI Energy Council to support the development of more AI growth zones, so we can deliver the investment needed to meet growing energy requirements. So let me now turn to our financial performance, where we've delivered a strong set of results in the first half. On an underlying basis, that is excluding the impact of timing and exceptional items, operating profit was up 13% to GBP 2.3 billion, reflecting increased regulatory revenues across our U.S. and U.K. electricity transmission businesses. This strong operating performance drove an increase in underlying earnings per share of 6% to 29.8p. As you've already heard, our business delivered a record GBP 5.1 billion of investment, up 12% year-on-year at constant currency. And in line with the policy, the Board has declared an interim dividend of 16.35p per share. Turning next to reliability and safety. I'm pleased to say reliability has remained strong across our U.K. and U.S. networks over the first half of the year. As we look ahead to the winter, we're well prepared with winter readiness plans in place. The NESO recently published its winter outlook report for the U.K., in which they forecast electricity margins around 10%, the highest since 2019. In the U.S., whilst we anticipate adequate electricity margins, gas availability across the coldest days of winter remains a focus, especially in extreme weather events, and so our teams will work closely with upstream suppliers to mitigate any risks. And in July, the NESO published its report investigating the outage following the fire at our North Hyde substation, and we're working closely with the government, NESO, Ofgem and industry to progress the report's recommendations. Safety, as always, remains a critical focus across our business. In the last six months, our lost time injury frequency rate was 0.09, inside our group target. We continue to promote a culture of safety excellence including, for example, identifying new ways to enhance our safety protocols, such as the use of digital job briefs to increase hazard recognition in the field. Moving now to our operating performance across the group, starting with Electricity Distribution. Capital investment increased by 17% to GBP 756 million, reflecting increased asset replacement and load-related reinforcement activity. I'm pleased to say that we've now delivered over GBP 100 million of synergy savings, six months ahead of target following the U.K. electricity distribution acquisition in 2021. These synergies have been achieved through smarter procurement, operational efficiencies across our shared sites and integration of support functions in the group. In October, we also saw the publication of Ofgem's sector-specific methodology consultation for RIIO-ED3, which builds on the foundations of the T3 framework. We welcome the fact that Ofgem has directed networks to use a long-term planning horizon. This will ensure that delivery of the next price control also takes into account investment drivers in the decades ahead, including load growth, asset health, resilience and renewable generation. We've also made good progress on connections reform, including preparing flexible offers to customers that are likely to secure a queue position. This allows them to progress their projects ahead of a formal offer, enabling faster connections for renewables and low-carbon technologies. And finally, we continue to build our distribution system operator capabilities with the launch of the demand turner flexibility market, incentivizing increased demand as an alternative to curtailing generation. Moving to U.K. Electricity Transmission, where capital investment increased by 31% to GBP 1.7 billion, including construction of new substations to support load growth and progress on our GBP 1 billion London Power Tunnels project where we've now energized the first 2.5 kilometers during substation. We've also been working hard to find innovative ways to expand system capacity. For example, we began work on a new substation in Uxbridge Moor, West London, with an innovative design, which will have a 70% smaller footprint and avoids the use of SF6, a potent greenhouse gas. This substation will support over a dozen new data centers and is expected to deliver 1.8 gigawatts of new capacity equivalent to powering a mid-sized city. We've also leveraged the approach to procurement frameworks using our strategic infrastructure business, including, for example, in July, when we signed an GBP 8 billion electricity transmission partnership with seven regional partners to deliver substation infrastructure across the U.K. transmission network. Turning to policy. We're working closely with NESO and customers to support connections reform. Once NESO publishes this updated queue, we'll have a clear view of the sequencing of the specific projects required, and we can then turn our efforts to meeting these connection dates at pace. On regulation, Ofgem published its draft determination for the RIIO-T3 framework in early July, with our response published in late August. This included changes we believe are needed to the baseline return and the incentive framework to allow high-performing networks to achieve a globally competitive overall return. We've also proposed a number of refinements to streamline our funding mechanisms, enable us to recover the efficient cost of our investments and progress projects at a pace expected by our stakeholders. As you'd expect, we've engaged heavily with Ofgem at all levels of the organization ahead of the final determination, which is expected in early December. And we expect to take a decision in late February or early March following the license drafting process. Turning now to strategic infrastructure. As you've heard, our focus has been to ramp up delivery of the Wave 1 ASTI projects, whilst also ensuring we're securing the supply chain and relevant consents for Wave 2. specifically on our Wave 1 projects, examples of our progress include our offshore Eagle 1 and 2 projects where the cable manufacturing and site works for the southern converter stations are underway, our onshore Yorkshire Green upgrade project where the last of eight 200-ton transformers has now been delivered and the North London Reinforcement project where we finished re-conducting three circuits, installing over 190 kilometers of cables. We've also completed four public consultations this year, including the submission of two major development consent order applications, Sea Link and Norwich to Tilbury, with both submissions now accepted by the planning inspectorate, a major milestone. On the regulatory front, we continue to engage with Ofgem to find a resolution to our request for a delay event on the Eagle 1 project and are encouraged by the discussions to date. We expect these negotiations to reach a final decision over the next few months. Coming to the U.S. and starting with New York, where we've continued to make strong progress across our operations. Capital investment reached GBP 1.6 billion, up 5%, driven by an increase in mains replacement expenditure. In addition, we've continued to make strong progress on our $4 billion upstate upgrade, including our Smart Path Connect transmission project, where our segment is on track to be ready to energize at the end of the year and our Climate Leadership and Community Protection Act, or CLCPA Phase 1 and 2 projects for which we expect the first round of permit approvals by the end of the calendar year. On the regulatory and policy front, in addition to the order from the PSC on the NESE pipeline and the approval of the Niagara Mohawk joint proposal, we're also engaging on the draft New York State Energy Plan. Released earlier this year, the plan outlines long-term strategies to meet New York's energy needs. It emphasizes the importance of infrastructure investment and recognizes the enduring role of the gas network in maintaining reliability, affordability and security of supply. Once finalized later this year, the plan will influence future regulatory decisions and utility planning across the state. In New England, capital investment increased by 23% to GBP 1 billion, reflecting increased spend on asset condition and system capacity in both electricity transmission and distribution, 220,000 smart meter installations and the further rollout of our fault location isolation and service restoration program. We've also agreed partners for our strategic procurement framework which will support over $3 billion of contracts over the next five years. And finally, on regulation and policy, we've agreed around $600 million of allowances under the Electric Sector Modernization Plan largely focused on electric vehicle highway charging and IT infrastructure, and we're continuing to work with the governor's office to advance the Energy Affordability Bill. Moving to National Grid Ventures. Capital investment was GBP 69 million, supporting asset refurbishment across our Interconnector and U.S. Generation portfolios. Operationally, we've had a strong six months with our Interconnector fleet at 90% availability and our Generation fleet achieving 96% reliability. We've also progressed the Propel transmission project through our Transco joint venture, where EPC contracts are now under development. Once complete, the project will help to deliver power from Long Island to the Bronx in New York City and Westchester County. We've also streamlined our portfolio, having completed the sale of National Renewables in May and announced the sale of Grain LNG in August. With all regulatory approvals received, we expect completion in the coming weeks. So let me stop there and hand over to Andy to walk you through the numbers before I come back to talk about our priorities for the second half.

Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results excluding timing, U.K. deferred tax and exceptional items and the dual results are provided at constant exchange rates unless specified. So starting with our overall performance in the first half. We've delivered strong results with underlying operating profit on a continuing basis at GBP 2.3 billion, a 13% increase from the prior year, primarily driven by higher regulated revenues in U.K. electricity transmission reflecting growth in the asset base and higher revenues in our U.S. regulated businesses following recent rate cases, partially offset by the sale of the electricity system operator last year. Strong operating profit growth partially offset by higher finance costs and a full impact in the half from the rights issue shares has led to a 6% increase in earnings per share to 29.8p. We've continued to make good progress with our capital program. with investment from continuing operations at GBP 5.1 billion, another record level, and up 12% year-over-year. In line with our policy, the Board has declared an interim dividend of 16.35p per share, representing 35% of last year's full-year dividend. Moving now to our business segments, starting with U.K. Electricity Distribution. Underlying operating profit was GBP 551 million, down GBP 22 million versus the prior year, reflecting lower revenues due to headwinds from Ofgem's real price effects mechanism, which more than offset the benefit of revenue indexation and recovery of higher totex allowances and higher depreciation. In the period, we exceeded our cumulative three-year target of GBP 100 million of synergy benefits by FY '26, six months ahead of schedule through leveraging our increased buying power, delivering savings from integrating support functions and working more efficiently at joint transmission and distribution sites across the U.K. Capital investment was GBP 756 million for the half year, an increase of GBP 109 million compared to the prior period, primarily driven by higher asset replacement and refurbishment and higher load-related network reinforcement. In our U.K. Electricity Transmission business, underlying operating profit was GBP 846 million, up GBP 122 million compared with the prior period. A strong first half performance was driven by higher allowed revenues partially offset by higher depreciation. Capital investment was GBP 1.7 billion, 31% higher than the prior period. This reflects our ongoing spend on substation build-out as well as the significant step-up in investments on our ASTI projects and ASTI enabling works. Moving now to the U.S., where underlying operating profit for New York was GBP 443 million, GBP 167 million higher than the prior year as a result of higher net revenue reflecting the growth of the business as we upgrade and reinforce our networks and the recovery of previously unremunerated costs following recent rate case updates. This was partially offset by increased depreciation, reflecting a higher asset base and higher costs, including property taxes and environmental provisions. Capital investment was GBP 1.6 billion. This was GBP 82 million higher than the prior year from a further step-up in the pace of our mains replacement activity under our downstate gas rate case and increased spend on smart meters, partially offset by lower costs on Smart Path Connect as we near completion of this project. In New England, underlying operating profit was GBP 292 million, GBP 65 million higher than the prior period, following higher revenues reflecting our growing asset base and improved incentive performance, partly offset by higher depreciation and other investment-related costs as we ramp up the capital program. Capital investment was GBP 958 million, GBP 178 million higher than the prior year. This was driven by increased asset condition and system capacity investments and smart meter installations, partly offset by reduced mains replacement work. Moving to National Grid Ventures, where the underlying contribution was GBP 227 million, including joint ventures. The increase of GBP 19 million compared to the prior year was primarily due to the benefit of depreciation having ceased in Grain LNG following its classification as held for sale. This accounting treatment for Grain, along with the sale of National Grid Renewables, drove a reduction in capital investment to GBP 69 million. And our other activities reported an operating loss of GBP 27 million, GBP 11 million lower than the prior period, principally driven by lower insurance costs and the non-repeat of fair value losses in the National Grid Partners portfolio. Turning to financing costs and tax. Net finance costs were GBP 678 million, an increase of 4% compared with the prior year due to higher average net debt and the impact of higher inflation on indexed linked debt. The underlying effective tax rate before joint ventures was 11.3%, 60 basis points lower than the prior year, principally due to the benefit of higher capital allowances in our U.K. regulated businesses and a change in the profit mix. Underlying earnings were GBP 1.5 billion, up 16% with earnings per share at 29.8p. On cash flow, cash generated from continuing operations was GBP 3.6 billion, up 35% compared to the prior year. This increase is driven by improved profitability across the U.K. and U.S. and favorable movements in working capital. In total, net debt increased by GBP 1.5 billion to GBP 41.8 billion in the period with strong cash inflows from operations and the GBP 1.5 billion of National Grid Renewable sale proceeds helping to offset the continued growth in capital investment. For the full year, we expect net debt to increase by around GBP 1 billion from the half year, including the Grain sale proceeds and assuming a USD 1.35 exchange rate. As John said out earlier, we've continued to make significant progress in capital delivery securing the supply chain and advancing our regulatory and policy agenda. As I previously set out, our plans were designed to be robust against a range of outcomes with respect to interest and exchange rates, and I remain confident in our ability to deliver in line with our five-year framework. Turning to forward guidance, we've included detailed guidance for the full year in our results statement as usual. Following strong performance over the first half of the year, we expect a modestly higher underlying EPS relative to our guidance in May. The impact of a weaker U.S. dollar and a slightly higher share count due to scrip uptake is expected to be more than offset by improved operating performance in the regulated businesses and slightly lower financing costs. With that, I'll hand you back to John.

