The Lemon Fool

National Grid is in talks about a voluntary deal aimed at staving off a forcible break-up.

"John Pettigrew, the chief executive, said that the company was in advanced discussions with Ofgem and the Department for Business, Energy and Industrial Strategy about a deal that will see formal separation of its role operating the flow of power that ensures the lights stay on from the rest of the company. National Grid owns and operates the country’s high-voltage electricity network."

http://www.thetimes.co.uk/edition/busin ... -5wwd03w9g

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Unwelcome. Why do they keep doing this? We have a nice investment then someone comes a long and wants to upset things!

I think SSE are the only other company with the skills to manage the distribution of electricity for the UK. Perhaps they're planning to split the country into regions and let them compete. I think that the maximum number of control centres would be five, unless they build some new infrastructure. How it would work, is anybody's guess.

This would explain the tanking NG share price - isn't it nice to be the last to know. I wonder if anybody will be punished for insider trading?

I was thinking of buying N G as the price had come down.In the light of the above, I wonder f it would be better to buy UU instead (another utilities faller).
Anyone any thoughts ?

unperplex wrote:I was thinking of buying N G as the price had come down.In the light of the above, I wonder f it would be better to buy UU instead (another utilities faller).
Anyone any thoughts ?

Seems a bit sector-wide at the moment, so I doubt if this is the last of it. Neither scream 'bargain' to me given the uncertainty, nor does SSE.

Give the Shorts their day and then take a view.


No position in any shares mentioned, watching and waiting. There again, WDIK. Trust your own judgment, not some anonymous person named after a 1960's puppet on a website with 'lemon' in its title

The discussion has been going on for quite some time e.g. http://www.telegraph.co.uk/finance/news ... gests.html, driven at least in part by the ever-reducing capacity margins for balancing supply and demand on the UK's electricity system (A failure of the market system, if ever there was one, IMHO.)

Regionalisation won't be on the agenda. That model has been tried in the water sector and nobody seems to be holding it up as something to try for electricity. The debate is about conflicts of interest and the favoured solution in government seems to be the Independent System Operator model.

If you are a follower of pyad this would be the time for the exercise of a bit of Strategic Ignorance. In this case, I think that is all we can do anyway because we cannot know what the likely outcome will be.

On balance surely the experience of Network Rail and its predecessor ought to be enough to put the regulator or government off the idea of a not for profit independent operator. It is affecting the whole sector or at least SSE at least, probably for the same reason. It is not their fault if there is a shortage of capacity; it is the green lobby we should be blaming and if it ain't broke why do they want to try to fix it?

I think though that any potential investor ought to stand back pro tem, unless feeling particularly brave that is. I hold by National Grid and SSE and will continue to hold both.

Dod1010 wrote:On balance surely the experience of Network Rail and its predecessor ought to be enough to put the regulator or government off the idea of a not for profit independent operator. It is affecting the whole sector or at least SSE at least, probably for the same reason. It is not their fault if there is a shortage of capacity; it is the green lobby we should be blaming and if it ain't broke why do they want to try to fix it?

Railtrack's demise was really the outcome of an unbelievably bad privatisation of the railways by John Major's administration. Without re-doing the whole privatisation exercise, Network Rail is just the logical conclusion of that experience: private sector ownership of the track infrastructure failed so try public sector ownership instead (and even then Gordon Brown fought tooth and nail to keep NR's liabilities off the government's books). Even if there were strong parallels between the railway track and energy infrastructures, the regulators and government departments involved are different and that's a big barrier to learning from experience.

The capacity issue is about the decreasing gap between supply and demand. It is relevant in that it provides new opportunities for National Grid: interconnectors for bringing in supplies from Europe and investment in network capacity provides more flexibility in transmitting energy from its point of supply (power stations, gas import terminals) to where it is required. It is through these opportunities that the scope for conflict of interest arises - e.g. National Grid could favour using its own interconnectors over someone else's disincentivising (horrible word) investment by others. Onshore, it could be used to justify investments (and therefore increases in its regulated carriage charges) giving it above average returns - a tactic that has been well used in the water industry to pull the wool over the regulator's eyes.

Regulatory intervention and the threat of it is just a fact of life for companies such as National Grid. I've held from the days of British Gas, Transco, and Lattice and see no reason not to continue to do so.

Dod1010 wrote:If you are a follower of pyad this would be the time for the exercise of a bit of Strategic Ignorance. In this case, I think that is all we can do anyway because we cannot know what the likely outcome will be.

You do realise that that second sentence is basically saying what 'Strategic Ignorance' is all about? I.e. acknowledging that there are things that will affect the success of one's investments, but that one cannot know - and so it's not worth spending any real effort on trying to know them.

The differences of opinion in the area are about what to be strategically ignorant about, not whether to be strategically ignorant...

Gengulphus

Indeed I do know what the definition of SI is, and some idea of what it is all about. There are sometimes things that are not worth speculating about and some things where some of us(I include myself in this) can have a stab at trying to foretell what is likely to happen. For the latter though you need some clues (like for instance the breaking sub prime scandal in 2007/8 where the HSBC report in 2007 was a straw in the wind). I cannot see anything to help foretell the likely outcome of the National Grid talks nor indeed their likely effect on National Grid's prospects so I think this is a case where SI is probably sensible. In other words sit tight and wait and see what transpires