National Grid PLC (NGG) 2021 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the National Grid 2020/2021 Half Year Results Call. My name is Felicia, and I'll be coordinating your call today. (Operator Instructions) Your host today will be Nick Ashworth, Director of Investor Relations. Please go ahead, Nick.

Thank you, Felicia. And good morning, everybody, and welcome to our half year results presentation. Thank you for joining us remotely. I hope you're safe and well.

So firstly, I'd just like to draw your attention to the cautionary statement you'll find at the front of the presentation. Secondly, after the presentation, as usual, the IR team will be available by phone to help if you have any further questions.

And so with that, I'd like to hand over to our CEO, John Pettigrew. John?

Thank you, Nick, and good morning, and welcome, everyone. As usual, I'm here with Andy Agg, our CFO. And after our respective presentations this morning, we will, of course, take any questions you have.

But before discussing our performance in the first half of the year, I want to start with an update on how we've been managing against the backdrop of COVID and the impact it's been having across our businesses. Overall, the business has adapted incredibly well to new ways of working over the past 8 months. Despite the new regulations and restrictions COVID has brought, operationally, we've delivered safe, reliable networks for our customers whilst making strong progress in key areas, such as capital investment, where we've delivered on our substantial investment program, broadly in line with the first half of last year; the U.S., where we've had to respond to a greater number of storms; cost discipline, where we've made good progress in mitigating some of the COVID cost pressure as well as continue to shape the organization for the challenges and opportunities ahead; progress on regulation, as we work towards settlements across our U.K. and downstate New York businesses, and we've done this whilst ensuring we behave as a responsible and purpose-led business, ensuring continued focus on our safety culture, supporting our people, for example, by increasing our focus on mental health and well-being and supporting our communities, our customers and our supply chain. So I'm really pleased with the way the business has stepped up and delivered a strong first half performance.

Turning to the numbers. On an underlying basis, that is excluding the impact of timing, exceptional items and remeasurements, operating profit of GBP 1.15 billion was 11% below the prior year at constant currency. This largely reflects increased COVID-related costs, particularly in the U.S., higher storm costs in the period, although these were partly offset by expected revenue increases in the U.S. and significantly better operating profit in UK Gas Transmission, given the low rate set in the first half of last year. Andy will go into more detail on the financial impact of COVID, but our full year guidance from June remains unchanged. And as I mentioned in June, given current regulatory mechanisms and precedents, we expect to recover the majority of the COVID impacts over the medium term.

Underlying earnings per share was down by 14% to 17.2p for the period, and the Board has proposed an interim dividend of 17p per share, reflecting 35% of last year's total dividend, which is in line with our policy. Investment in critical infrastructure remained strong with CapEx of GBP 2.6 billion. This was driven predominantly by continued investment in large capital programs in our U.K. Electricity Transmission business; continued high levels of U.S. CapEx, much of it mandated on safety spend; and increased spend in National Grid Ventures as we progress our interconnector projects. Overall, we maintain our financial guidance for the year and expect investment to be around GBP 5 billion, driving asset growth towards the top half of our 5% to 7% range. So a strong half of operational performance. Albeit like all companies, COVID costs have had an impact on our financial results.

Turning now to our safety and reliability performance. On safety, our businesses have continued to deliver good performance with their lost time injury frequency rates trending down. However, 2021 has brought unique safety challenges as a result of COVID which has required us to adapt our processes. For example, in the U.S., at the onset of the pandemic, our safety team has created our COVID-19 health and safety plan for all employees and contractors. They delivered over 400 field visits across our operations in the month of May to ensure the new ways of working and safety expectations were clear. This has allowed us to deliver our critical investment with limited disruption.

Turning to reliability, performance has remained strong across our businesses. We've successfully managed low levels of demand, particularly in the U.K., with the Electricity System Operator developing new flexibility tools to maintain security of supply. And in the U.S., we responded to a series of big storms, including one of the biggest ever in early October, where we saw over 550,000 customers lose power. I'm pleased to say that the response was excellent with a tremendous performance from the team.

Looking ahead to the coming winter in the U.K., the Electricity System Operator published its outlook last month and forecast an electricity capacity margin of 8.3%, lower than last year, although well within the security standards. And in terms of UK Gas, expected cold day demand is forecast to be 426 million cubic meters against available capacity of almost 500. In the U.S., given the ever-present possibility of storms and potential for colder-than-expected weather, we reviewed our procedures, as we always do, and are well prepared for the coming period.

I'll now turn to our operational progress we made across our businesses, starting with the U.S. In the first half, we've invested just over GBP 1.6 billion, with much of it mandated on safety and reliability, a little more than we invested in the first 6 months of last year. Our single biggest area of investment continues to be our leak-prone gas pipe replacement program. COVID has meant that we're behind schedule at the half year, but in the past few months, as restrictions have eased, we're catching up and expect to reach our full year target of 300 miles of mains replacement. On the electricity side, we've seen limited disruption from COVID on our overall investment levels and work output. This is largely due to the huge effort that the teams have put in to review all of the transmission and distribution projects to prioritize work required to keep the lights on.

Turning to regulation. We've made lots of good progress. In downstate New York, we remain in discussions for a multiyear settlement for our KEDNY and KEDLI gas businesses. Whilst we've not yet reached a settlement, we remain hopeful that an agreement will be reached by the end of the calendar year but can be approved by the commission. I'm also pleased that we are delivering solutions for the gas supply constraints in downstate New York, focusing on enhancing our existing CNG and LNG infrastructure as well as significant increases in energy efficiency and demand side response.

Moving to upstate New York. We submitted a filing for our Niagara Mohawk businesses at the end of July for new rates effective from July 2021. Our filing proposes a multiyear rate plan with capital investment of $3.6 billion across 3 years, including significant investment in clean energy infrastructure, new incentives and earnings adjustment mechanisms, all whilst managing customer bills in response to COVID.

Finally, we'll file for new rates for our Massachusetts Gas business tomorrow to become effective in November next year. As part of our filing, we are proposing a multiyear agreement with a performance-based mechanism, similar to what we agreed for our Massachusetts Electric business last year. If approved, this will give us longer-term visibility for our investments, greater protection against cost pressures and more incentives to innovate and create value for our customers.

Moving to the U.K., I'm really pleased with the team's focus as we approach the end of the RIIO-T1 period. We've invested GBP 633 million in the half, broadly in line with our investment in the first half of last year. On the Electricity side, our 2 biggest projects of 33-kilometer London Power Tunnels 2 project from Wimbledon to Crayford and the 46-kilometer Hinkley Point connection between Bridgewater and Seabank in the Southwest are both progressing well. And we've worked closely with our contractors across both projects to minimize delays associated with COVID.