Many thanks, Andy. Now before we move to Q&A, I want to spend the final few minutes setting out our priorities for the remainder of the year as we continue to invest across our networks. Starting in the U.S. and New York where we have a number of priorities, including further work with the state on its energy plan to shape a road map that balances decarbonization, affordability and reliability. Ongoing work with Williams in our role as the sole offtaker of the NESE pipeline, as they look to secure regulatory approvals, which are expected later this year and preparing for our Downstate New York gas filing due for submission next spring, ensuring we're able to continue to invest in safety and reliability while supporting customer needs and managing affordability. In Massachusetts, our priorities include filing our gas distribution rate case, which is now planned for January to allow us more time to engage with new stakeholders and propose measures aligned with evolving state policy goals, working with the state on its affordability bill and producing our climate compliance plan, an important enabler of the cleaner energy transition. Turning to the U.K. In Electricity Transmission, our priorities are clear: to engage with Ofgem to deliver a RIIO-T3 framework that allows high-performing networks to achieve a globally competitive overall return and mechanisms that enable us to deliver at the scale and pace required. Work with the AI Energy Council as part of our efforts to collaborate across the energy and tech industries, and build on the good progress we've made in ramping up construction across our Wave 1 ASTI projects, whilst also engaging closely with stakeholders and communities as we progress our development consent orders. In Electricity Distribution, our key priority is preparing our response to the RIIO-ED3 sector-specific methodology consultation ahead of Ofgem's decision expected in the spring. And in National Grid Ventures, we have two key priorities: developing and winning new competitive transmission opportunities in the U.S., including an ISO-led opportunity in New England, and closing the sale of Grain LNG completing our announced divestments. Now before we take your questions, as this is my last results presentation, I want to reflect briefly on the journey I've been privileged to be part of over the past 10 years. It's been a truly transformative decade for National Grid. When I presented my first set of results back in 2016, the business looked very different with the majority of our operations in gas. Today, we're over three-quarters electric, a fundamental shift that reflects the successful portfolio repositioning that has enabled us to pivot towards growth and a geographical footprint that is more balanced across the U.K. and the U.S. I'm incredibly proud of how we've responded as an organization to meet the needs of our customers by delivering extraordinary organic growth. We've deployed nearly three times the level of capital investment compared to 2016, and the growth in the regulated asset base is expected to be over 10% this year compared to just 4% a decade ago. Our business is incredibly strong, giving me huge confidence in National Grid's ability to continue to deliver a compelling investment proposition. Beyond the numbers, I'm very proud to be handing over an organization where our values and the critical role we play for our customers are the driving force of our ambitions. Zoe is the right person to lead National Grid into this next chapter, and I know she will find the clarity of our mission, the scale of the opportunities ahead to be a source of strength in the years to come. So let me stop there and give you the opportunity to ask Andy and I any questions. Okay. So we've got lots of questions. So I'm going to perhaps start with Pavan from JPMorgan. And then after Pavan, perhaps I could ask Sarah from Morgan Stanley to ask her question. So Pavan, if we can have your question, please.

