EnergyBiz - November/December 2007 - (Page 8)

» FInAnCIAL FRont Next for National Grid An ExpAnding Footprint? by gAry M. StErn If NatIoNal GrId, the loNdoNbased, electric and natural gas company, keeps acquiring utilities in the United States, it may soon have to change its name to International Grid. Quietly but steadfastly, National Grid has been scooping up major utilities on the East Coast. In August, National Grid completed its $11.8 billion acquisition, including assumed debt, of KeySpan. That makes the company one of the largest energy-delivery companies in the United States. After it absorbs its latest conquest, will National Grid seek to expand beyond the Northeast? With the KeySpan purchase, National Grid now serves nearly five million customers in Massachusetts, New Hampshire, New York and Rhode Island. In New York State alone, it owns 6,600 megawatts of electricity generation, making it the largest power producer in the state. Moreover, it distributes natural gas to 3.4 million customers in the East Coast, making it the largest gas provider in the Northeast. Prior to acquiring KeySpan, National Grid had bought Southern Union’s gas distribution network in Rhode Island in 2006, New England Electric System and Eastern Utilities Associates in 2000 and Niagara Mohawk in 2002. National Grid provides energy for about a quarter of Great Britain’s population, including possessing 82,000 miles of distribution pipelines. It also distributes gas to 11 million customers in the United Kingdom. National Grid in March had a market cap of $40 billion and an operating profit of $3.9 billion. National Grid’s presence in the United States has become so NewsFlash strong that in 2007 its earnings before interest and China nixes Coal taxes derived 51 percent as it modernizes its from the United Kingdom and power fleet, china has 49 percent from the United been shutting down States including KeySpan, inefficient coal-fired reports Chris Mostyn, a plants. it mothballed 253 National Grid spokesman. small units in the past eight months, according It has 28,000 employees to a report in Asia in with about 65 percent in the Focus. United States and the rest in The units have been the United Kingdom. replaced by efficient power plants, cutting What impact has the coal consumption by KeySpan acquisition had on 13.5 million tons a year National Grid? Acquiring and carbon dioxide KeySpan provides it with emissions by 27 million “significant size in the tons. china is attempting Northeast region and gives to cut energy it the opportunity to make consumption per unit of significant reductions in gross domestic product cost and investments in the by 20 percent in 2010, compared to 2005. efficiencies of its delivery (GUEST OPINION) robert catell sourcE: aP/cHitosE suzuki system,” explains Barry Abramson, the senior utility analyst at the Gabelli Fund, which is based in Rye, N.Y. KeySpan “fits nicely into National Grid’s core competencies and gives investors another reason to consider it for an internationally diversified portfolio,” notes Travis Miller, a utility analyst at Morningstar, based in Chicago. Adding KeySpan to its Northeast portfolio is a shrewd move because “demand is growing, and the supply is not growing as fast. Its scale of customers and coverage area is impressive,” Miller says. To receive the blessing of New York state regulators on its KeySpan purchase, National Grid agreed to two major concessions. First it agreed to save customers a minimum of $200 million in the next five years. In addition, regulators required National Grid to divest its Ravenswood generation station, a 2,450-megawatt oil and gas plant in Long Island City, Queens. “Regulators are concerned about the company’s potential market power and will require it to sell the plant by mid-2008,” Miller explains. Since prices for power generators have skyrocketed, National Grid will likely reap more than the $596 million KeySpan paid for Ravenswood in its 1999 purchase from Con Edison. How will the $200 million savings be achieved? Robert B. Catell, who was CEO of KeySpan from 1998 through 2007 and is now U.S. chairman for National Grid, says that savings will result from reducing its staff by 10 percent, which will be gained through attrition and early retirement not layoffs. Moreover, it can save money on “purchasing material and equipment through economy of scale,” he adds. The deal positions National Grid to make additional moves, Catell says. KeySpan “saw National Grid as a great strategic and operational fit,” he says. As CEO of KeySpan, Catell recognized that it needed to grow to boost shareholder value, but its limited capital made major acquisitions difficult. Combining KeySpan with the size and scale of National Grid, “We’ll have the wherewithal to maximize growth opportunities in the U.S.,” Catell says. As a combined company, Catell says he expects National Grid – KeySpan’s name is already morphing into National Grid – to invest in new technologies and maintain its commitment to environmental measures. KeySpan has reduced greenhouse gas emissions from generating plants by 37 percent since 1990. 8 E n E rgyB i z November/December 2007 http://www.energycentral.com

Table of Contents Feed for the Digital Edition of EnergyBiz - November/December 2007

EnergyBiz - November/December 2007 Contents Continental Grid Vision Needed Readers’ Views and Opinions Next for National Grid Clearing the Air The Need for Nuclear Energy Trade Status Report The Innovators California On The Leading Edge FERC Sparks Change Getting Coal Right Leadership in Times of Turmoil Innovation Delivers Return A Tale of Two IPOs LNGs Bright Prospects Generation Techologies The Age of Superconductors Leaders with Vision Get Ready for Plug-in Hybrids Betting on Batteries Cost of Decarbonizing Nuclear Helmsman – A chat with Dale Klein, Chairman of the U.S. Nuclear Regulatory Commission Global Energy Snapshot; Low-Income Energy Help; IT Spending Robust; The Greening of State Regulators; Generating Support Simplifying Offshore Wind Regs Chasing Construction Costs Energy Agency Sets New Course Deregulation Means Higher Rates Go-To Staffer Nightmare in Manhatten

EnergyBiz - November/December 2007

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