And on the gas side, we've completed the tunneling and are near commissioning our largest gas project in the decade, the Feeder 9 pipeline under the Humber, which I'm proud to say holds the Guinness World Record for the longest hydraulically inserted pipeline at a little under 5 kilometers. This goes to show that our U.K. businesses continue to deliver world-class engineering solutions that will benefit consumers for many years to come.

As you know, we submitted our response to Ofgem's draft determinations in September, highlighting 3 main areas of concern. Firstly, reduction to the reliability and resilience of our U.K.'s energy network; second, jeopardizing the pace of progress to a net zero energy system; and third, erosion of regulatory stability and investor confidence in the sector. Since then, we provided Ofgem with detailed information and evidence to support investment levels to maintain network reliability and resilience, proposed solutions on how the regulatory framework can be modified to support the U.K. goals to achieve net zero by 2050. And we continue to make our case to Ofgem on the importance of striking the right balance between customer bills in the short-term and ensuring fair returns to encourage much needed investment in U.K. infrastructure. We'll continue to work towards a settlement that is acceptable for all our stakeholders and remain hopeful that this is an outcome that can be achieved in December.

Moving on to National Grid Ventures and our other businesses. We've invested GBP 261 million in the half, higher than the same period last year, excluding our acquisition of Geronimo Energy. Progress on our new interconnectors remains on track with IFA2 going live for the end of this calendar year, and our Norwegian and Danish interconnectors expected to be completed in FY '22 and FY '24, respectively. We announced a cooperation agreement with TenneT on the 22nd September to explore the feasibility of connecting Danish and British wind farms to energy systems at both countries, so-called multipurpose interconnectors. And we continue to make good progress with our onshore renewable projects in the U.S. and recently rebranded Geronimo Energy to National Grid Renewables. In the half, we signed a PPA with Cargill for a 200-megawatt solar project in Illinois, which is on track to be commissioned by the end of 2021.

So in summary, a strong first half of operational performance with good progress on our strategic priorities despite the impact of COVID on our financial results. I'll review shortly our outlook for the rest of the year.

But first, let me hand over to Andy to discuss our financial performance in more detail.

Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results excluding timing and that all results are provided at constant exchange rates. Before covering the group's half year performance, I'd like to provide some more detail on the financial impact of COVID that we've experienced to date.

During the first half, we estimate that COVID impacted our underlying operating profit by GBP 117 million in 3 broad areas: an increase in our bad debt provision of approximately GBP 56 million; a shortfall of revenue under existing regulatory agreements of GBP 41 million; and net direct costs of GBP 20 million. In addition to this, the delay to updating rates in KEDNY and KEDLI at the start of COVID resulted in a further impact in the first half of approximately GBP 24 million. We continue to expect a full year impact from COVID of around GBP 400 million on underlying operating profit, given the seasonal nature of our U.S. regulated business.

Whilst we see future uncertainties from COVID, I'm really pleased with the great progress we've made in alleviating much of the direct cost burden with around GBP 60 million of direct COVID cost mitigated during the first half. And of course, we'll continue to find ways to maintain this progress and drive further cost efficiencies in the second half. We also maintain our guidance of up to GBP 1 billion of cash flow impact in the full year.

On top of the underlying operating profit impacts I've just covered, we expect continued weaker demand and lower revenues which will be recovered as usual through regulatory true-ups in later years; lower cash collection from our U.S. customers, which, whilst below prior year levels, are in line with our expectations; and a small impact from revenue deferrals related to system charges in the U.K. that we'll recover next year.

In the U.S., we remain confident that we'll be able to recover a majority of these COVID-related costs either through the usual course of rate filing such as recouping revenue deferrals and collecting high levels of bad debts or through separate filings. We're currently engaged with regulators across our states on this. For example, in New York and Massachusetts, we've already made submissions around cost recovery following discussions with peers and our regulators. And as you'd expect, we'll continue to work with all stakeholders on this during the second half of FY '21.

Now turning to our half year performance. As John mentioned, underlying operating profit decreased by GBP 147 million to GBP 1.1 billion. Operating profit benefited from higher revenue from U.S. rate case increases and higher capacity revenue in UK Gas Transmission. These were more than offset by COVID and storm costs in the U.S. business and adverse MOD adjustments in UK Electricity Transmission. Compared to the prior year, earnings per share decreased by 14% to 17.2p. Capital investment was GBP 2.6 billion, 5% lower than the prior year. This reflects the increased investments in our U.S. regulated business, UK Electricity Transmission and the spend on the Viking interconnector, all more than offset by lower asset health work in UK Gas Transmission and the nonrecurrence of the Geronimo acquisition.

Our strong balance sheet continues to allow us to fund this investment efficiently and to navigate through COVID successfully. In line with our policy, we'll pay an interim dividend of 17p per share, representing 35% of last year's total. Scrip uptake on the full year dividend was around 5% and we'll again be offering the scrip option at the half year.

Now let me take you through the performance of each of our business segments. Underlying operating profit for the UK Electricity Transmission business was GBP 524 million, down GBP 59 million compared with the last half year. This primarily reflects adverse MOD adjustments for lower data center and cybersecurity allowances and the nonrecurrence of prior year Electricity System Operator incentives, partially offset by RPI and lower controllable costs.

We invested GBP 548 million on system resilience, asset health and new connections. This was GBP 77 million higher than the last half year, reflecting progress on multiple large projects, such as London Power Tunnels 2 and Hinkley-Seabank, partly offset by lower spend on Western Link. For the full year, totex outperformance and other performance are expected to be slightly down with incentives above last year. Overall, return on equity outperformance is expected to be slightly above the 200 to 300 basis points range, broadly in line with last year.

In the UK Gas Transmission, underlying operating profit was GBP 108 million. This was GBP 42 million higher than the prior year, driven by higher capacity income, favorable MOD adjustments and lower year-on-year controllable costs. Gas Transmission capital investment was GBP 85 million, GBP 82 million lower than the prior year. This primarily reflects lower asset health and emissions work and the completion of the Feeder 9 Humber estuary pipeline project. We expect the return on equity to reduce marginally compared to last year, owing to totex and incentive performance falling due to cost pressures. Finally, I'm pleased to report that for the UK Transmission business as a whole, our cost efficiency program remains on track to exceed the targeted cumulative GBP 100 million cost savings in 2020/'21.

In our U.S. Regulated businesses, underlying operating profit was GBP 403 million, GBP 115 million lower than the prior year. This reflects higher revenues from rate case increases, more than offset by COVID-related bad debts, incremental costs and major storm costs. Depreciation also increased from our higher investment levels. Capital investment was GBP 1.6 billion, GBP 75 million higher than prior year at constant currency. Increasing CapEx was driven by higher electricity transmission and IT expenditure, partly offset by lower gas spends due to COVID-related work impacts in downstate New York.