And John, I just wanted to congratulate you on the results you've delivered during your leadership. I wish you all the best for your future beyond National Grid. So I've got two questions, please. Firstly, on T3 expectations? Can you give a bit more color on your dialogue with Ofgem looking at particularly some of the data points we've had earlier this year on the U.K. water CMA provisional determinations? And do you foresee upward pressure on the return on equity? And then my second question is on net debt, and the net debt guidance looks better for the full year than in May, even accounting for the proceeds of disposals. You highlighted the working capital effect in your speech. I was wondering if you could give a bit more color on the drivers of this and whether it's something that should persist into the future years? Just trying to get an idea of the basis.

Thanks, Pavan. Let me do question one, then I'll hand over to Andy to do question two. And thank you for your kind remarks. In terms of RIIO-T3, if I just take you back to our response to the draft determination, in that, we said very clearly to Ofgem, there were two fundamental areas that we wanted to focus on between the draft determination and the final determination. The first was the overall investable framework and the second was the workability of the regulatory framework. In terms of the investment framework itself, you would have seen in our draft determination that we made the argument that we believe the overall return needs to be comparable with what we'd see internationally. And therefore, based on what was in the draft determination, we set up that we felt that the base return should be higher. I think given what we've seen in the provisional CMA decision on water and things like that, I think that reinforces some of the arguments that we've made. We also said as part of the financial package that we needed a lot more detail on the incentives, and that's been an area of focus since we made that response to the draft determination with Ofgem at all levels of the organization. In addition to the financial framework, we also said we needed a framework that was actually deliverable. And in particular, what we meant by that was, given the scale of the CapEx that we need to deliver, we need to have the ability to be able to make decisions quickly and then to move nimbly through the process, in particular, in terms of when Ofgem sets the allowances and actually agrees that the projects are needed, that it aligns with the development framework for the projects. So that has been the focus, as you can imagine, with what, four weeks to go. There continues to be a lot of dialogue, but the dialogue remains in those two broad categories. And with that, I'll hand to Andy.

Pavan, thanks. So you remember back at year-end, we guided to an increase in net debt of around GBP 6 billion, but that was before you take account, as you say, of any of the transaction proceeds. By the time you allow for the two disposals and the FX movement that we've seen, it's a relatively small difference, net difference compared to the sort of the GBP 1.5 billion increase that we're now guiding to after you take account of all of that. And that small difference is a combination of the slightly higher scrip uptake that we've seen over the summer and, as you say, a little bit of working capital, but it's relatively small in the context of our balance sheet. So I don't see that as being a significant sort of enduring shift.

Thanks, Andy. So shall I go to Sarah from Morgan Stanley next and then perhaps Mark Freshney from UBS after that. Sarah?

Firstly, a very big welcome, Zoe. It's always nice to hear another Aussie accent. And John, another very big thank you to you and wishing you all the best in the next chapter. So two questions from me, please. And actually, they're both on U.K. Electricity Distribution. So firstly, on the ED operational RoRE performance, please. Just wondering any further color you can provide on how that's tracking against this year's 50 basis points guide and then as we look forward, anything clearly you can please add on that pathway back to the 100 basis points. And then quickly, a bit more on last month's SSMC ED, completely appreciate very early days, but wondering if you can add a bit more on your thoughts, please. If there was anything that surprised you in the document, or mostly, as you already mentioned, mainly just building on what we've already seen through the process.

