Good morning, everyone, a warm welcome to the 2023 Annual General Meeting of National Grid. I'm Paula Reynolds, Chair of the Board of National Grid, it's lovely to see you all here. Thank you for joining us. Today's meeting is a hybrid one, which allows for live engagement for all attendees, wherever you are, wherever your location. We'll cover the details of how to participate in a moment, first, it's my pleasure to introduce you to the board members who are in the room with us today. First, I'm joined on the stage by John Pettigrew, our Chief Executive, Justine Campbell, our General Counsel and Company Secretary. The other Executive Director in the room is Andy Agg, who's sitting in the front row, he'll raise his hand, as will the other directors, as I introduce them.
Thérèse Esperdy, Earl Shipp, Ian Livingston, Iain Mackay, Tony Wood, Anne Robinson, Jonathan Silver, and Liz Hewitt. We have one director for whom the airline gods did not cooperate, and Martha Wyrsch is joining us online for this meeting. Now the order of the meeting. I will shortly pass the podium to John, who will share with you what has happened in the past 12 months and a bit of a vision of where we go from here. Justine will then run through the formal business of the meeting, where we'll consider the resolutions set out in notice of meeting. After those portions of the meeting are handled, we'll then take questions from attendees. We'll have questions online, we'll have questions in the room, and Justine will very skillfully alternate between in the room and online to get questions answered.
Please remember that your questions are to be directed to the business of the meeting. If you have other general questions not related to the business of the meeting, please understand that we'll ask you to hold those questions till after the business meeting is formally adjourned. John and Andy and I will be out in the lobby after the meeting, so if there are remaining questions, we'll be glad to get to them. As I said in the letter to you in this year's annual report, it's a time of unprecedented activity in the energy industry occurring amidst a global backdrop of significant geopolitical upheaval. In the U.K. and in the U.S., National Grid will be connecting new renewable power sources and be reinforcing the networks to enable consumers to electrify more of their end uses in their homes and businesses.
You can see that in the video. Obviously, it's suggested there. You know, it's a digital world, and many of us feel a bit lost if we don't have our mobile phones with us at all times and charged. Ensuring 100% reliable energy delivery is really integral to the modern world in ways that it wasn't in the past. The success of meeting the goals of net zero depend on decarbonizing power and then delivering that clean power when and where you need it. This is a massive undertaking of extraordinary complexity. You know, it's this very complexity and the scope of this that has drawn the individuals I just introduced to serve on the National Grid Board.
You know, we consider ourselves to be the stewards of the company and of the work of almost 30,000 individuals who are employed by National Grid in the U.K. and the U.S., as well as thousands of contractors who install and maintain facilities on our behalf. These dedicated professionals are, through their work, setting about changing the world in a sense. It's not just in the U.K. and the U.S., but because of the capability of high voltage direct current cable, National Grid is contributing to the energy security for Europe as well through, among other things, our joint venture interconnectors business. It's not just any board seat or time. It's really a privilege for me and for my fellow board members to be part of the extraordinary efforts that this company is undertaking as it innovates to meet the challenges in front of us.
To hear about the specifics of our strategy, our performance, please welcome our CEO, John Pettigrew, to the podium.
Thank you, Paula. Good morning, everyone. As I reflect on the last 12 months, NG has certainly been in the spotlight, not least due to the affordability issues caused by much higher commodity prices. We've seen this galvanize governments' and regulators' resolve to accelerate the energy transition as they look to manage the current affordability challenges, increase the level of renewable generation, and deliver greater levels of domestic energy security. National Grid is at the heart of this push, empowering change through investment in critical energy infrastructure. With the completion of our strategic pivot, our portfolio is repositioned to capture attractive growth for many years to come. We're also delivering the energy transition right now through record levels of investment across the UK and the US Northeast.
For example, in the last 12 months, we've energized the world's first T-pylons as part of the Hinkley Connection Project, which will connect 6 million homes and businesses to low-carbon electricity. In the U.S., we broke ground on our $600 million Smart Path Connect transmission project, which will bring clean energy from upstate New York to demand centers downstate. Our significant investment has driven strong financial performance. Before I turn to our financials, I'd like to share with you some of the actions we've taken as a responsible business to play our part in helping people, customers, and communities through such tough times.
We're aware that help is needed right now. That's why we announced the early return of GBP 100 million of interconnector income, where we collected revenues above our cap. That's on top of the GBP 200 million of revenues we'd already committed to return early. We launched a GBP 50 million energy support fund in the UK to support people struggling with energy costs and have helped 30,000 households to date. In the US, we launched our customer assistance program, contributing $6 million so far to help support vulnerable households. We'll continue to do what we can to provide short-term relief to our customers and communities. It's clear that the only way of solving the energy crisis and bringing customer bills down in the long term is through significant investment in the clean energy transition. Let me now turn to our financial performance.
On an underlying basis, at constant currency, operating profit rose by 10% to GBP 4.6 billion. This reflects a full year of earnings from UK electricity distribution, good operational performance across all of our regulated businesses, and strong performance from National Grid Ventures. This was partly offset by the sale of our Rhode Island business and the energy support fund we launched to help our vulnerable customers this winter. Capital investment from our continuing operations was a record GBP 7.7 billion, 8% above the prior year at constant currency. We've also delivered a further GBP 236 million of savings within our cost efficiency program, on top of the GBP 137 million previously announced and within close reach of our GBP 400 million target.
In accordance with our policy to grow the dividend in line with UK CPIH, the board is proposing a final dividend of 37.6 pence per share. This takes the total dividend for the year to 55.44 pence, an increase of 8.77%. Let me now turn to our operational performance, starting with New York, where we achieved a return on equity of 8.6%, 96% of the allowed level. We delivered capital investment of $3 billion, an increase of $340 million, resulting in a strong rate base growth of 9.9%. We received an additional $2.8 billion of funding to enable over 2 gigawatts of renewable generation in upstate New York in support of the Climate Leadership and Community Protection Act.
In New England, we achieved a return on equity of 8.3%, up 30 basis points on last year. We delivered capital investment of $2 billion, which, excluding Rhode Island, was $276 million higher than last year, with rate base growth of 6.3%. Over the last few months, we've received over $1 billion of funding outside of our rate cases for new clean energy investments. In the UK, our electricity transmission business continued to perform well. Capital investment increased by 9% to GBP 1.3 billion. The business delivered a return on equity of 7.5%, 120 basis points above the allowed return of 6.3%. In December, Ofgem confirmed the award to National Grid of 17 major onshore transmission projects to connect more offshore wind generation.
In our U.K. electricity distribution business, we delivered a return on equity in the final year of ED1 of 13.2%, which includes 360 basis points of outperformance. Capital investment grew by 10% to GBP 1.2 billion, driven by increased customer connections for renewable generation and electric vehicle charging infrastructure. In March, we accepted the new five-year RIIO-ED2 price control, which started on the 1st of April. Lastly, at National Grid Ventures, we delivered capital investment of GBP 906 million. Our North Sea Link to Norway has completed its first full year of operation, and our Viking Link interconnector to Denmark is on track to commission by the end of the year. Grain LNG had a record year of utilization, with 102 ships offloaded, supporting energy resilience in the U.K. and in Europe.
In the U.S., our offshore wind joint venture with RWE submitted proposals to NYSERDA, and we expect them to announce the winning bid in the coming months. We achieved this while maintaining over 99.9% availability across all of our regulated networks and despite a year of challenging weather and storms. We also delivered improvements in our safety performance, with a small reduction in our lost time injury frequency rate. However, following the tragic event in Massachusetts last May, when an employee sadly lost his life, we've been focused on ensuring the lessons have been learned and are shared across the organization. Safety continues to be an area of close attention for management to ensure we improve our performance further. With that, let me now turn to the priorities for the year ahead.
First, let me say this is a hugely exciting time to be part of the industry. I can't think of a time certainly in my 30 years where there's been so many opportunities for growth. As these opportunities become a reality, National Grid can deliver cleaner, more resilient, and more flexible systems that in turn will help to lower costs for consumers and create jobs across the economies we invest in. I'm proud of the progress that we've made already, and I'm optimistic about the future. It's also clear that greater urgency is needed by government, our regulators, and the industry to achieve the clean energy goals. In the UK, one of our key priorities is to help drive the significant regulatory and policy changes that are needed.