We've seen high levels of storm activity so far this year, with $61 million of deferrable storm costs impacting our first half results. As a reminder, our approach is to remove these costs from underlying operating profit if they are above $100 million in a year. And with the recent big October storm, we expect this will be the case by the full year.

Our cost efficiency initiative is progressing well. And as with the U.K. business, we expect to exceed our targets and deliver savings of over $50 million from 2020/'21 onwards. Overall, we expect full year return on equity to decrease as a result of COVID-related costs which require certainty of regulatory treatment before an associated regulatory asset can be recorded. As we explained at our full year results, we still expect to recover the majority of these costs in due course after the regulatory approval process has concluded.

Overall, National Grid Ventures continues to perform well, delivering high levels of profitability compared to last year. Operating profit for Grain was GBP 48 million, GBP 9 million higher than the prior year, primarily driven by lower depreciation from extended asset lives after the Phase 1 contract extension. Metering and interconnector profits were broadly similar to last year. Excluding the GBP 206 million acquisition of Geronimo in the prior year, capital investment increased from GBP 223 million to GBP 261 million in the period. This reflects higher Viking investment, partly offset by lower CapEx on the IFA2 project.

The operating loss for other activities for the half year was GBP 30 million compared with GBP 1 million last year. This principally reflects the lower land sales in our property business and reduced sales in the St. William business. The post-tax profit share for our St. William joint venture was GBP 4 million, GBP 7 million lower than last year, reflecting the timing of sales from its development sites. Capital investment was GBP 25 million, GBP 38 million lower than last year.

Finance costs were GBP 468 million, down 15% from the prior year. This primarily reflects a fall in average U.K. RPI, lower refinancing rates and the effects of the buyback and reissue of hybrid debt last year. Our effective interest rate was around 1% lower than the prior year at 3.3%. At constant currency, second half net interest costs are expected to be slightly higher than the first half. The underlying effective tax rate before joint ventures was 16.5%, 330 basis points higher than the prior year, reflecting a reduction in the value of U.S. tax settlements. For the full year, the underlying effective tax rate, excluding the share of joint venture post-tax profits, is now expected to be around 21%. Finally, underlying earnings was GBP 604 million, with earnings per share of 17.2p, down 14% on the prior year.

Cash generated from continuing operations was GBP 1.8 billion, down 13% compared to the prior year. This reflects adverse working capital movements from higher U.S. receivables and lower year-on-year cash collections. Net cash outflow in the period amounted to GBP 2 billion. And after GBP 0.5 billion of positive exchange rates and noncash movements, net debt increased by GBP 1.5 billion to GBP 30.1 billion. For the full year, we expect ongoing business requirements to increase net debt by up to a further GBP 1.5 billion, excluding the impact of exchange rates.

In the summer, Moody's and S&P moved the group's credit rating outlook from stable to negative, reflecting concerns following Ofgem's publication of the RIIO-2 draft determination and delays to expected revenue increases in the U.S. We expect both agencies to review this outlook after the RIIO-2 price control arrangements are agreed. Lastly, I'm pleased to announce that we'll be issuing our first green financing report in the next couple of months, covering the allocation and associated impact metrics of the green bonds we've issued since January 2020.

So to summarize our half year. We've delivered strong operational performance in the first half. And for the full year, we expect to deliver asset growth in the top half of our 5% to 7% range. Like all companies, we felt the financial impact from COVID. However, I'm pleased to say that we've largely mitigated the direct COVID costs. Therefore, overall, our performance remains on track, and our full year forward guidance remains largely unchanged.

With that, I'll hand you back to John.

Thank you, Andy. So let me now turn to the outlook for the rest of the year. As you hear me say on many occasions, this is a hugely important and exciting time to be part of the energy industry. In the U.K., the Prime Minister's put offshore wind at the heart of his vision for a clean energy future. And in the U.S., the election of President-elect Biden brings greater focus to the energy transition with his potential $2 trillion clean energy program. National Grid's vision is to be at the heart of a clean, fair and affordable energy future. With that in mind, we started the second half of this year with the publication of our Responsible Business Charter, setting out our commitments and ambitions for the years ahead. This includes our emission reduction targets, our commitment to our people, building and developing an inclusive culture and a diverse workforce and our commitment to our communities to provide skills development to 45,000 people by 2030. Our progress across all our pillars can be tracked each year in our new Responsible Business report that we'll launch alongside the annual report next summer.

Given this context, I wanted to spend a few minutes talking about 3 priorities for us in the coming 6 months as we move forward with the energy transition: an update on the progress we're making to deliver clean energy infrastructure, how we see the future role of gas, and getting the right RIIO-T2 framework and building on our existing efficiency program to identify further opportunities.

Starting with our progress on delivering cleaner energy infrastructure. As a reminder, the regions we operate in have some of the most progressive decarbonization targets in the world, with the U.K., New York and Massachusetts having a 2050 net zero target and Rhode Island requiring 100% renewable power generation by 2030. Whilst we recognize the challenging economic backdrop that all companies are working against, we'll continue to work with regulators, politicians and consumers on finding cost-effective and efficient ways of driving forward clean energy investment.

Firstly, in the U.S., whilst we remain focused on our rate case negotiations in New York and Massachusetts, we're also working on separate filings that will help deliver smarter grids. For example, we're working across all our states on filings that will replace old meters with new smart advanced meter infrastructure. In New York, we expect the decision by the end of the year on a 6-year $650 million funding request. We're planning a similar $200 million filing later this year in Rhode Island. And in Massachusetts, the DPU has just scheduled a series of sessions on advanced meter infrastructure beginning next week. Taken together, these programs would allow us to switch over 3.5 million electric meters and just under 1 million gas modules, provide our customers with greater information and more control of their energy usage and ultimately reduce their consumption and their bills.

We're also working with our regulators on EV infrastructure. Our NIMO rate filing includes proposals to expand EV charging infrastructure to support 850,000 EVs by 2025. In Massachusetts, we plan to file for around $150 million of funding next summer, which will include investment to modernize the distribution network, commission 14 megawatts of energy storage and expand our EV infrastructure proposals. And in Rhode Island, further EV programs will be proposed through our next planned rate case later in 2021.

We'll also continue to be a strong voice, influencing and shaping the energy transition debate in the U.K. And in particular, in the next 6 months, we'll continue to work with government and industry to ensure we've got the right policies and legislation to enable the effective delivery of infrastructure that can support 40 gigawatts of offshore wind by 2030. This includes getting the right planning to deliver the necessary onshore cabling as well as furthering the work we're doing on an East Coast solution ultimately to reduce the number of connections required. We're also working with the office for low emissions vehicles on ways to deploy the government's GBP 500 million infrastructure commitment to electrify transport, with further announcements expected from the government on this topic in the coming months.