Yes, thanks, Sarah. Regarding the operational performance of ED, I believe it is right on track with our expectations for the half-year. As indicated in the results, we continue to experience the effects of real price adjustments that we discussed in May, and we are seeing improved performance this year. We are guiding towards an outperformance of 50 basis points this year, and we still anticipate getting closer to 100 basis points by the end of ED. This aligns with what we mentioned in May, and the performance in the first six months supports that outlook. Regarding the sector-specific methodology consultation, it is quite comprehensive, which is a positive aspect at this point. It aligns well with our expectations. We were particularly encouraged to see that Ofgem plans to adopt a long-term strategic view of distribution across multiple price control periods, with ED3 being set within that framework. We are also pleased that the document emphasizes the necessity for investment in distribution to keep pace with customer needs. With the expected rise in electric vehicles, heat pumps, and similar initiatives, we appreciate this focus. Overall, the messaging underscored the importance of having an investable proposition and highlighted that incentives for innovation would be crucial. Overall, it met our expectations and provided a framework that enables us to respond effectively ahead of the decision in the spring. Okay. So if I can move to Mark at UBS and then perhaps after Mark, we can take Dominic from Barclays. So Mark?

John, congratulations and looking forward to seeing what you'll be doing next. I have two questions. Firstly, looking back over the last two or three Ofgem price controls, do you feel that Ofgem have given you allowances sufficiently that are sufficient for you to do all of the maintenance that you would have liked to have done? And just secondly, on infrastructure in general, I mean National Grid has been the center of capital delivery in the U.K. at a time when there wasn't much of it around. Clearly, the government has been clear we're not going to cut capital investment in the U.K. We're going to keep going. What do you think the U.K. needs to do to get all of this CapEx done, not just in your area, but across the whole piece?

So thank you, Mark. So in terms of the context of the last two or three price controls and have we had sufficient allowances, I think the blunt answer to that is yes. When I look at the outcomes, which is probably the most important thing, we've continued to deliver world-class reliability at 99.69, as you know I quote quite often. But also, if I just take a broader perspective and look at the number of unplanned outages we have on the network, so unexpected failures of assets today compared to 10 years ago, that actually it's about half as many today. So actually, the overall health of the network looks very resilient and strong. And therefore, I think we have had sufficient maintenance CapEx to do the work that we need to do. Obviously, as we look to T3, that continues to be dialogue with Ofgem as we get towards the final determination. But certainly in the past, I think we've got a network that's reliable and resilient. And when I look at the data, it suggests it's in a strong position. In terms of infrastructure and the broader question, I mean, for me, I think the things that are important, Mark, I think there's bipartisan recognition that infrastructure investment is a key enabler of economic growth in the U.K. In order to do that efficiently, having stable and predictable fiscal and regulatory frameworks is really important and something that we're focused on. I think we still like to see more done around the planning regime in the U.K. The planning legislation is going through, and I think that will streamline the process. But I do think there's more opportunity to do more so that infrastructure can be built more efficiently and more quickly to enable that economic growth. Okay. Let me move on to Dominic. And then perhaps after Dominic, we could do Ahmed at Jefferies. So Dominic, do you want to ask your question?

Yes. Thank you, John, for your sort of decade as CEO and I think 30-ish years at Grid and also to welcome Zoe to the role and wish her all the best for the future. Two questions for me, please. Firstly, there's clearly a U.K. government focus on some sort of affordability. And within that, I think the Select Committee last week brought up network windfalls again. And I think Ofgem are now making sort of a consultant is by think beginning of 2026. So maybe you could give us an update on whether this Select Committee recommendation will change Jim's point of view on network windfalls? And secondly, on the GBP 35 billion that you had in your draft for RIIO-T3, there's clearly a lot of uncertainty around that. I think NESO is publishing a new connection regime shortly. And I was hoping that you could provide us color as to actually what you expect to be in it, like what's going to change? And how much clarity will that actually put onto the totex number that will get published in the FD on how much that's already could be secured?

Thank you, Dominic. Regarding the Select Committee from last week, this issue has already been addressed. To clarify, our analysis shows that we have not received any windfall profits. The analysis discussed by the Select Committee appears to be a snapshot comparing expected inflation with actual inflation. However, when looking at it over the medium to long term, it is evident that there are no windfall profits. This was the essence of the debate. Ofgem has already examined this matter and decided that it is not in consumers' interest to reopen it. From this perspective, Ofgem has responded to the consultation and has looked into it as well. The consultation you mentioned for next spring is not related to windfall profits; it's actually concerning how network charges are allocated through the standing charge for suppliers. This is what Ofgem is focusing on, not the windfall profits. Regarding the GBP 35 billion totex you mentioned, when we presented our business plan for RIIO-T3, we indicated that we could spend up to GBP 35 billion over the five-year period, depending on the pace at which connections are made. This amount includes baseline CapEx for traditional reliability and resilience assets along with projects we are certain about, but a significant portion of CapEx will depend on the speed of new connections. We expect to release new connection offers to protected customers—those with planning consent that have begun construction—for connections in 2027 and 2028 by January next year. Offers for those scheduled for 2030 will be issued in Q2, and for connections beyond 2030 in Q3. Over the next year, we will gain clearer visibility on the connections expected to be delivered within the RIIO-T3 period. We have a good understanding of where the main investment areas are, and the connections reform process will help us identify the specific substations and locations targeted for investment. We should see an improvement in clarity as we progress through the next year, but it will take some time. Okay. So I'm going to move on to Ahmed at Jefferies and then Harry at BNP. So Ahmed?