That's why in May, we published a policy paper setting out the 5 key priorities that require action by government and regulators. First, that the planning system needs to be reformed. Second, on regulation, a more agile regulatory process is needed. Third, the way generation connects to the grid needs fundamental change. Fourth, a consistent community benefits framework is needed to ensure local people see value from hosting critical infrastructure. Finally, to deliver the scale of infrastructure required, there needs to be investment across the country in supply chain capacity and in green skills. These priorities are already resonating with politicians and stakeholders, and I'm optimistic about the progress that we can make as we continue to drive these 5 areas forward. Moving to our US priorities and starting with our gas businesses.
As regulators and policymakers consider the pathway to net zero, and the debate continues about the pace and feasibility of delivering greater levels of electrification, we're making it clear that our gas networks have a vital role to play in ensuring reliable and affordable options for customers alongside electrification. We're taking action to deliver a hybrid, clean energy future through our ongoing program of pipeline replacement with pipes that can handle decarbonized gas, delivering the $2.1 billion in energy efficiency measures across New York and Massachusetts, and continuing to progress our Northeast Hydrogen Hub proposals. Turning to our electric business, at the federal level, the Inflation Reduction Act and Infrastructure Investment and Jobs Act have the potential to dramatically accelerate the energy transition. However, like the UK, this will only happen if accompanied by the significant permitting and siting reform needed to enable investment at pace.
As you'd expect, we're working at the federal and the state level to advocate for reforms to streamline these processes. On the regulatory front, we filed for new rates in downstate New York in April. These proposals were aligned with the state's clean energy goals, while ensuring continued safe operation of the network and affordability for customers. Lastly, in Massachusetts Electric, we're preparing our next rate case and expect to file this October for new rates effective in October 2024. To conclude, it's been another year of exciting progress for National Grid. We've executed against our key priorities while investing a record GBP 7.7 billion as we continue to build the clean energy infrastructure that's critical for the future. Our positive collaboration with governments and regulators on both sides of the Atlantic has helped to improve understanding of the scale of the task ahead.
National Grid is delivering the energy transition today. We're uniquely positioned to meet the scale of the challenge ahead to drive forward a clean, fair, and affordable energy future. Thank you very much for your attention, ladies and gentlemen. I'll now hand over to Justine, who will explain the formal business of the meeting.
Thank you, John. good morning, everyone. I can confirm that we have the quorum of shareholders necessary here in the room and electronically on the virtual platform. We can proceed with the formal business of this year's annual general meeting. The resolutions for today's meeting are set out in the 2023 notice of meeting. I propose we take those as read.
Agreed.
Thank you. Thank you to all of those who registered their votes in advance. As is our usual practice, voting on all resolutions will be by way of a poll. For those of you attending in person today, you'll be voting using the handsets that you've been provided with. The handset won't be activated for voting until the poll is formally opened by Paula as chair of the meeting at the start of the question and answer session. At that time, instructions will appear on your handset, or you can refer to instructions that you will have received during registration. If you do, however, have any problems, please raise your hand and someone will come to help you. If you have already cast a vote via a proxy, you do not need to vote again.
If you do choose to vote again today, your votes cast at this meeting will replace any proxy that you previously lodged. For those of you attending electronically, once the vote is declared open, please first click on the voting icon, which will appear on your navigation bar. This will allow you to cast your vote on each resolution. If you need any more guidance on how to cast your vote via the platform, then please refer to the instructions on the homepage, or there's also a user guide available on the Documents tab. Please note that for all AGM attendees, voting will remain open until 10 minutes after the close of the meeting. Turning now to the business of the meeting. Resolutions 1 to 19 inclusive are proposed as ordinary resolutions. Resolutions 20 to 23 inclusive are proposed as special resolutions.
The board is unanimously in favor of each resolution proposed and recommends that you vote in favor of all the resolutions. I'll now hand over to Paula to formally open the voting.
Thanks, Justine. The poll is now open for voting and will remain, as Justine said, until 10 minutes after the conclusion of the meeting, which will be announced. We'll now move into the Q&A session, and as I said earlier, Justine will be coordinating between online and in the room. To be fair to all participants, she will alternate, and if there are questions that have been pre-submitted that are similar in thrust, Justine may group them together to be efficient in providing the answers. The other thing we ask you is to please keep your questions short and concise, and avoid any statements or speeches so that we can make sure that we get to all of the questions and have a constructive meeting for everybody who's here with us today. We also ask you to limit yourself to one question.
All questions should be relevant to the business of the meeting. For those of you in the room, if you have general interest questions and they don't, they aren't part of the business of the meeting, but they're on your mind, John and Andy and I will be out in the lobby after the meeting concludes, and glad to speak with you to answer any questions. For those of you who are participating online with general questions, we will reply to those questions by email after the meeting concludes. If anyone has a question about your individual shareholding, you can also separately put that question to our registrar, Equiniti. Justine, over to you.
Thank you, Paula. For those of you joining electronically, if you have not already pre-submitted a question, you can submit a question by selecting the messaging icon that sits in the navigation bar at the top of your screen. Type your question into the text box at the top of the page. For those of you who are here in person, I know many of you have already registered your questions at the desk. If you didn't register a question earlier, but you do still wish to ask one, please make yourself known at any point to one of our representatives. They'll take you to the question point and inform you when it's time for you to ask your question. When you do ask your question, please begin by giving your name, and direct all questions to Paula or to me.
I'll make sure that we try to go between the questions on the platform and the questions asked in the room by those attending in person, so that, as Paula said, everyone has an equal opportunity. We do have quite a lot of questions coming in, so I'll try to be efficient. Let me start by a question that's been submitted online by Mr. John Stuart Patten. It's about fire safety and the lack of regulation in respect of lithium battery storage energy systems, and that of being a rapidly growing public concern. A proposed BESS site at Chickerell, comprising 480 units and within 100 meters of housing, threatens much of Weymouth with a highly toxic gas plume in the event of thermal runaway.
This would be 30 times the size of a normal 50-megawatt BESS. While designs improve to reduce the risk of thermal runaway, the risk cannot be eliminated, and the industry has yet to commission the Building Research Establishment to research, test, and quantify this. Battery failures go largely unreported, so there is inadequate data to support proper risk modeling and U.K. standards. Given the huge risk and National Grid's ethical duty to ensure the safe operation of the nation's electrical infrastructure, can the board confirm that they will not allow connection of lithium BESS units located within 5 kilometers of residential areas until such time as U.K. research and regulation is in place?
Well, Mr. Patten, thank you very much for that very thoughtful question, and not surprisingly, I'm going to turn it to our CEO to offer an answer.
Thanks, Paula. Well, first of all, Mr. Patten, thank you for the question. You know, electricity storage and battery storage actually is going to be a massively important part of how we operate networks with the increased intermittency of wind as we move forward. As people know, National Grid's role is to transport energy from where it's produced to where it's needed. We don't actually own generation or storage, and in fact, in the U.K., we're not allowed to own generation or storage. What we do have, though, is a license obligation to connect anybody in a non-discriminatory way who wants to connect to the system. Where they locate is down to the planning authorities and the local authorities, and of course, agencies such as the HSE, the Health and Safety Executive, will be responsible for ensuring that it's done safely.
From our perspective, we're not in a position where we would be able to determine where the location of battery storage is, because it would be a breach of our license, which would be unacceptable. Thank you for your question.
Thank you, John. We have a couple of questions in the room from a couple of shareholders who have registered their question but don't want to ask them themselves. I'll read them out. The first is from Mr. John Higgins. He would like to know if National Grid is strong enough to support the electric vehicle network.
Maybe I'll start with this one, John.
Yeah.
Then give it to you. Don't worry. Mr. Higgins, thanks for the question because it's the question of the day. You read in the media about the challenges of connecting both at the transmission level and distribution, and John can speak to it. I just wanted to make a comment because there was an article in the paper yesterday of a homeowner. It was in the Times living section, and it was a homeowner complaining about how long it was taking them to get their solar panels connected up into the Grid. It was quite a long story, and there were many comments, as you would guess.