Turning to our next key priority, the role of gas in a clean energy future. We know it's a topic of debate that will continue to grow in importance, and we believe we have an important role to play in shaping this debate, given gas is an affordable and trusted source of heating across 60% of homes in our U.S. regions and over 22 million homes across the U.K. We're working with regulators, legislators, utilities, environmental and consumer groups and more besides to build a coalition to deliver alternatives to natural gas.

For example, in the U.S., we're working with NYSERDA and Stony Brook University on our hydrogen blending demonstration project. In addition, in New York, we're close to commissioning our Newton Creek RNG plant, which will produce enough energy to heat an additional 5,000 homes, reducing annual emissions by more than 90,000 metric tonnes. And in the U.K., we're working with Ofgem on funding for a project to build a hydrogen transmission test facility from decommissioned assets in the north of England, where we'll test blending hydrogen with natural gas up to 100%. In our recently published Responsible Business Charter, we committed to reducing our scope through emissions by 20% by 2030 and to meet the net zero targets across all our regions. The road map we're developing and some of these projects to deliver cleaner sources of gas will help us meet these targets.

But we also recognize the important role that natural gas can play as we transition to a clean energy future. For example, in our National Grid Ventures business, we recently signed an agreement at our Isle of Grain LNG facility with Qatar Petroleum that will allow us to invest in re-lifing our existing assets and in an additional tank. This investment will bring our future annual throughput capacity to 25 billion cubic meters of natural gas, underpinning its use for many years to come. The contract will help the U.K. security of gas supply as we move to cleaner sources of energy and could potentially see Grain playing an important role in a hydrogen future.

And also in National Grid Ventures, as you know, we're evaluating our Carbon Capture Storage project to decarbonize industry. Working with Drax and Equinor, the project could deliver the world's first net zero industrial cluster in the Humber region by 2040. You'll hear more about our future of gas work at our first "Grid Guide to..." event on the 21st of January, which will be the first of a series of events where you'll learn more about the areas of work we're undertaking as we move forward with the energy transition.

Moving finally to RIIO-T2, where the focus in the coming months is on getting the right regulatory framework whilst building on our existing efficiency program to identify further opportunities. The next key regulatory milestone is the publication of Ofgem's final proposals expected in the second week of December. The next 5 years is a crucial period for U.K. infrastructure when rapid change is expected in the energy system to reduce carbon emissions and get the U.K. on track to meet its long-term environmental goals. Therefore, we need a RIIO-T2 settlement that can unlock investment that will be needed in the most efficient way. This means a final settlement that allows incentives which will drive innovative solutions through the period, creates the right framework that can deliver the investment needed, which should mean clarity around competition and additional net-zero spend. It also means a fair base level of return commensurate with the risk companies will undertake. As you'd expect, we'll take our time to go through the proposals in detail, in particular against the concerns we set in our September response.

Following publication of final proposals in December, Ofgem will then set out a statutory consultation on license modifications, which runs for 28 days. After a period to consider any changes it may need to make, it will then enact the license modifications, at which point, if we're to appeal to the CMA, we would need to do it within 20 days. Otherwise, we accept the modifications with new rates implemented on the 1st of April.

And as we work towards RIIO-T2, we're also keeping our focus on our efficiency challenge. As I said in June, our efficiency focus for this year is on streamlining our maintenance operating procedures, further digital innovations to increase productivity and making improvements in our back-office processes. Some of these benefits will come in the way we manage our day-to-day operations. For example, over the next 6 months, we'll be launching the first phase of our new digital tool to transform work management and scheduling across electricity and gas transmission, consolidating legacy technology. But we're also working on ways to deliver larger, scalable benefits across major projects. For example, looking at how we use contractors through the project life cycle as well as ways to deliver greater CapEx efficiency through our supply chains. And once we have greater clarity on the RIIO-T2 framework, we'll be able to understand how much further we can drive efficiencies.

So in summary, National Grid has delivered strong first half operational performance. The company has overcome the disruption and uncertainty COVID has brought, and we're prepared for the further challenges that the pandemic could bring as we head into the winter. With politicians and regulators across all our jurisdictions pushing for faster, cleaner infrastructure growth, we're well placed to help deliver these targets as an enabler for the energy transition. And of course, we do all of this whilst keeping our financial discipline and doing what's right for our customers.

Thank you for listening, ladies and gentlemen. Now Andy and I would be happy to answer any of your questions.

(Operator Instructions)

So I can see John Musk from RBC has got a question. John?

2 questions from me. Firstly, quite a simple one. Just on the net debt guidance which was guided to increase by GBP 1.5 billion by the end of the year. Was that including the GBP 1 billion COVID impact within that? Or is that on top? And then secondly, given I'm first up, I'll start the raft of RIIO questions, no doubt. Can you just update on your discussions, I guess, with Ofgem in the past couple of months, where you think there's been the most progress? Is that more on the totex side or on the return side? And what have Ofgem said to you around how they will potentially incorporate the findings from the CMA on the water businesses?

Okay. Thank you, John. Why don't I start with RIIO and then I'll hand over to Andy just to talk about the net debt guidance. So in terms of RIIO itself, I think our focus, if you stand back, has been in 3 key areas. First, ensuring that we got the right level of capital investment, an asset health capital investment, in particular, to maintain the levels of reliability and resilience we have today, which we think is really important, given the changes coming over the next decade.

The second area has been around making sure that we got this stable regulatory environment that will encourage investment going forward, given the scope of investment needed in energy infrastructure.

And the third area is around making sure that the regulatory framework really aligns with what we're seeing from government in terms of aspirations around net zero and green recovery. Over the period since the draft determination, we have been in really constructive and detailed dialogue with Ofgem, at most senior level and at the working level. I mean, I would say down to -- we're having conversations on a daily basis.

In terms of asset health, we have provided a significant amount of information to explain and justify the capital investment there is needed. We try to set out some thoughts about how we can better align the regulatory framework with the aspirations around net zero. And at the same time, you'll know that Jonathan, who is the CEO of Ofgem, has always said that they're willing to listen in terms of the overall financial package as long as we can provide evidence, and we've been focused on doing that.

Obviously, in terms of the CMA draft determination with regards to PR19, I'd say I was pleased that the overall tone of that document, I think, aligns with our view that it is really important that we get the balance right between focusing on cost for customers today, but also encouraging investment and rewarding investors commensurate with the risk they're taking. So the tone of the document was very positive. Ofgem has said historically that they would consider the CMA and the outcome of that. So I'm sure they're doing that.

So I think at this stage, John, what I'd say is that we've had good dialogue. We've tried to be constructive in proposing ways forward with regards to the regulatory mechanism that would support those objectives that I've set out. And we are hopeful that we'll get to a sensible outcome in December.

Andy?

So on the net debt point, so the answer is, yes. The GBP 1.5 billion of further guidance for the second half includes the COVID impact. So it's not additive. It's already incorporated.

I can see Fraser has got his hand up. So Fraser from Bank of America.

