National Grid plugs into growth

The fall in reported profits can be blamed on arcane one-offs, including debt redemption costs and mark-to-market movements on commodity contracts. Strip these out and pre-tax profits rose 11 per cent to £2.9bn. This performance was underpinned by Ofgem's price control framework, which is clumsily entitled 'Revenue = incentives + innovation + outputs' or RIIO. The regime has an incentive mechanism that encourages National Grid to make savings out of its combined operating and capital expenditure. Last year the UK electricity transmission division underspent its allowance by £200m, which had the effect of boosting its return on equity from 12.4 per cent to 14 per cent.

Meanwhile, operating profits from the US regulated business - effectively a conventional utility - increased by 1 per cent to £1.2bn at constant currencies. Top-line growth of 3 per cent was offset by a more than doubling of bad debts as customers struggled to pay their winter fuel bills following extreme weather conditions.

National Grid has agreed to invest €1.4bn (£0.99bn) to build two subsea interconnectors in separate agreements with Norwegian energy group Statnett and the Belgian Elia group. Mr Bonfield says the flow of energy would mostly be into the UK, rather than vice versa. Greater sharing of power within the EU would be beneficial, since less additional capacity would need to be built into the grid, he adds. The group is also currently in discussions to build a second interconnector in France and establish a connection with Denmark to take advantage of the country’s generous wind capacity.

Pending upgrades, the consensus of analyst forecasts is for EPS of 57.8p this year.