What's interesting, the other day, our head of distribution, Cordi O'Hara, talked to investors about everything going on in our distribution business, and she pointed out that with our online tool, you log on, and in two seconds, you can actually begin the process of interconnection if you need to upgrade for whatever, EVs or heat pumps or whatever electrification requirements you have. Our distribution business has already thought ahead about ease of doing that. Of course, from making the request to actually getting the physical infrastructure becomes more challenging.
I would just ask, when you see these articles about, "The utility didn't get in touch with us," or, "It took too long," we do have an online tool, and if you are in our distribution service area, then, in fact, you can go look up your premise and see that we're there and able to begin to start that process for you.
Yeah, thanks, Paula. Just to pick up on the media article, it's quite often you'll see in the media that if everybody bought an EV tomorrow and charged it at 5:30 at night, the Grid would have a problem. The reality is that not everybody's gonna have an EV tomorrow, and actually, smart technology will allow you to actually charge the vehicle away from that peak. National Grid's primary role is to plan out the networks. And actually, what we see is gradually the increasing number of people who want to connect EVs. Actually, last year in our distribution business in the U.K., we connected more electric vehicles than we had in all the years previously, so a massive increase.
We're planning to do over GBP 1 million in our distribution network in the next 5 years. Our engineers are busy focusing on what do we need to do to the network to support the evolution of transport moving from petrol and diesel to electric. You can be rest assured that, you know, that's a piece of work that we're doing, and we'd be confident we'll be able to meet the demands as we move forward.
Thank you. I have another in-room question here, again, from a shareholder who would rather I ask the question: What are the future plans regarding the gas transmission business if we have only retained 40%? Are the plans solely to focus on electricity transmission and not gas transmission? Can we have some background on who are the companies that have bought 60% of the business?
John, if you wanna take that one up, too, please.
Yeah, I'll give a little bit of context, actually. As a board, we spent a significant amount of time, two or three years ago, really looking at the energy transition and how we saw that unfolding over the next 10, 20, 30 years. We took the decision to make a strategic pivot, with regards to National Grid, acquiring the largest electricity distribution business in the UK, because, as the previous question indicated, we expect to see strong and certain long-term growth in those distribution networks for many years to come. To fund that, we took the decision to sell a 60% stake in our gas transmission business.
Overall, having sort of moved forward two years, we're now in a position, having completed that strategic pivot, where National Grid is 70% electric, 30% gas, and broadly, 50% UK, 50% US, which is to us, the right shape for the group going forward. The original 60% was sold to Macquarie, and they actually have an option to buy the remainder, 40%. That option is until the end of this month, so we'll find out later this month, actually, whether they choose to do that. Ultimately, the strategic pivot has positioned National Grid, I think, to be truly at the heart of the energy transition, both here in the UK and in the US.
Thanks, John. We have another question in the room from Ms. Gillian Kale. Ms. Kale, over to you.
Hello, good morning, can you hear me?
Yes. Yes.
Fine. I'm going to ask a difficult one, I think. There's a big push for renewables. There's a big push to push the planning regulations. Not all of the renewable energy is very sympathetic to its area, and we've heard nothing so far, if you put it in across the country, as to how it's going to be destroyed, because in 5 or 10 years' time, renewables, their buildings and everything may look entirely different. There are many heritage sites who are looking at your position with some horror at the moment to see that they might be landed with innovation for immediate need that they're then stuck with for many years after it's no longer in use because another technology has come along.
There's a lot in that question, and thank you for raising it. I think, why don't You wanna just talk some about.
Yeah
how we're thinking about these challenges?
I think everybody's clear about the direction that not just the UK, but, you know, many countries around the world are taking in terms of moving to cleaner energy. National Grid's role in that is to connect that generation, whether it's offshore wind or onshore wind or solar or other new technologies. We have to follow a very defined process for considering what's the right solution to do that. That process is set out in the Planning Act, National Grid has to assess what's the right solution, taking into account economics, environmental issues, engineering issues, aesthetics, and also the views of local communities. We try and do that in a very balanced way by consulting with local communities over a very elongated period of time.
Ultimately, we have to make an application to the planning authorities, and quite often for really large infrastructure projects, like offshore wind, to the Secretary of State, and they assess whether we've got that balance right. One of the things that we've been, or 2 things, actually, that we've been doing more recently is, 1, advocating that local communities should see the benefit of hosting renewable energy and infrastructure. At the moment, they don't get that enduring benefit. Also in the areas that we're responsible for and the land that we're responsible for, making sure that we're doing what's right in terms of the natural environment as well. Quite often, in a lot of our substations, we're returning the areas outside of those substations to their natural habitat, working with local communities.
You do have a cleanup plan when they're no longer needed?
Well, if it's in National Grid's territory, absolutely. If it's within the generator, then that responsibility will sit with the generator. When it's National Grid's assets, we always have a plan to remediate those sites.
Thank you.
Thank you. The next question is also been pre-submitted, but it's from Mark Mansley on behalf of the Local Authority Pension Fund Forum. Mark, do you want to ask your question in person? Thank you.
Yes. Thank you. The Local Authority Pension Fund Forum is a collaboration of the vast majority of local authority pension funds in the U.K. LAPFF notes and welcomes the reduced exposure to gas in the business as a result of recent transactions. However, we note that National Grid appears to have a continuing commitment to gas in its longer-term strategy. Gas is a major focus of current capital expenditure. This exposure is justified by company statements challenging the viability of replacing gas entirely for domestic use, yet these statements appear at odds with net zero commitments. In particular, your argument supporting low-carbon gas seem to ignore key problems, such as end-user emissions and the cost and viability of using green hydrogen for home heating.
The wider concern is this may be making National Grid reluctant to invest in electricity network to support net zero and potentially create reputation risk. LAPFF would therefore ask the board to update their strategies to ensure they fully reflect the challenges of low-carbon gas, and to provide clearer guidance on the extent of the company's exposure to gas as we move forward to net zero.
Mark, thanks for the question, and of course, you and I have talked about this very recently. I want to make a couple of overview remarks and then turn it to John, who might put a more color onto the, the issue from a more detailed perspective. I think that the first comment I'd make is that we have to separate in our strategy the difference between being right for the long run and being practical about the short run. That practicality, of course, is that in our U.S. jurisdictions, where we provide natural gas at distribution, there are real questions about affordability of changing out the infrastructure of natural gas for many of our customers in the near term.
The long-run commitment to net zero and to electrification, we believe, is unquestioned, and we've been on the record, not just in this country, but in that country, of supporting policies that lead to electrification. At the same time, in the short run, we do object to situations that create a cost for our customers that we know that they cannot bear. When you think to J.P.'s opening remarks, he didn't really go to the energy issues, he went to the affordability issues first, because that is front and center, the reality of what's on the ground today. We feel that our strategy right now is trying to find balance, and we realize that there are people who want to see these changes come into effect immediately.
Given all of the issues that we talk about everything from permitting and support of communities, to the reality of these are individual decisions that consumers make around how their energy is provided, that we feel that we have to take a very judicious view.
What I would say to you is that the fact that we are a combination company in the U.S., in other words, we serve both gas and electricity in the states in which we do business, is also part of the way that we try to pave the way to say: "Of course, we're for electrification." When you look at the investments that we're making in electric transmission and distribution in the U.S., they are as important, in fact, will, over time, increase relative to the amount of capital that we're putting into the gas system. That gas business CapEx is, of course, really for safety's sake. It is not an expansion of our footprint at all, but rather it's the replacement of old pipes that do provide a safety risk and, of course, do also create emissions through leakage.
Trying to find that balance, trying to be right by our customers, and trying to make progress around things like hydrogen, where there is quite a bit of subsidy in the US right now to try to pioneer that technology. I can assure you that the board will continue to be looking at how we're doing this balance, try to be very clear about what our intentions are. I think importantly, we are doing everything we can to go with this trend towards electrification, to do it in a way that's appropriate for the consumers, because we serve inner cities, we serve rural areas, where affordability is paramount to the consumer's frame of reference and support for policy. It's a moving question, and the board considers it on a very ongoing basis.
The commitment that you have is that as the strategy continues to develop, that we will make sure that we're in a dialogue with you, 'cause we do appreciate your support and your guidance and your input.