Just a couple of questions, please, for me. Just staying on U.K. regulation. And just wondering about the ESO discussions. And -- what has the legal separation not delivered that a split or a full divestment would? And could you speak a little bit about how the compensation would work and any impact on wider operations for the TO? And then secondly, just wondering about your attitude to acquisition opportunities, especially in the U.S. where opportunities could arguably be more attractive than in the U.K. Would you consider recycling capital from the U.K. to the U.S. if the right deal was available?

Okay. Well, why don't I take the first and then I'll Andy take the second. So in terms of the -- yes, so there was sort of multiple parts of that question, so let me just start by saying, I don't think that legal separation hasn't delivered. Actually, I think over the course of this year, with the challenges that we've seen in COVID and the very low demands, the Electricity System Operator, as a legally separate entity to National Grid plc, has performed incredibly well, actually in what had been challenging times. So I think it's demonstrated to work very effectively.

I think the broader issue with regards to the future of the Electricity System Operator is really in the context of what role it should play as we move towards net zero. I think it's clear that to achieve net zero more broadly, we need to find the key decisions that need to be made, the actions initiatives that will deliver those decisions, and then get into what are the roles and responsibilities to make that happen, and then finally, get to institutional arrangements, I think.

National Grid is working really closely with government and with Ofgem and with others to explore what are the changes that are going to be needed to deliver net zero. Inevitably, part of that discussion is what role should the Electricity System Operator play. I've always said that we are very open that that role will continue to evolve. Fraser, it's evolved over the last 20-odd years and it will continue to evolve. So we are very open to those discussions about what role should it play. I think it's important as we think about that that whatever changes are made that it's stable in terms of moving us forward. It does support net zero, and it doesn't introduce new risk for things like resilience and reliability. So I think that's where we are.

In terms of the interface with the TO, well, with legal separation, we've already sort of formalized that interface. I'm not sure there's a huge impact on that.

So with that, Andy?

Thanks, John. So Fraser, in terms of the question on M&A, I think consistent with what we've said previously, we're very fortunate that we've got significant growth in our regulated networks business and also a number of attractive opportunities in National Grid Ventures as well. So for us, I think delivering on that program is always in the forefront of our minds, and as John has just talked through sort of the regulatory arrangements around that.

That said, group our size would always have an open mind around M&A opportunities, but they'd have to be clear from a shareholder value for us to pursue. And at the moment, we're very focused on our organic growth. So in terms of the recycling point, I think we've shown in the past our willingness to look at our assets as a portfolio, and we have taken action where we think that that's appropriate to add shareholder value. And that reason we will continue to look at the portfolio in that way. But I think at the moment, we've got attractive growth and opportunity on both sides of the Atlantic. So that's where we're focused.

Thanks Fraser. Deepa, I can see you got your hand up.

My questions were a bit similar to what John has already asked, but maybe I'm going to try asking the same question slightly differently. So with Ofgem, in the event that they don't take the CMA provisional ruling fully into account on the basis that Ofwat has raised objections and Ofgem have also submitted. If you see an outcome where the allowed cost of equity is significantly lower but maybe it is acceptable on other accounts like totex and so on, where is the Board's thinking on appealing to the CMA on that? And given that you have quite a lot of lead time, you would only have to make up your mindset by which you probably know the final CMA decision. So that's point number one.

And on point two, just on the ESO separation, could you just help quantify what has been -- what is the EBIT from the ESO business? When I've looked at your financials, it's fluctuated quite a bit. So on a steady-state basis, what's the kind of EBIT contribution, GBP 30 million, GBP 60 million per annum, just some financials around that? And would you expect the government to obviously compensate for this loss of income and [draft]?

Okay. Thanks, Deepa. Again, I'll do the first one and I'll let Andy answer one on the finances. So in terms of -- I mean, first of all, I'd say that we are very focused on trying to get to a position where there is a sensible final determination that doesn't require us to go to the CMA. I think it would be with great regret for all parties if we end up with the CMA.

In terms of the specifics of your question, I think I'll come back to what I said in June, which is ultimately, what is really important is the overall package is a sensible package. So rather than look at each individual item -- returns, of course, are important, but so is the speed of cash in terms of fast and slow money, the level of incentivization and the opportunity to drive innovation and efficiency to deliver returns as well as the overall challenge with regards to efficiency. So I think we have to and quite rightly look at it in the realm in terms of what does the overall financial package look like and is that appropriate for the risk that we bear and the CapEx that we need to deliver.

So ultimately, I think that is the way that our Board will look at it when ultimately, we see the final determination. As you know, energy is slightly different to water in that rather than referring the full price control, you can refer elements of it. So in the event that we can't get to an acceptable position, there is always the option for the Board to go to the CMA either in its entirety (technical difficulty) on elements. But as I said, our focus is to try and make sure that the overall package is one that works for our investors and for our other stakeholders.

Yes. And just on the numbers, I mean, just as context, the RAV of the Electricity System Operator is around GBP 200 million mark. In the first half the operating profit for the ESO was around GBP 37 million. Last year it was slightly higher than that, but that was because of some specific allowances that we collected last year. So that's probably more in the normal run rate.

But what I'd say is looking forward, obviously, we're having the RIIO-2 dialogue around the system operator as well. So it's -- there's still a lot of work to be done to finalize the arrangements going forward. And in terms of the compensation point, I think, again, as John said, we're very early days. There's a lot of dialogue. But if we reached a point where that was the outcome, then, absolutely, we'd be expecting an appropriate level of compensation.

Mark? Mark Freshney from Crédit Suisse.

Just coming back to the ESO. When I look at the ESO, there's a lot of totex, a lot of scope for efficiencies and incentives and a lot of fast money. So presumably, even though it's only a small fraction of EBIT and RAV, it's -- am I fair in assuming that it's massively accretive to the group credit ratios?

And secondly, on the balance sheet, I mean, gearing, you don't disclose financial gearing at half year. But on my math, it looks set to hit 66%, 67% again at the end of this year. Would you consider an asset disposal plan, A, to bring the gearing down but, B, to capture some of the very, very low returns being taken in the private market for some of the assets that you have?

Thanks, Mark. I'm going to ask Andy to pick those up.

Yes. Thanks, Mark. I mean, on the first point, so yes, the sort of the gross amounts going through the system operator are slightly larger than the ultimate operating profit. But a lot of that becomes passthrough costs. So in terms of the impact of credit to get it, it's relatively small in terms of the group as a whole. Sorry, there is a bit of background noise. Hopefully, you can hear me. So yes, so not a significant impact on the overall credit position.

In terms of the second part of your question, leverage. So you probably remember, at the end of last year, we closed around 63%. That was partly because of the Cadent proceeds or the second tranche of Cadent proceeds that have been received in the year and we guided to expecting that to tick back up. We've always said sort of mid-60s is where we're comfortable in terms of the rating. So in terms of the sort of -- at or around or maybe slightly above because of COVID this year, yes, that's probably in line with our expectations.