A warm welcome to Zoe in her new role. I have a few questions, starting with the T3 process. In your response to the due diligence, you mentioned the workability and simplification of the funding framework and the reopening of decision-making. Can you share the current status of that discussion and whether you're confident in achieving the improvements you desire? Another topic that's been in the news and among stakeholders is the budget for auctions, and there is some debate about whether it's sufficient to meet the government’s offshore wind targets. I would like to understand how sensitive the transmission capital expenditure plan is to achieving offshore wind development targets in the U.K., whether for T3 or for the medium term. Lastly, Andy, could you elaborate on the factors behind the modest upgrade you mentioned for the FY '26 outlook? You indicated there’s been better performance in regulated businesses, and I would like to understand that further.

Yes. Thanks, Ahmed. So start with the first question on the workability. So this was one of the areas that we focused on in our response to the draft determination, I mean in simple terms, as I said to Dominic's answer, quite a bit of the CapEx is going to be agreed as we move through the price control period. So as big projects are defined, then we have to go through a process of agreement with Ofgem, the pre-engineering, then off to MacGreen that it's the right project to move forward and ultimately agreeing the allowances. And for us, what's really important is that those regulatory decisions dovetail and align with the project development time scale so that we're not left in a position where either we're having to spend in advance of getting the approval from Ofgem that it's the right project and/or we're having to wait for clarity on what the allowances are. So it's very much about the workability of the framework and making sure that we've got a good drumbeat with Ofgem to allow us to deliver what is a significant level of CapEx at speed and at pace. So that has been a lot of discussions have been had since they're after termination at the working level to make sure we've got the right framework. And of course, we'll wait to see whether we've got the right place of the FD at the beginning of December. In terms of the offshore wind auction, I think I'll go back to what we said in May, just to remind people that, to a large extent, we are relatively insensitive to what happens in the offshore wind auctions because Ofgem has already taken the decision that for the ASTI projects, we have a license obligation to deliver them and that it's in consumers' interest to progress those projects sort of independent of what the time scales are. And that's partly because, of course, there's an expectation that not only will it enable the flow of increased energy across the network, but it will also reduce what is an expected significant increase in constrained costs of around GBP 12 billion. So we don't see a huge amount of sensitivity between our GBP 60 billion five-year plan and then finally, on question three, I'll look to Andy.

Yes. Thanks, Ahmed. In terms of the guidance, I think we said it versus our original guidance at the start of the year, we've obviously seen the two headwinds, firstly, from the dollar movement. So we're now guiding at 1.35 for the remainder of the year, which is, as you know, a small headwind, and secondly, with a slightly higher scrip uptake, there's an element of EPS dilution from that for the full year. But that is more than offset by a stronger operating performance from across the group, actually. I wouldn't call out any particular business unit. It is from across our regulated businesses. And all of that means that it puts us in a net or a modest upgrade position compared to our original guidance when we look ahead to the full year.

Okay. Thank you, Andy. I'm going to go to Harry at BNP and then James at Deutsche. So Harry, we have your question, please.

And I'll add my congratulations and all the best and also hello to Zoe. So I have two questions, please. The first one is on the U.S. Now you just had a slew of Democrat election wins and New York Mayor race dominated by affordability and the cost of living. I think you've been quite clear in the past that in the U.S., you are sheltered from this debate because regulation is done at the state level, et cetera. But if there was a federal move to clamp down on energy prices in the U.S. ahead of the midterms, where do you think the pain would be felt? And I have been clear in mind that when this happened in Europe in 2022, it was painful across a wide range of business models, although less so in networks. So I'd be interested just to understand how you think or where the axe could potentially fall if energy prices really grew into a major, major political issue in the U.S. The second one is on T3. So looking at your consensus around the time that the draft determinations came out, there's several key uptick in expectations for FY '27, which is, I think, all of us looking at the fast money numbers and the Ofgem models have concluded that, that might bump your revenue for next year. How comfortable do you feel with that if we just take what we've had in the draft determination, so clearly, we'll get more in December and things might look different? But if we're just looking at what we've got in the draft, do you think we are collectively as sell-side analysts being conservative enough here? And do you think that there is a rational reason that EPS might be higher next year because of the fast money?