. Well, the only thing I'd add, Paula, is, I mean, first of all, absolutely there's no reluctance to invest in the electricity journey to net zero. National Grid, between 2021 and 2026, is investing GBP 40 billion. GBP 29 billion of that aligns with the EU taxonomy and is driving the energy transition in the electric network. We are, I think, now the biggest green investor in the FTSE 100. In terms of the vision that we've laid out for our gas networks in the U.S., we'd love to share it in more detail with you, it starts with driving energy efficiency, which is the most effective thing you can do to help the environment.
We do think, as Paula has laid out, as part of this transition, there is an opportunity to reduce the carbon impact of gas networks through things like blending hydrogen and renewable natural gas. I think the Inflation Reduction Act, which I think, you know, has got a huge subsidy, will drive that technology price down over the next few years. I think today it's about $4 a kilogram. I know the aspiration is to get it to around $1 a kilogram, which would be, you know, would be competitive with other technologies. We're very much focused on making sure that we can play our role in the energy transition, and our gas networks do that as well.
Thank you.
Thanks, John. Thanks, Paula. The next question is from Mr Neil Dudley. Mr Dudley, I think you're in the room.
Good day. Thank you. Neil Dudley. I'd just like to ask, following on from the press reports in the UK of extremely long delays for connection of new renewable generation into the grid, why is this, and what can be done about it? Thank you.
If you have several hours, I'm sure we could really answer this question, but JP, go at it.
I'll try and be succinct. Thank you for the question, Neil. Can I put the context on it, first of all? Currently, if you look, there are about 300 gigawatts of generation looking to connect to the grids in the UK at the moment. Just to put that into context, the peak demand on the grid system in the winter is about 60 gigawatts. There's about 3 times more generation wanting to connect to the system than is actually needed to meet any of the net zero targets that have been set by 2030 and 2035. The reason for that is we have a very strange regulatory system in the UK that means that people can connect. There are no consequences of getting a connection agreement.
It's a first come, first served. The reason there's a delay is actually those at the front of the queue, even if they have no intention of developing, actually hold up those people who are behind the queue. National Grid, working with the electricity system operator and with Ofgem, have been advocating that we need a new regulatory framework to accelerate the ability for people who've genuinely got projects they want to get onto the system to get to the front of the queue. About a month ago, we launched a program of 5 changes that we're going to make to remove those people that are getting in the way and have the ability to do that, but also change some of our planning processes.
That will be sort of tactical changes, which will help, but it won't solve the bigger problem, which is the grid was built to meet the demand for today and the next few years. It doesn't have huge surplus capacity to deal with 300 gigawatts of new generation. We are going to have to build out the grid significantly over the next few years, as you heard in my speech. We are also advocating for more fundamental reform of the connections process, so we get the right people at the front of the queue that can connect as quickly as possible.
Thank you very much.
Thank you. The next question is from Mr Nick Steiner, also in the room, I believe. Mr Steiner.
Nick Steiner, private shareholder. Looking at your chair's statement, you identify regulation and permitting planning policy as being sort of key things. That's working with governments. Governments change, it's a long process. Are you identifying the work that you need to do right now? If you are identifying, are you identifying the areas where difficulties like heritage and things are going to be, so that you can actually then identify the community that you need to talk to? Identifying the community you need to talk to can be quite difficult.
Mr Steiner, thank you for the question, it's sort of part of a whole spectrum of these questions around: How is the grid gonna be built out? The answer to your question simply is yes, yes, and yes. It partly goes to why the company has come out with its 5-point policy statement at the high level, because until you have that high-level infrastructure in place around permitting reform and this whole idea of getting the queue cleaned up, you don't even know where to start, right? You don't know where the power's coming in, let alone how it's then gonna go through communities. The 5 points partly deal with that. They partly deal with community benefits. How will a community get some benefit from it?
It goes down to the detailed discussion of how we get consent and how we ultimately work with communities before we apply for planning permission, including how do we protect heritage sites and the like. J.P. might want to add, but I think it's, you know, it's a whole process that starts with, at the high level, do we even know what we're trying to connect? It comes all the way down to the very local level and how well we try to work with communities. It's a little bit of a moving target and a bit to a certain extent, as to exactly which community and which route. We've been given permission by Ofgem to build a basic backbone with 17 segments.
We have a pretty good idea of the broad route, and it really gets to the fine-tuning of the route that is being worked through, and this is a several-year process. I think the board believes that it's being done thoughtfully. It's being done, I think, with consideration, and it's being done with the recognition that we're not gonna make everybody happy in all of this, but that we're gonna do the best we can to mitigate the impacts, so that people can feel that they were properly handled, and that the greater good of being able to bring in renewable resources is being properly balanced against their personal needs and preferences.
The only thing I'd add, Paula, is that, you know, at the national level, the government is consulting on the planning process at the moment, so, and National Grid is feeding into that. They're looking at how they streamline it because it's a very elongated process at the moment. Typically, to build a transmission line in the UK, it takes about 10 years. 7 of it is in the planning process and 3 in construction. They're looking at streamlining it. They're also looking at the national policy statements to make sure that they're very clear. Finally, one of the things that National Grid has been advocating for, as Paula mentioned, is community benefits.
In the event that a community is hosting infrastructure, and quite often that infrastructure is being hosted on behalf of the whole of the UK as part of the energy transition, then we believe communities should see some benefit from that, whether it's lower energy prices or direct investment into the community or job creation, and that should be a dialogue that goes on between the local community, companies like National Grid, and some of the offshore developers, as well as the government.
Okay, thank you.
Thank you. The next question is also in the room from Mr. Hugh Mortimer. Mr. Mortimer?
Good morning, everybody. My question is this: my attention was caught by a headline in the Times newspaper on Wednesday, June 7th, 2023. The headline read, "Lifting price at Loch Ness power plant earns monster fine for SSE." That's electricity generator and transmission and distribution company, and this is the article here. The article was by Helen Cahill, who reported that SSE had been fined GBP 9.78 million by the regulator, Ofgem, for overcharging National Grid for constraint payments when turning down their hydroelectric power station at Loch Ness. It continued that a Bloomberg investigation revealed that energy companies, including SSE, had received more than GBP 500 million by using trading methods that abused the Balancing Mechanism. The article, with its clever punning headline, reminded me that there's a government review underway.
The Review of Electricity Market Arrangements, or REMA for short, a UK Parliament POSTnote, number 694, dated 2nd May 2023, on the subject, has been published. A future government consultation this autumn will put forward proposals of packages for reform. I should like to have National Grid's view on this review and the ideas of reform which have been discussed to date, and what changes, if any, they would like to see as a result of the review.
Thank you for your question, Mr. Mortimer. We are familiar with the article and the situation, obviously also the market arrangement consultation going on, because this has been an area of keen interest for the electric system operator, which National Grid is part of National Grid right now, and JP will go through some of the detail to respond to your question. Maybe just a moment, which is we've had the system operator function since forever when we were in the generation business and ran a comprehensive business. In recent years, there's been the sense of regulators and stakeholders that we should separate out the system operator. We separated it out as an independent entity, but owned by us. There still was this sense that it needed to be truly independent and not owned by National Grid.
A couple of years ago, we said, "Fine, if government would like to come up with a plan to separate the system operator, that we would agree to that." That process is going on. There's something else going on, and you'll see headlines that'll say, A portion of National Grid is being nationalized. I want to be clear that we agreed with government that in order to create a smoothly functioning electric market in the future, that we would cede that entity to government and that government would reconstitute it, and that is going on.
When John talks a bit about this market reform, keep in mind that a lot of this has to do with how the grid is being run, from an overall energy standpoint, not specifically about our transmission business per se.
Thank you, Paula. The only thing I'd add as well on the electricity system operator, that part of our role as the electricity system operator is to identify anomalies in the market and then report them to the regulator. That's one of the things that we do as National Grid. In terms of the electricity market reform, probably the main issue of debate that's going on at the moment, and if you've seen the newspapers today, there was an article about it, which is locational marginal pricing, which is whether actually, at the moment, you have a national price for electricity traded in the UK. The debate is whether there should be a move away from that, and actually, different regions have different prices. There are pros and cons to that.
