January 29, 2013 5:08 pm

National Grid upbeat despite Sandy effect

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Repairing cables©Reuters

National Grid said it was on track to deliver improved turnover and profits in spite of the impact of superstorm Sandy on its US business.

Steve Holliday, chief executive of the FTSE 100 electricity and gas distributor, said on Tuesday he was satisfied over progress made with US regulators in Rhode Island and New York aimed at agreeing terms on the returns commanded by its US operations.

The utility continues to deal with the impact of superstorm Sandy last October that caused widespread devastation to the north-eastern seaboard of the US.

Analysts suggest the cost of dealing with damage at its Long Island Power Authority business and beyond could run to hundreds of millions of pounds. Last November, National Grid said it expected the costs of dealing with disruption caused by superstorm Sandy to its US business to be no more than £100m.

However, National Grid is largely insulated from footing the bill for the damage through agreements that allow it to claw back the cost of emergency repairs. Rival US operator PSEG is scheduled to replace National Grid as operator of the Long Island Power Authority on January 1, 2014.

Mr Holliday added that National Grid remained on track to spend £3.6bn on capital investment this year. “Overall, we are well positioned to deliver another year of good operating and financial performance.”

Consensus forecasts for the year to March 31 point to National Grid edging up pre-tax profits from £2.7bn to £2.8bn on turnover above £14bn.

But the utility, which continues to challenge a $19m penalty imposed in its Massachusetts electricity business over its response to tropical storm Irene in 2011, admitted it remained concerned over the impact of proposals put forward by UK regulators, which will affect investment decisions planned over the next eight years.

The utility raised its dividend 8 per cent to 39.28p last year and predicted it would deliver a 4 per cent improvement this year, based on a one-year rollover of UK transmission price controls and a 3 per cent prediction for inflation.

However, uncertainties over the impact of new regulatory agreements has prompted speculation that it will be forced to trim back on its dividend policy.

Earlier this month Deutsche Bank argued that National Grid shares deserved to be trading at a premium to their regulated asset base and continued to benefit from being perceived as a haven for investors. But it questioned the utilty’s ability to maintain real dividend growth amid capital expenditure commitments and a probable squeeze on regulated returns over the coming years.

On Tuesday, Angelos Anastasiou, an analyst at Seymour Pierce, concurred. “Our main concern with National Grid remains that the impact of the UK price controls may well leave it needing a dividend cut next year and/or a further capital raise,” he said.

The shares – up 15 per cent on the year – rose 1p to close at 701.50p.

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