Thanks, Harry. Let me take the first question, and then I'll ask Andy to take the second. Probably just sort of a broader answer to the specifics as well, which is, so first of all, we're very conscious of the affordability debate, not just in the U.S. and the U.K. So we always take that massively into account when we think about price controls and rate cases in the U.K. and the U.S. With regards to the Mayor election, just to put that into context as well. So for New York City, they are our largest customer for our downstate gas business. We have a huge amount of interaction with them, particularly on the construction programs because quite often, where the city is doing work, we have to move our pipelines, for example. So they're a key stakeholder. And like any key stakeholder, we will engage with them to make sure we understand how we're working together, but also what their aspirations are around, and we understand that affordability is a big issue. But ultimately, for National Grid, things like our CapEx plans and affordability sit at the state level. And as you saw last year, we were very successful in agreeing with the regulator at the state level, a three-year plan for NIMO of $5.6 billion, which will take us right through to 2028. In terms of the sort of interaction between state and federal, I mean, for utility rates, then obviously, federal today don't have any jurisdiction. So I think in terms of the affordability debate, it would still sit at the state level. We need to be very mindful of that. And the way we approach that as a National Grid is when we look to do a rate case, and we'll do this when we do in the coming months, we'll first reach out to all our key stakeholders and understand what are their expectations, what do they want from National Grid and how does that fit in the envelope of affordability. And quite often, that will shape the capital plan that we put forward as part of the rate case. We'll also spend a significant amount of time thinking about our vulnerable customers. You might remember in our rate case, for example, we set aside $290 million to support the most vulnerable customers. And of course, we're always trying to drive the efficiency of the business through innovation as well to find more efficient ways of delivering what we need from customers. So I think for all those reasons, that's what we'll continue to do. We'll engage with stakeholders and think very carefully about what that rate case looks like in the envelope of affordability. From a federal perspective, and I think I'll reflect on what we've seen over the last 12 months, which is one of the key focus areas in New York, for example, has been how do you address the wholesale prices and you would have seen that the PSC has indicated they're supportive of the NESE pipeline. Based on the analysis that we did on the NESE pipeline, not only does it improve resilience and reliability in New York, but it increases the volume of supply by about 14% and potentially has about $6 billion of benefit for New Yorkers. So I think there's an interaction between federal government when you get into things like transmission pipelines and the states that I suspect will continue to be a focus going forward. Andy?

Harry, thanks for the question. Yes, I think, obviously, this morning, you'll have heard that we've reaffirmed our five-year frame guidance through to '29. And you remember when we set out that guidance, it was deliberately designed to be robust to a range of different outcomes as well. So I think it's important to take that into account. And clearly, at this stage, as you've heard from John, a couple of times now, our focus is working with Ofgem to ensure that we get to an appropriate final determination. And that will be the point that we'll determine whether there is further guidance to be given, and that will be the point that we would do that. The other thing I'd just mention, of course, at this stage, we're also one of the topics we talk to Ofgem about is the profiling of any increases of revenue and how they fall across the five years of the price control. So that's something else that will be part of the mix that we'll be looking at.

I'm going to move on to James at Deutsche and then perhaps we can go to Deepa at Bernstein after that. James?

It's James Brand from Deutsche. Also, congrats to John and also to Zoe and good luck for the future. I have two questions. The first is on demand. So you said that you were kind of positioning yourselves to be ready to connect up to 19 gigawatts of additional demand. Obviously, that will be absolutely huge, particularly if it was all heat demand. What's your kind of realistic expectation of how much demand growth we might see over the next five years? I know there's a lot of data center connection requests, but how much do you think we can realistically expect to be added on the data center side? Maybe that's a difficult question to answer, but any thoughts around that would be super interesting. And then the second question is on coming back again to the energy affordability debate in the U.K. So obviously, the kind of noise around that has increased quite substantially. How do you view your own positioning in regards to that debate? I guess, potentially reasonably well protected given that you'll have the transmission price control locked in pretty shortly, and you can argue that the investments that are cutting our curtailment costs quite substantially. But longer term, is this a bit of a risk for you? And if you were to make any recommendations for ways to put electricity bills in the U.K. given that we have pretty much the most expensive electricity bills in the developed world, what would you recommend?

Thank you, James. I'll begin with the demand aspect. To provide some context, there's considerable excitement surrounding the potential connection of data centers. Currently, approximately 2.6% of demand in the U.K. comes from data centers. NESO's future energy scenarios indicate that this could rise to around 9% by 2035. Over the past year, we've experienced a notable increase in requests for connections to the transmission network to support data centers and generative AI. In our RIIO-T3 plans, we anticipate demand growth of about 19 gigawatts, translating to roughly 4% annual growth. Half of this growth is expected to come from data centers, as supported by the connection agreements signed during the RIIO-T3 timeframe. We're confident in our understanding of the demand trajectory over the next five years and in the expected growth in data center demand and their connection points. Furthermore, National Grid is collaborating with the government through the AI Council to pinpoint the optimal locations for data centers in the U.K., focusing on areas with favorable access and shorter interconnection timelines, a key factor for data centers. Regarding energy affordability, while we acknowledge an increase in the transmission charge due to the ASTI projects and RIIO-T3 CapEx, overall, the expected constrained costs represent a net reduction. Therefore, moving forward with investments is advantageous for consumers as it will reduce their costs in the long run. We recognize that affordability is a critical issue, which is why our business plan emphasizes the importance of innovative incentives to enhance efficiency and includes an efficiency measure. We're very aware that this is a challenging period for customers. However, concerning the transmission portion of the bill, we are committed to delivering infrastructure that alleviates these constrained costs, which will lead to a net reduction. I'm going to move to Deepa and then to Martin at BofA. So Deepa, should we take your question?