There are other operators and other networks in the world that use it. New Zealand is usually the one that's quoted. The impact would be, it would raise the cost of connecting generation in the north of the country, massively reduce the cost of demand in the country, and then the reverse in the south. The intention of that is to encourage investment to where the generation is. Encourage demand to go where the generation is or vice versa. We've said that we think there are pros and cons to that. The challenge is in a country in which predominantly the decision around where generation is going to be located has already been made, whether locational marginal pricing will actually provide a strong enough signal.
It will certainly do it in the day-to-day, but it won't necessarily influence the level of investment. As you can imagine, my team, some of them are here today, are busy discussing that with the U.K. government, and with other stakeholders as well. That is probably the key thing that the reform is going to be focusing on over the next two years.
Are you undecided at the moment on your position, or have you made your mind up?
I think our position as National Grid is that it's probably very complex, and given the decisions on long-term investment have already been made, there are probably simpler ways of getting to some of the issues.
Fine. Thank you very much.
Thanks, John. Sorry. The next question is also in the room. It's from Mr. Peter Arbun. Mr. Arbun?
Peter Arbun, private shareholder. This is not so much a question as a compliment. Shall I continue?
Please!
Please.
It's been a while since we've had one. Yes.
Well, you're going to get one now.
Okay.
If you recall the ball last year, myself and other fellow shareholders, we did raise the question of the meeting time, and I'm very pleased to see it's been altered to 11 o'clock, from which I thank you.
You were heard, Mr. Arbun, so that's, yeah.
It's so convenient for a lot of shareholders, not all of them, but a lot that come here, it's very convenient. It's in fact so, when I left home this morning, before I left home, rather, I managed to read the newspaper and have 2 cups of tea. A very short, sharp question. Last year, I raised the question of shareholder visits to transmission stations. Have you considered that further?
Yeah. Well, thank you for reminding me of that, and we actually have, and I think that there's a couple of things, and one, I don't mean to imply anything other than security around our facilities has become an increasing issue. Of course, it is an issue all over the industry and all over the world, and so we have chosen not to admit people to our facilities any longer if they don't have a direct connection. It, I said, "don't mean to imply anything," it's, you don't appear to be a terrorist or anybody who is intent on doing harm to the company, but we've established a policy that says that you don't come into our facilities any longer.
I do apologize that we can't give you that bird's eye view anymore, that was part of the company's practices in the past.
Well, thank you for that. I won't raise the issue anymore.
Thank you. Thank you.
Thank you, Mr. Arbun. The next question is from Mr. Lawrence Corbett.
Hi, good afternoon.
Mr. Corbett.
First of all, thank you for having the meeting in.
Oh.
Uh.
Oh, okay.
Having the meeting in London rather than Birmingham. The other thing is the lack of seating. A lot of the shareholders, as you look out, are fairly of an older age, and there was very little seating out in the main area. Refreshments were a bit disappointing. Yeah. The other thing is the format of the meeting. I have never been to an AGM where all I see is the back of the other board members, the back of their heads. I like to look them straight in the face when I'm asking a question which might concern them. Can you arrange that for next year? You've got plenty of space there and just two seats. Have you run out of seats up there or something? The other thing I want to bring up to you is corporate governance.
One of your directors is still on the resolution to be reelected, yet they've been on the board for over eight years. When are they going to be replaced? Another question is, I am a shareholder since National Grid was privatized, I feel annoyed when I see directors on the board, of which there are three, which have no shares in the company whatsoever. I'd like to know why. Have they got no faith in the company? You know, I shan't be voting for them, I never do. I am a shareholder in quite a few companies, if I go through the AGM report and stuff like that, I see any directors on a company which don't have shares, I do not vote for them.
If they're on the board, they should at least show that they trust the board and they expect it to continue in business. As my other friend has said, in the papers, I've read loads of times about solar farms and wind farms cannot get connected to the.
Okay.
National Grid network. I know you've answered that question before. As your colleague, Mr. Pettigrew, said that there's a surplus of power waiting to come onto the grid. It's been reported-
Excuse Mr. Corbett, I think we have other questions. Could we just actually handle anything beyond the four questions that you've asked outside? We do have a number of questions yet.
I understand, yes.
Okay, thank you. I mean, I hate to interrupt. We did ask everybody to stay to one question. Okay.
No charge. I've been given this, and it hasn't turned on.
Okay, could somebody please just?
For a power company, I.
Okay, now.
Mr. Corbett, we'll send somebody over to work on your.
Plug it in.
your handheld, yep. Let me start with format of the meeting, and I'm sure we can arrange some seating in the ante room, the lobby area, in advance. A good catch that we should have been more aware of, and we'll make sure we do that in the future. I think in terms of what we are trying to do is we're trying to have a conversation and try to get rid of that, you know, we're up on a dais, we're all behind, you know, a desk, and we're, you know, somehow an impenetrable fortress, and instead try to get to a conversation. We have directors who are mic'd up.
If a question is directed to them in their capacity as a chair of a, of a committee, they will come up to the podium and answer that. So far, we have not had anything that was a committee-related question. In terms of the issue of shareholding, in this country, you are not allowed, for example, to be compensated in shares, and that comes from the idea that government has a bit of a mixed view about what's the role of a director. In other words, should they be completely independent and not be a shareholder so that they are not influenced by where a share price goes, that it's a completely neutral question, or should they be invested in the company? That's the governance framework in this country that says, we don't prescribe this, that somebody has to hold shares.
We have directors who believe that they are exercising their independence in the best way possible by not holding shares, and we respect that because the government respects that point of view. We will not impose a minimum shareholder requirement on our directors. We simply recruit them for the best possible expertise they can bring to us, and we feel quite thrilled by the quality we have in this particular slate. In terms of one director's independence, as we wrote in the governance report, we are relatively new as a board because since I joined and became the chair 2 years ago, we've changed out 5 directors, people reaching their retirement or choosing to take on a different responsibility. We're still a relatively new board, and the director whom you referenced has served the 9-year maximum term.
We are in a comply or explain environment here in the UK in our governance, which says that we have to either comply and exit a director at the time or explain. The explanation that we've included in the governance report is that our director, who's reached nine years, is also our senior independent director, which is the person who advises me, gives me continuity, gives me feedback, and I'm reluctant to lose that expertise as we're still a board that is forming up. The board has considered the nomination of our senior independent director and deemed that she is still independent, and I can assure you in the boardroom, she certainly is. She will leave the board at the end of the year as we identify a candidate who can come in.
The board felt we needed a little bit more time to identify a candidate that we wanted, and therefore, that was the reason that the board considered and explained that we've asked this director to stay till year-end and fulfill responsibilities as the senior independent director. Your last question goes to the issue of connections. I think that we've actually answered it pretty completely around why it seems to take so long, certainly, John will be in the lobby afterwards, and any specific question you have about whether it's a distribution connection or a connection of renewables and how that's all working, he can certainly answer in specific detail. I thank you for your continued questions. Next one, Justine?
Thanks, Paula. There's a question here from someone in the room, who would like me to ask a question about what engineering expertise we have on the board.
Well, I can answer that one very quickly and actually ask him to raise his hand.
Mm-hmm.
Tony Wood, who is on the board, is the former CEO of Meggitt and formerly Rolls-Royce. He is a member of the Royal Academy of Engineering, which of course, is a very challenging field in and of itself, that makes him a pretty good engineer, in fact, a very good one. Tony has also been highly immersed in visiting our facilities. In addition, I believe that Earl Shipp, while not an electrical engineer, has had a career in the chemical and basic industry of oil processing and chemical industry, which makes him also deeply qualified. He chairs our Safety and Sustainability Committee, and he also is deeply active in visiting our facilities, talking to our engineers, and really understanding the context in which they operate.
I think that when we look across our board, we've got a good mix of engineering, finance, general management, stewardship, and, trying to just be as well-rounded as we can be in terms of advising this very capable management team.
Thank you, Paula. The next question is online, it's from Mr. Val Broniewski. He's actually submitted 2 questions. I think 1 is very small, I'll go for the first one. It's about whether the board thinks it's appropriate to increase National Grid's staff pay rise by 9.8% and the board of directors' remuneration by 20% when pensions have only been increased by 5%. In the 1990s, when inflation was as high as it is now, National Grid used its discretionary right to increase pensions by more than the 5% cap. Why have the board their remuneration increased by 20% when the share price performance has been appalling?