But I think in terms of the rating, as we said in our statement, whereas the main agencies have taken a position in terms of the draft determinations, our focus is on working through the final determination to ensure that we reach a sensible settlement and the agency, as I said, they'll very clearly look at that again at that point, and that remains our focus for the time being.

Dominic Nash from Barclays. I see you got your hand up.

A couple of questions from me as well, please. Firstly, on National Grid Renewables, also known as Geronimo. Have you come up -- or do you have a view of sort of like your vision of this on where the number of gigawatts that you think you could own by, say, 2030? And there is one saying that more and more utilities are coming up with sort of 5-year and 10-year pipelines of gigawatts. Have you got like a view of how many gigawatts you're going to do?

And secondly, I think we got -- well, we might have an Energy Act white paper coming out, we might not. We've been waiting for a long time for this. We might have a sort of a 10-point plan coming out, we might not. On your wish list, if you could have anything that you could have, what would you like to see in the upcoming sort of government documents, please?

Thanks, Dominic. Look, with regards to National Grid Renewables, I think I've said on a number of times, we do see onshore solar and wind as being an exciting opportunity in an adjacent market where we can bring some of the capabilities we have. And with the acquisition of Geronimo, I think it gives us a great set of capabilities to be able to take developments forward. We haven't set -- I don't intend to set a target, Dominic, on the basis of that. We've always taken a very disciplined approach to the investments we make outside of our core network businesses. So we will always look at opportunities and look at them on a risk-adjusted basis to see whether there are appropriate returns to make those investments to support the overall proposition of increasing the asset base by 5% to 10%.

Historically, if you look what Geronimo has done and what we're doing at the moment, then typically, we're developing around about 400 megawatts a year. Relative to our sort of overall capital investment program, that's probably in the GBP 150 million to GBP 200 million of investment a year. So it's relatively modest. But we will continue to look for opportunities as we move forward. And as you've seen, we commissioned our first onshore wind farm in South Dakota last year, and we're currently in construction with our first onshore solar wind farm, which is 200 megawatts in Illinois this year. So we'll continue to do those developments, where we think there are appropriate returns.

Just to follow-up...

In terms of the energy white -- go on.

I got a follow-up. I mean, is it inconceivable that we could have 10 gigawatts of capacity by 2030?

Well, I'd say at current levels of development, we're sort of developing about 400 megawatts a year, Dominic. So at the moment, we're at that sort of level. It could increase if opportunities increase, but it could decrease. And remember that we actually take those developments into a joint venture with Washington State Investment Board as well. So they are a shared investment that we undertake when we take them into construction.

In terms of the Energy White Paper, Dominic, well, I'm not entirely sure when it's going to be published. And I think we're expecting the Prime Minister's 10-point plan pretty imminently, actually. I think from our perspective when you look at the levels of infrastructure investment that are going to be needed to deliver net zero, and, indeed, to deliver 40 gigawatts of offshore wind over the next decade, I think, ultimately, what we're looking for is just clarity and stability, clarity in terms of policy, clarity in terms of the business models to do the investments and then clarity about where government see the priorities. I think there is still some uncertainty at the moment, and I'm hoping the 10-point plan together with the Energy White Paper will provide that framework that will allow us to invest going forward with a degree of transparency.

I'm just looking at Jenny, Jenny from Citi. I think you've got your hand up?

A couple of questions, please. Firstly, just on the U.S., one area we haven't touched on. Can you give us an update on what is causing the delays in terms of the KEDLI and KEDNY settlement? I think if I remember correctly, we were supposed to be looking at expecting the decision from that in Q3?

And then just going back to the number of questions you've already had on ESO, can you -- if I look at '18 results -- '18/'19 results and '19/'20 results, there seems to be a huge amount of volatilities in the ESO's EBIT contribution and you've obviously indicated at a lower number for first half. What is causing that volatility? Just for us to try and get a sense if that were to go, what is the underlying impact on earnings?

Thanks, Jenny. I'll take the first and I'll give Andy the second. In terms of KEDLI and KEDNY, we continue to have really constructive dialogue and discussions with the PSC. I think it's fair to say it's taken longer than everybody would like. The reason for that is predominantly down to COVID, I think. You would have seen that in the states that we operate in the U.S., COVID has had quite a significant impact in terms of unemployment and just in terms of the economics. And what we're trying to do through a multiyear agreement is to try and get that balance right between delivering the investment that the regulators have asked us to do in terms of safety and resilience but also in terms of supporting decarbonization going forward, but also be mindful of customer bills at a time of difficult economic conditions.

So we're just trying to work through that at the moment to make sure we get that balance right. There are opportunities to shape the capital investment that we do, particularly around things like decarbonization to help to mitigate some bill impacts. And we felt together that it was sensible just to spend another couple of months just working through that to get to what I think will be a good outcome if we can get to a multiyear settlement.

In terms of the ESO, Andy?

Yes. So Jenny, I think the year you referred to, and I mentioned this in my comments, my speech earlier on in terms of the reduction that we've seen in electricity transmission. So much of that was driven by, as you say, some of those one-off collections through the system operator last year. And that's very much the model, which is that there are additional costs related to projects like data centers, like cyber, that we would expect to collect those, and that's what you've seen. So I think the numbers we're seeing this year are a more sensible representation for that business. But I'd echo what I said a moment ago, which is clearly the negotiations are underway with Ofgem for the RIIO-2 price control for the system operator as well. So we'll have to wait and see where we get to on that one and final determinations in terms of sort of future guidance for that business, too, from April 1.

Okay. I think Sam from UBS has got a question. Sam?

I think we've done a lot on the U.K. So I wanted to ask one on the U.S., if that's okay. And of course, there's a lot of talk about maybe a stimulus infrastructure plan coming assuming Joe Biden is the new president. Of course, generically, that sounds good for you. But I was just wondering if you could help us understand what the green U.S. stimulus infrastructure plan might actually mean? Would that just basically be more allowed investment on your side? And then how would you actually find the room to finance that if a new program comes and it's large? And I suppose, relatedly, what do you think are the time frames for any of this to become concrete? Is it going to be a few years away still or could it happen quickly?

Thanks, Sam. I think -- what I'd say, I think it's early days yet. So obviously, the most pertinent thing is we've seen from President-elect Biden, potentially, they're looking at a $2 trillion federal package and program to support decarbonization. It's probably worth just reminding people that for a regulated network utility like National Grid, the state policy and regulation is hugely important to the investments that we make. And we are in states that are hugely ambitious. So New York, Massachusetts and Rhode Island have all set out massively ambitious targets to get to a decarbonization pathway and ultimately to net zero. So we're already making significant investments at the request of those regulators to support those policies.