First of all, thank you so much for your service for all these years and all the best for the next steps and Zoe a warm welcome. So my two questions. First one is on the RIIO-T3 draft. Where do you see the risk reward on the incentives? If not the financial returns, that's very clear, you want it to be higher than what's there. But as things stand right now, where do you see the risk reward and how close is that to the 200 bps or so you would need in order to get closer to that 10% overall nominal return? And in your discussion so far with Ofgem, what's your sense on, are they moving in the right direction taking your feedback into account? So that's my first question. And the second one, I noticed that you are looking at U.S. transmission opportunities. And I think this is something that used to be talked about a long time back. Nothing has ever happened about it. So has there anything changed in the U.S. transmission landscape that is making you look at that again? And again, how big could this opportunity be?

Thank you, Deepa. I want to discuss innovation in relation to our incentives framework, which is crucial for achieving an adequate return given our future investment scale. Our collaboration with Ofgem is centered around four main incentives. First, we aim to ensure that we provide the connection capacity that customers need in a timely manner. Second, we are focused on completing major projects as swiftly as possible, similar to our approach for the ASTI projects. Third, we are exploring ways to lessen cost constraints in our transmission role, especially in collaboration with the system operator. We've made progress here in the current price control and believe there are further opportunities ahead. Lastly, we are discussing incentives with Ofgem to establish a framework that allows us to adopt new technologies on the network to lower costs for customers. For instance, we've started using Dynamic Ratings in our U.K. transmission divisions, which is an innovative technology that enhances power delivery without necessitating new lines. These incentives are vital for creating a successful overall strategy, and innovation plays a key role in that. Regarding U.S. opportunities, as noted when we refined our strategy last May, we are concentrating on both regulated and competitive transmission, and we believe there are prospects in the U.S. Our National Grid Ventures team is actively exploring these, and I mentioned earlier that we are considering a transmission line from Maine to New England, which could lower bills for New England customers. This project is familiar to us, and we have the expertise within National Grid Ventures. Currently, we are looking closely at solicitations for competitive transmission in the U.S. We will proceed only if we believe we can effectively compete and secure reasonable returns, but this particular project is on our immediate radar.

Right. Congratulations on the results and all the best for the future. I actually wanted to come back to this topic of potentially new opportunities in transmission in the U.S. Could that be something that is material in terms of investments and in terms of CapEx and presumably that would come on top of your existing guidance of GBP 60 billion? So could you just give us some perspective as to how relevant this opportunity could be? And question number two, just on hybrid bonds. We have not really seen any hybrid issuance, I believe, so is that still part of your financing toolbox?

Thanks, Martin. I think Andy can take a couple of those.

Thank you, Martin. Regarding the transmission opportunities, as John mentioned, we are still in the initial stages of exploring these. We will have to see how these may develop moving forward. I would like to remind you that when we outlined our financing strategy during the equity raise 18 months ago, we were explicit that if we identify additional opportunities, particularly in our Ventures business, which could exceed GBP 60 billion, we would need to seek ways to finance those through the Ventures business as well, such as potential partnerships and alternative off-balance sheet financing methods. This means it would not affect our ability to use the equity proceeds to support the GBP 60 billion target, and that still holds true today. As for hybrids, you're right. When we shared our financing strategy 18 months ago, we clearly stated that we do not plan to issue any hybrids for several years, and that situation remains unchanged. While hybrids are a valuable potential tool for us and we have significant unused hybrid capacity, there are no immediate plans for issuance. However, it will continue to be a tool we can consider using in the future if deemed appropriate.

Thank you, Andy. So I don't have any further questions. So let me just wrap up by just saying, I guess, a summary of our half-year results is good operational and financial performance in the last six months. I think we're very well positioned for the second half. And hopefully, you've taken away from today's presentation, we're very much on track to deliver the GBP 60 billion over the five years 18 months in. This is my last results presentation. I'd like to say I'm just incredibly proud of the organization, what it's achieved over the last decade, but I'm also delighted to be handing over to Zoe, who I think is going to be an incredible CEO. So thank you, everybody, for joining us today, and I'll see some of you very soon.