There's certainly a lot in there, Mr. Broniewski. I think, first of all, we probably need to correct some of the numbers, and I'll start with the board, and then I'll turn it back to John Pettigrew to talk about pay increases for our staff. In fact, the board's compensation went up 4% year-over-year, and that is lower than the average workforce increase by a substantial margin. In fact, you know, obviously doesn't keep pace with inflation, but our policy is that we will do an automatic increase if the organization gets an increase, and that that increase will be held below the organization. I'm not quite sure where the 20% came from, but I can assure you that the board increase was 4%.
We did make a change in one of the committee, chair remuneration, but that also is not a, 20% increase by any means. John, I'll give the rest to you.
Yeah, I'll pick up both staff pay and the pensions. With regards to staff pay, actually, across the organization, we've got collective bargaining arrangements with different trade unions, both in the UK and the US. Over the last 12 months, we've probably had six or seven agreements with different trade unions, and the range of pay agreement has been from around about 3% to about 9%. What's important to National Grid is not just the cost of living, we obviously take that into account when we negotiate new pay settlements, but also, as you've heard today, about the context of what we're facing going forward in terms of green skills and the volume of work that we need to do. We need to be an organization that retains the fantastic talent that we've got, but also attracts talent.
We always compare our salaries against the market to make sure that we are competitive, and as I said, that resulted in a range from 3% to about 9% across the different businesses at National Grid. In terms of pensions, again, National Grid has got multiple pensions, and our defined benefits pensions, you know, are hugely attractive and very competitive. Each of those pension agreements has different benefits. They're all very different and distinct, quite often based on the legacy companies that now form National Grid. A couple of those pension schemes do have a cap in terms of the increase to 5%. Those benefits were very clear to everybody when they signed up to those pensions.
It does also say that there is the potential for the sponsor to take discretion, the sponsor being National Grid. This year, we considered it very carefully. Obviously, we need to take into account the affordability, the fact that the cost of those pensions go forward, go through to customers, and we also have to take into account the views of the regulator. We decided in the context of some of the things I talked about in our, my speech today around affordability and the energy crisis, it wasn't appropriate this year to take any form of discretion, which resulted for those 1 or 2 pension schemes for the increase to be limited to 5%.
Thanks, John. Mr. Broniewski also has one quick question, which is alternating the AGM locations. Could we consider alternating them between London and Birmingham on alternative years?
Well, I have to say that this issue of location is one that's very much on our minds because it's been raised by you. We can't seem to satisfy all of the people all the time. For everybody who prefers to come to London and get up, read the paper, have their tea first, there's somebody who would prefer to have it in Birmingham. We actually thought that we would, depending on the size of the in-person attendance, that we might actually put it right in our Warwick facilities because the expense of having a hall and having all of the audiovisual and so on is, you know, effectively a cost of the business that we all bear.
You know, you've been such a great turnout today that we don't think that we actually have enough room in Warwick for you. We don't have a facility ourselves. You know, we do think that we should try to take it around the system, but we're also in a period of time where we're trying to be very judicious about how much we spend. We're just continuing to try to consider what the right answer is here. Point taken, but I can't tell you that we are gonna do an alternating right now. We're just continuing to try to think it through.
Thank you. The next question is from Miss Sophia Howard, in the room, I believe? Ms. Howard.
Thanks. Good morning, Chair. My question is about majority shareholders, and it's something that does get put in the annual report, but usually at the back. My question is if possibly in future annual reports, any majority shareholders could be put more at the front, maybe in the chairman's report or the chief executive's report. There's criticism that majority shareholders can be like backseat drivers, and we don't actually get to vote for them. We vote for the directors, but we can't choose who gets to be a majority shareholder.
Wanna help me with that one?
Yes, certainly. Ms. Sophia Howard, I mean, our way of identifying our shareholders complies with U.K. corporate governance. It is, as you say, in the back of the annual report. It's not for the other shareholders to vote on who the major shareholders are. It's an investment decision as opposed to the appointment of directors. You know, the information is available in the annual report. If it's helpful, we can certainly talk to you about where that is located after the meeting.
Right, okay.
Would that be helpful?
... annual reports.
Pardon me?
I've been a member of this company since it started, okay? We do not receive any annual reports.
Sorry, could I just ask you, would you mind just... Sorry, 'cause I can't see you.
Some of our shares are to share.
Excuse me.
Right, sorry.
If you'd like to ask a question.
Yeah
why don't you let somebody know, and then we'll catch you in order. In the meantime, in the smooth running of it.
Yeah
... we will actually, Ms. Howard, we will.
I'll speak to you.
Justine will get with you afterwards.
Thank you.
We have our next question.
Next question in the room is from Mr. Reddenham. Mr. Reddenham, are you available?
Sir, sorry.
Oh, sorry, Mr. Farmer. Sorry, I see you have a question. Would you please like to ask your question?
Um-
Can I just remind you, as the Chair has suggested, just one question, if you can?
Right, 'cause we will be here afterwards.
Yes, we have quite a few.
Yeah.
Chairman, I'm a diverse shareholder, reading many annual reports and attending many AGMs, including for some decades, yours, both in Birmingham and your pandemic exploratory meeting here. I actually have points and questions on a number of subjects: the report, the AGM, and performance. This is our prime interaction with the board. I respectfully rather resent the attempt to curtail us to 1 question.
Well, I don't want to give you the wrong impression. You may ask more questions, but we need you to ask a question at a time because we have others who are waiting to ask questions.
All right. Let's-
That's all.
Let's get on.
If you wouldn't mind choosing maybe the one that's most on your mind as the first question, that would be great.
Concerning your annual report, as one who prefers to read paper, I called at your London office, not for the first time over the years, to collect one, and was told that you were no longer there at 1-3 Strand, which is nonsense, because the address is on the back of the annual report. Perhaps you could educate reception, would you, that, you are still in the building? Having acquired the paper report, I was exasperated by various things. Firstly, why do you print in columns as opposed to across the page? If one reads online, it involves a lot of scrolling up and down, and the normal way of printing books, for example, is across the page. Why don't you do likewise?
Okay, well, that's your question for now, Mr. Farmer. I'm gonna have to try to move on. Keith Stevens, who is our Head of Communications, will talk to you afterwards about the online version versus the printed version. Justine?
Thank you. Next question is from Mr. or Ms. Reddenham. I'm not quite sure.
It's Ms.
Ms., sorry. Thank you.
Can you hear me? This microphone's quite... That's better.
Thank you.
Right. Congratulations to the gentleman who managed to read his paper before he got here. I looked at the share price. It's below what I paid over 10 years ago. now, I have a lot of engineers in my family, going back to both grandparents, you're gonna get some brass tacks. The questions are for the Chief Financial Officer, probably. It's concerned your massive debt pile, which is about to double, to GBP 80 billion. The GBP 40 billion you already have and the GBP 80 billion you're planning on new investments versus the general situation of the company. I really don't want you to end up like Thames Water.
Nor do we.
Right. I mentioned the fact your share price is now down at GBP 10. That means the dividend is at 5%, which is almost the same as the corporate bonds I hold. The bonds are due for redemption in February, which is only 6 months away. Where's the money coming from to pay us back? You've increased your dividend today. Surely you should be cutting it because your GBP 40 billion plus of debt is approaching 150% of the net asset value of this company. What's the board's policy on this? Who's going to pay for all the new infrastructure you have to build? There's no point begging from the government. You'll get next to nothing, 'cause they haven't got any money anyway. Are you going to take on more debt? Is this a matter of policy?
Are we going to approach 200% of net asset value? Are you going to cut the dividend in the future? It might become urgently necessary at the rate you're going. I'd really like to know where the money's coming from to pay all this debt. The current opinion of every company I've attended an AGM this year, is that interest rates will still be at 5%, possibly a bit higher, into 2024. When you come to refinance your debt, you're gonna have to pay more interest as well.
All right. I think we've got the picture here.
Yeah.
of your inquiry here.
Where is the money coming from?