So I think it is early days to know exactly what the timing of it is and what shape it will take. I think you can do nothing -- it can -- it's going to add to the impetus of what we're seeing in our states. And therefore, it is likely that infrastructure investment to support net zero and decarbonization is going to be even more positive than what we're already seeing in the states that we operate. But as I said, I think it's just early days to know exactly how that's going to shape up, but I see it as a positive in that regard.

Yes. Really interesting. I don't know if there's time, I have a follow-up on the storm question, but I don't know if you have time for a quick follow-up there.

You got the mic, Sam. Just go for it.

Very good. So look, you flagged in your report this morning that the storm events have doubled since last year. And, I think, that's a trend we're going to sadly see more of. But I must admit, I'm still a bit stuck in terms of who's on the hook for the sort of long-term resilience investment. And, I guess, it probably varies around the world. But can you help us understand if storm damage and repair costs and storm resilience and sort of mitigation investments are likely to be allowed expenditure and therefore, growth in the rate base and more CapEx for you? Or are they likely to some extent to be costs that you have to take on the chin, and, therefore, a downside risk for you?

It's a great question, Sam. So there is a very well-established regulatory framework for both resilience investment and for recovery of storm costs. So in terms of resilience itself, much of the investment we've been doing on our electricity distribution network over the last decade has been what we call storm hardening, which is actually increasing the resilience of the networks so that when you do get an impact, it's at higher wind levels and when there are more severe storms. So that is always a key part of the regulatory discussions and debate. And ultimately, that investment sits on our rate base.

In terms of storm repair costs, each state has got slightly different rules but actually has got very clear rules about which costs are actually captured within the rate case themselves and which costs are actually deferrable and then recovered in future rate cases. What we've seen in the first 6 months of this year is a significant increase in the number of storms. I think we've got 18 to date, which is more than we've seen last year. The vast majority of those storms are -- have met the criteria to be defined as deferrable, and therefore, the cost of them are recoverable in future years. So that's a well-defined mechanism.

The one thing we will start to have a conversation with the regulator about is just that we are seeing more storms. And actually, some of the criteria that's been used historically probably need to be updated to reflect the fact that the networks are more resilient, but also we are seeing more storms. So that's part of our regulatory strategy going forward.

Verity, I can see Verity has got a question on her hand.

Yes. A couple of questions. The first one is just a very small one. So your central costs are up 17% and I know you've delivered savings in the regulated businesses, but is that a trend, given the growth and complexity of your business? And then, I think, the second one is about the U.S. regulatory timetable. You've explained the delays from COVID. But do you think there's any downward pressure on allowed ROEs, given very, very low rates at the moment when we think about what Ofgem is proposing?

I'm going to take up the U.S. regulatory timetable and ROEs. And Andy, if you can take up on central costs.

So I think in terms of the regulatory timetable, so let me just sort of paint a picture of where we're at because there's a lot of moving pieces. So with regards to KEDLI and KEDNY, I've already covered. So we're in discussions for a multiyear settlement with the PSC, and we are hopeful that we'll get to resolution by the end of the calendar year on that. You would have seen that we were due to do the Niagara Mohawk rate filing at the beginning of this financial year, but it was literally at the time the COVID started to emerge. So we agreed to defer it. And we ultimately made that filing in July, August of this year for rates effective next year. And then tomorrow, we will be filing for Massachusetts Gas as well, again, for effective in 2021. So we've got a number of rate filings underway. In terms of returns, if you look at the most recent settlements that have been done in New York and Massachusetts, they've all tended to be in the sort of 9% to 10% range, Verity. So I think the most recent one was in Massachusetts for Eversource, which was a 5-year price control with a return of 9.9%. So I think the returns have been relatively stable in the U.S. in the most recent determinations that have been done. So we haven't perhaps seen the same pressure in the U.S. that we've seen with some of the discussions with Ofgem as part of the draft determination at this stage. Andy, central costs?

Yes. Verity, I assume you talk about things that caption corporate and other, as you described as central. So I mean that's as well as corporate center that's other one-off projects are their sort of initiatives that go on through the year. So there will always be volatility. There's no underlying particular cause this year. It's just the number of one-offs that happen in any particular year.

Chris from Morgan Stanley. I see you got your hand up.

Most of mine had done. So I just had 1 remaining, which is your asset growth. Has -- or looks like it's going to slip to sort of the top end of the guidance range this year, and there are some pretty clear explanations for that. That is a fairly big step down from last year. What are your thoughts going into next year and the year after, and the year after that? If we could tease any out of you? And what, in your mind, are the main sort of stress point at this stage of your negotiations here and in the U.S.? Second question, which is a very quick one, just on governance. You have a new Chair starting a role soon. I understand will be based in the U.S. Was that a deliberate decision to sort of bolster your presence in the U.S. with a view to relationships with regulators, et cetera? Or was that just a matter of the best candidate came through and nothing further to think on that level?

Okay. So thanks, Chris. In terms of asset growth, so look, our guidance for this year is GBP 5 billion thereabouts. It's slightly down the last year, but it's probably worth just reminding you that last year's number, which I think was GBP 5.4 billion, did include just over GBP 200 million for the Geronimo acquisition. So it's broadly in line with -- the capital spend is broadly in line with what we saw last year outside of that acquisition. And that takes you to the sort of the top end of our 5% to 10% range, I think, in terms of what we said. So it's pretty consistent.

In terms of our sort of medium-term outlook, what I would say is the drivers for investment remain very strong. So in the U.S., we continue to see strong investment drivers around safety. A lot of that investment is mandated by the regulators. But we're also seeing an increasing amount of investment for supporting decarbonization. In the U.K., obviously, a little bit uncertain at the moment. That is at the heart of the debate that we're having with Ofgem between the draft determination where we hope to get to by final determination. In our business plan in the U.K., we set out for gas transmission, and electricity transmission a GBP 10 billion program over the next 5 years in the draft determination, obviously, Ofgem were a lot lower than that. So that is a key area of focus for us as we move forward, and we'll be able to give better guidance on that, I think, for the sort of the next 5 years once we see the outcome of the final determination.

In terms of overall governance, I am absolutely delighted that we've appointed our new Chair. I think she brings fantastic experience both from the energy sector and more broadly, and sits on some great Boards, so will bring great board experience as well. As you'd expect, the Nomination Committee of National Grid ran a process and identified the right candidates. So there was no sort of predetermination, whether it should be a U.S. or U.K.-based chair. It was about finding the right candidate who has the right skills to support going forward. And I'm absolutely delighted with the appointment that's been made and looking forward to working with her.

Terrific. In terms of follow-up, do you think there is an advantage in having a greater presence in the U.S.? If I could squeeze that last question in.

Well, I think what's important at the Board level is that you've got a right mix of capabilities, including understanding of the different geographies we operate. If you actually look at the Board of National Grid, then we've got quite a nice mix actually, people who are U.S.-based and people who are U.K. based with different industry experiences as well as experience in the energy sector. So I think the new Chair will just add to that. And therefore, as I said, I'm really delighted with her appointment.

Elchin. Should we take Elchin from Bloomberg next.

Can you hear me, okay?

Yes, I can.

I have 2 questions, please. The first one is on the system warnings in Britain. We've seen a couple recently, I think, from National Grid I think the need to be called (inaudible) or something. And obviously, you came out really well during the last August blackout. Ofgem hasn't seen any fault of yours. What this recent mean for the U.K. power system? And is it an opportunity for you to ramp up investments? Or is it more of a risk if the blackout happen again Ofgem may take another look at all the utilities, including yourself? And the second question is on the U.S. on a similar wavelength in terms of your relationship with the New York Mayor. Obviously, you had some issues in terms of gas connections, which has -- looks like it's been resolved now. But recently, the Mayor threatened to take away the licenses from ConEd and PSC, I think, because of poor treatment of storm. Is it concerning you as well or not? And how do you see your relationship with the New York Mayor evolving going forward?

Okay. Thank you, Elchim. 2 big questions there. So let me start with the recent system warnings that we've seen in the U.K. So I think it's quite important to put this into context. So although we haven't seen these types of warnings in 3 or 4 years. I mean, if you just stand back and look over a long period of time, they're actually seeing tight plant margins during what we call the shoulder months is not untypical. So what specifically was happening on the network was that we still have a number of generators that are on outage for their maintenance that have not yet come back for the winter. We saw on those days that we had those notices, very low wind outputs. So remember, the U.K. has got about 23 gigawatts of wind now. And at the same time, coincidentally, we actually saw some higher demands than we would typically see at this time of the year with slightly colder weather. So those 3 things together led to the system operator. When it looked ahead to the day ahead, 24 hours ahead, it looked like some of the reserve margins were slightly tight. And therefore, actually, what it does in those situations is let the market know that it looks tight so that the market can respond. And on the 3 occasions has happened, what we have seen is the market has responded, and actually, the system operators been able to stand down those warnings. If you -- so that's what was happening. So as I said, if you look over those sort of long time scales it's not untypical. If you look to the coming winter, as I said in my remarks this morning, the plant margin in the U.K. is 8.3%, which is well within the security standards. And in terms of the longer term, obviously, in the U.K., we've got the capacity market, which is the main mechanism for ensuring that there is sufficient generation to meet demand. So I think it's more about how the market is operating than an investment opportunity for us. Clearly, our role as the transmission owner and operator is to ensure that we've got the right infrastructure to support reliability 24/7. So I'm not sure there's a linkage between those 2 things.

In terms of the -- our relationship with the governor in New York, as you referenced, I'm quite pleased that we've been able to progress the solution with regards to the gas constraints issue that we have in New York. So we worked very closely with the governor's office and the PSC to issue a report at the beginning of this year that set out some options. We're now progressing one of those options to make sure that we can meet demand going forward. So I'm pleased that, that has been progressed over the last 6 months. In terms of more broadly, the governor was critical of a number of utilities with regards to recent storms. Fortunately, the National Grid was not one of those but there's also been some criticism around telecoms and water in New York as well. I'm very aware that the governor has proposed some potential changes to legislation to ensure that utilities are focusing on customers and are doing the right things during storms. That has always been our priority. We will look at the legislation that the governor is proposing. I think it only came out last week. So it's at the very early stages. And of course, we will comment on that to make sure that any changes align with that priority and make sure we can meet customer needs.

Okay. So Martin, Martin Young?

And just 2 questions, if I may. You talked about hydrogen in your presentation, if I look at the future energy scenarios that came out a little bit earlier this year. One of them system transformation basically calls for a wholesale repurposing of the gas network to carry hydrogen. From a technical perspective, how easy is that to do for a gas transmission network? And any idea whatsoever, what the cost of doing that might be? And then the second question is hopefully a simple one relating to the results and the guidance for the full year. If I look at what you're saying about UK ET, it suggests that there has been a little swing in the narrative from a suggestion that costs would go down when you communicated guidance at the full year stage to actually now indicating that costs will go up slightly, given what Andy said about delivery of the cost efficiency program in the U.K. being on target and given that you haven't moved your COVID expectation on the cost hit. What is this swing factor in UK ET on the cost front that is moved in the guidance?

Okay. Thanks, Martin. I'll let Andy pick up the guidance issue with ET. So in terms of hydrogen, it's probably just worth reminding people on the call. So the future energy scenarios are exactly that, they are scenarios. So they're based on the feedback that we get from the industry and what people believe could be sensible road maps towards either achieving net zero by 2050 or indeed, I think some of the scenarios don't achieve it by 2050. So in terms of the specifics of repurchasing natural gas networks to hydrogen, I referenced in my remarks earlier that we're spending quite a lot of time in both the U.K. and the U.S. really undertaking projects to do exactly that, which is to really understand if you are to inject either blended hydrogen or indeed all hydrogen into the existing network, what is the interaction it has with the steel, with the joints and with the other equipment and what would you need to do to fully repurpose it? So I think with the future of gas, and we'll talk about this in our event in January, the exact road map and the exact investment pathway is still uncertain, and that's just not National Grid, I think that's everybody. I think what is needed at the moment is quite a lot of work looking at these individual challenges to work out exactly what is achievable and what are the costs associated with it. The project that we're doing in the North of England is taking some decommissioned transmission gas pipeline. We will test our pipeline by injecting different percentage of the hydrogen blend into it to look at how it interacts. And I won't get into detail, but you'll know the molecule of hydrogen is smaller than natural gas and methane. So we need to look at those types of things. And then we're going to connect that project to one of the gas distribution projects to sort of do a beach-to-home impact assessment to work out what the implications are. I think, Martin, it's going to be 2 or 3 years before we've got real clarity on exactly what the road map is for decarbonization of gas and what role hydrogen will play and what investments will be needed. But that is a real focus area for us at the moment. Andy?

Yes. Martin, just on the guidance on electricity transmission. In reality, very little has changed. I think the word is probably sent slightly broader than intended effectively. The inbound involved on both on COVID and on costs are very, very small. So it's a minimal change and effectively, very much in line with what we've previously said.

Okay. Well, it doesn't look like we've got any more questions. So in which case, I'm going to say, thank you, everybody, for joining the call today. I do appreciate it. I know these are difficult times. I hope at some point, we'll be able to have these meetings face-to-face. In the meantime, I'm not going to do a full summary other than say the first half, very pleased with the operational performance. As you've seen, solid financial performance, and we're managing the COVID impact very well. And I think we're very well placed for the second half of the year. So thank you for joining, and I'll see you all very soon.