Yes, our Chief Financial Officer will get up and speak a bit on this. But I can assure you that as a board, you know, these issues are very much discussed in the boardroom. Maybe with a bit of a different spin on it than perhaps you've the way you've inquired, but this issue of how we grow responsibly is very much a board duty, and we take it with great seriousness. Andy?
Thank you. Thanks for the question. Thank you very much. I think, you know, alongside the significant levels of debt that we do have, we obviously have a very significant and growing level of asset base. Therefore, a lot of our policies are to ensure that our debt grows in line with our assets. Ultimately, it is the assets that we invested, and you've heard a lot about that from an engineering and operational perspective. Those assets are what effectively earns a return, and that return is set by Ofgem, our regulator in this country, and obviously by equivalent regulators in the U.S.
We will always look to ensure that those returns are sufficient to generate the cash, that is what we then use to cover our interest burden, to invest in new assets, and obviously to cover the dividend as well. You'll have seen last year, we had operating cash flow, over GBP 6 billion from our assets, and it's that that gives us the financial capacity to cover the costs that you've mentioned. Obviously, we therefore have to look to invest and grow those assets efficiently as well. Alongside all the sort of engineering challenges we've talked about, we need to make sure therefore, that the capital decisions, the capital raising, and the allocation of that capital is effective against the regulatory frameworks that we have.
When you redeem the bonds due next February, will you be issuing a new lot, in case I want to buy any?
Yes. Every year, we set out what we expect our capital raising to be in terms of the debt markets. Each year, we will need to raise a portion to cover the refinancing of existing bonds and some to invest in the growth and investment into our new assets. Next year, we would anticipate for probably debt raising of around GBP 5 billion or GBP 6 billion in total. Again, that will be split between, you know, raising new debt to replace and refinance the expiring debt, like the bonds you just referenced. Also of course, new debt to make sure that we can continue to fund investment in new assets as well.
Mm-hmm. Great. Thank you.
Thanks, Andy.
Great.
Next question in the room from, Bibi Safina Zafar. Zafar?
Hello, good afternoon.
Thank you.
First of all, I would like to ask, why the director then doesn't face us politely, that we see who we're speaking to, not having their back? Which is impolite.
I thought.
At least they can stand up, and we know who we're speaking to.
Well, that's exactly.
than having a name.
Right. Well, that's why we asked the director to get and stand up and face and come to the podium.
Yes, the rest didn't. We only know the name, we can't see their face.
Well, I'm sorry that you feel that this format isn't conducive. What we really tried to do.
Not me alone. A lot of people talk, but they're not saying it.
Well, what we typically do at every AGM is we direct the questions to the chair, and then if the chair decides that somebody else is better positioned to answer the question, we refer the question, as we just did to, Andy Agg.
Yes, he's the only one came up. The rest, we don't know who they are.
They were introduced at the beginning and raised hand, but you haven't directed a question to them. If you had a question for a specific director, then we would, of course, ask them to come up and be at the podium. Typically, the chair controls the meeting and tries to moderate, and we try to make this a bit simpler by not having a big dais, and instead-
That's exaggerated.
... try to have a conversation. I'm sorry if you don't like that format. You know, I just thought that it was time for us to try something a bit different, that seemed a little bit more conversational and less formal. If it isn't satisfactory to people, I know I'm getting a sense from you it's not, but I would look for feedback from others out in the lobby if you're unhappy with it. The directors have been out in the lobby beforehand, and if you have a question for a committee chair that would be appropriately answered by them, they are here to answer it. That's the way we decided to do it. On that basis, could we move on to the next question?
I didn't even ask my question.
Oh, that seemed like your question.
No-
No?
that was just a phrase.
Oh, okay. Well, please. Yeah.
The next point is, you, as the lady or the gentleman, answer some of my question with the thing. Why now they're putting up gas and electric, and our share don't go up, it coming down?
Okay, that's really the question, and we've actually, maybe we've only indirectly answered that with Andy's commentary. Andy, do you wanna talk about some of the factors that affect share price movement, please?
Yes, thank you for the question. I think there were, as I understood the question, a couple of elements to it. One was with commodity price, gas and electricity prices being higher, why isn't that feeding through? It goes right back to the role of National Grid. We are not exposed, and we do not benefit from changes in commodity price. When your gas or electricity costs go up, we are economically neutral to that, and therefore, you wouldn't expect our profits to change as a result. Therefore, we haven't benefited from that alongside some energy companies that have done. The other thing going on from a macro perspective is, I think the earlier question referred to it, interest rates have been going up.
Therefore, some investors, you know, certainly in the near term, will look at, you know, the return or the interest rate they can get on debt, which is up sort of around 5% or 6%, and that has always had an impact on utility stock prices, including National Grid's.
Thanks, Anthony.
Before you go on, I just wanted to point out we're really moving into the lunch hour. For those of you who are in the room and have a question, could you stop and consider whether or not the question is a unique question that's not been answered before? As I said, we will be out in the lobby, and I know there are some people who are probably getting to the point where they would like to get their lunch. Just wanna just offer that perspective. No offense meant here, please.
Gosh, I'm tail-end Charlie here. Stephen Maddrell, shareholder.
...
Sorry. All right. Excellent question from the lady over there with the pink scarf. Yes. Yeah, a few little bits and pieces here. First, I'm very interested in that fact that there's so much capacity to come onto the grid. Does that mean that all those guys who've been working 50 years at Culham with the fusion reactors, won't be needed anymore? Maybe Tony can answer that one. Moving on quickly, yes, I bought some of National Grid shares just before or just after the election, right? There was a good uplift when the Conservatives got in. I don't think they're going to do so well this time around, next year.
Well, how do you...
Sorry.
Talk about electoral.
Do you think if a Labour government got in, you would have problems and so would the shareholders regarding the value of their shares? The last one to Tony, because he's got the Culham question: How are you using AI? That's obviously favorite of the month, and for a company like this, obviously, you must be using it for interesting things. Maybe you could finish off with that. Thank you.
Thank you very much, Mr. Dawson. Let me just say that...
Mr. Maddrell.
Not Mr. Maddrell. I'm sorry. Sorry. Thank you. Got that one wrong. I apologize. We work with whatever government is in power, and we keep all government well informed about the issues. I think that when you actually look between the two governments, the two major parties, or even the three major parties, that you'll find that there's not tremendous differences of philosophy with respect to the move to the energy transition. We work with all of them, and I don't think that we stay up at night worrying as to who's gonna be in power, other than the fact that whoever's in power could stand to put some urgency around resolving some of these issues about how we get to net zero. With that, I'll turn the rest to you, JP.
Yeah, thank you for the question. I think there were two elements. One, just around the capacity. You're right, I mentioned about 300 gigawatts were interconnected to the system. In terms of technology, predominantly, that is offshore and onshore wind, storage, and particularly battery storage. There is some carbon capture and storage-type generation, which is typically gas, that then you capture the carbon on it, and nuclear. I'm not aware there is any connections in that 300 gigawatts that is around fusion.
It's a shame because you've been working on it for 50 years. It's just about 50 years now.
I know, and I think I've been in the industry.
Three electric
I've been in the industry 30 years, it's always been 10 years away, and it's still 10 years away, is when you talk to people.
Yeah.
In terms of AI, National Grid already uses AI in its control rooms, for example, in helping to optimize the system.
Mm.
At the moment, we're spending quite a bit of time looking at generative AI, which obviously is the new technology. You would have seen it in the press. We think it's got some really interesting applications going forward, so we're actually doing particularly the areas like our customer call center, where you've got millions of calls coming in to our U.S. call centers, to see how we manage those calls in a much more efficient way. Actually, across the organization, we've got a couple of test cases going on at the moment to explore how generative AI can be used going forward, and I'm sure you're going to hear a lot more about it as we go forward.
Even with designing the network?
Even with designing the network, yeah.
Thanks, John. We have one question, which has come in online. It's actually a question to me, but the shareholder has asked that I make a statement. Mr. Christopher Berber, it says: "On 11th of January 2023, your Group General Counsel wrote to me to say she was holding on to my 2022/23 interim dividend and also to my 2021/2022 final dividend and plans to hold on to my 2022/2023 final dividend as well. This is unacceptable, more so at a time of cost of living crisis. On 22nd of January 2014, the company wrote to me to say that if I did not respond, it would stop sending notice of company meetings. I did not respond, and it is bound by law to send these notices. If it doesn't, the meeting is void.
... at common law, a debtor must seek out his creditor and pay him. In a letter dated 18th of October 2022, the registrar claimed, "I feel it is important to advise that a dividend is not a debt. It is the distribution of reward from a portion of the company's earnings paid by the company to shareholders. The company has a contractual liability to pay the declared dividend, therefore, it is a debt." Yes, thank you, Mr. Berber, for your question. First of all, apologies that you didn't receive your notice of meeting in hard copy, or your dividend. We have moved to a lot of paperless communication with shareholders for sustainability reasons, for efficiency reasons.
We've also moved to checklist dividends. If that has prevented you from receiving your dividend, I apologize, and we will certainly sort that out with the registrar, and I'll speak to you. I have your shareholder reference number. Thank you very much for that. Just to confirm, however, the failure of one shareholder to receive the notice does not render the meeting void, you'll all be pleased to hear. I just want to confirm that for the record. Thank you. Next question is from Mr. Leon Bonney, also in the room. Mr. Bonney.
Mr. Dawson.
Oh, sorry, Mr. Dawson. Apologies.
Right.
Mr-
My name's John Dawson, right?
Got it this time, yep.
Now, I'm gonna ask a question about the dividends, 'cause I'm hoping to use the National Grid dividend to supplement my pension eventually. I wanted to know, does the company intend continuing with the DRIP system and increasing the dividends quite substantially every year? 'Cause I know what she's been saying, but our dividends are quite good, seeing in comparison to Centrica or Royal Mail. I hope you will be paying really good dividends, 'cause that's what I'm gonna depend on to supplement my pension. That's my question: Are you gonna continue with the DRIP system, and will you be having a policy of increasing the dividends every year going forward?
Well, as I think you know, the policy right now is an index dividend, but it's a policy that has to always be reconsidered in light of the company's financial condition and at any time. The board takes very seriously the fact that we are a premier dividend payer in the UK, and we take that very seriously, but, you know, we can't commit forever. We're very aware of our importance as a dividend payer and want to continue to operate the company in a way that makes the dividend sustainable. Beyond that, it's we have to consider it every single time we look at the dividend, whether it's time to keep that policy, change that policy, change the dividend, change the indexing, but we just take it very seriously every time we consider it.
An important bit in my question there that you've omitted: Are you gonna continue with the DRIP system? That means you get new shares instead of cash, 'cause I quite like that. That's a good way of increasing my shareholding with having, without having to pay a lot of money for them.
Well, again, it's a policy that we have, that we have to continue to look at it and how that affects our capital structure. duly noted that you find value in that.
Well, I do. I think it's a great thing-
Mm-hmm
'cause I've been working up until now, and I don't really need the cash, so I've been buying the new shares, and I think that's a wonderful thing. I hope you will continue with it. Just on that note, Corbyn was gonna renationalize National Grid or nationalize it. If there is a future Labour government, I hope and pray to God there won't be, but if there is, are they gonna nationalize National Grid?
I think we've actually already mentioned that we keep in touch with all government. We find that their energy policies are remarkably similar, and we work with all of them, and we don't really see nationalization on the horizon right now.
If Labour did win, you don't think... Thank you. Right, that's better.
Thank you, Mr. Dawson. Almost at the end of the questions. The next one is from Mr. Peter Brand, also in the room.
Hello, Peter Brand, oldest shareholder. On page 78 of your annual report, you mention investor events. Now, I know you've already alluded to this previously at this meeting, but, as a shareholder, can we please or for example, be invited to 1 of your operational centers? Now, I know you've got a security problem, and I appreciate that, but surely you can get over that and avoid that by having some sort of system in place, like for, airports operate and that type of thing. Could you please arrange for an operational meeting, please?
Thank you for the question, and it's something that we have declined to do for the reasons I described, but I appreciate your desire to see our facilities. I would encourage you to actually go online in the investor section of our website, where we have many presentations, many videos, where you can actually see various elements of our operation, I think feel, you know, quite encouraged by the quality, the excellence in what we do without having to see it firsthand. I'd really go to that investor section, that it's very rich with much material that includes footage of our operations.
Does that mean no physical meetings?
I think we're declining the opportunity to arrange individual investor physical meetings at our facilities for the reasons I mentioned.
... we have one final question from Mr. Peter Torry. Mr. Torry, you're standing between the room and lunch, so I hope you'll be patient.
Thank you. Thank you.
No pressure there, Mr. Torry.
Thank you. No pressure.
No, I promise.
Yeah.
Madam Chair, I knew you said Madam Chairlady. Madam, nice to be back again. It's basically, I'm gonna repeat what I said last year. First of all, you've given me Sorry. Peter Torry, individual shareholder from world-famous Hendon. It's taken me ages to get down here on the Northern Line, changing at Tottenham Court Road, all free. I must admit, I miss the trips to Birmingham, especially when it was Sir Peter, the chairman. We used to bounce off each other. It was so funny, I enjoy my trip up on the train, et cetera, et cetera. Never mind, this is convenient. What's your.
Change is good, Mr. Torry.
Sorry?
Change is good.
Exactly. You've given me a good springboard when you showed the video of people enjoying the benefits of National Grid, particularly the scene where there's the feet on the radiator, which is gonna be us in 6 months' time, in the middle of January. We do take life for granted without realizing. We come home from whatever we're doing, put the switch, the light comes on, we turn the tap, the water, we turn the central heating on, et cetera, et cetera. I don't believe any of this would work if there wasn't the National Grid. I'd like to, as with last year, and with your permission, I'll invite my fellow shareholders in a moment to join me in expressing our appreciation.
I must say, with regards to the board of directors going to the Sainsbury's shareholders on AGM on Friday, they were introduced, they all stood up, and they faced us so we could see who they were. They put their hands up. Oh, wasn't expecting that. It's no hardship to stand up, turn, and he would give us a wave, even a smile, right? Seriously, it's not a life-threatening thing.
No, you've given me a great suggestion for next year. I mean, I really kind of resist the big platform, but we will have directors with a badge on with their name, and they will turn around when they're introduced so that you can actually see their face relative to their picture. Actually, I can assure you that each one of them that I've been looking at is actually more handsome and younger-looking than they appear in the annual report.
It's the artificial intelligence that especially. Thank you. What I want to say is, in conclusion, please, all the work that you do as the board of directors running the company, all the unforeseen, the people we don't see behind the screen, the scene, that produce this electricity that we couldn't live without, please, if I may, I'd like to invite my fellow shareholders in joining me, and you'll pass on our sentiments in expressing our appreciation in a way that deems appropriate. Thank you.
Thank you.
Thank you. That was terrific.
Thanks, Mr. Torry. If there are no more questions, I'll now hand back to Paula, and we can bring the meeting... Oh, sorry, we have one more question.
Good afternoon, everyone. I just want to make a quick point. Some people, you hear it on the news and so forth, that they're blaming shareholders. I want to let them know that the cost of things are not the responsibility of the shareholders. The people must know that. Any company at all, they say, "Oh, they have to pay their shareholders," and all this sort of thing. Okay, they make a profit, and they pay their shareholders dividends, but they're not to blame the shareholders. I just want people to know that while we're here.
Thank you very much for the comment.
Thank you. I'm going to hand back to Paula in a moment, and then we'll bring the meeting to a close. Can I just remind you, voting will remain open for another 10 minutes, and it will close 10 minutes after the meeting has finished. Paula?
Thanks, Justine. Of course, this officially concludes the business of our meeting, and I therefore declare the AGM for 2023 closed. The final results of the voting will be available on our website and announced in the London and New York Stock Exchanges as soon as practicable. For those of you who had a handset, once you've placed your vote, return that handset as you leave the room. Takeaway lunches are available for all of the shareholders to enjoy on your journey home. Those of you who are online, you have to get your own lunch. Once you're ready to leave, please collect the lunch from the reception area. Give your wristband back. We recycle all the paper. Thank you for joining us today.
We really do appreciate your continued support, your input, your questions, for taking the time to be with us, and we'll see you next year.