National Grid to be spared from break-up
UK power group will be ordered to put in place stricter controls to prevent conflicts of interest
Ministers have backed away from threats to break up National Grid, the FTSE 100 power group, which instead will be ordered to put in place stricter Chinese walls to prevent conflicts of interest in its role operating Britain’s electricity system.
New independent directors will be appointed to a separate board overseeing system operations under a compromise deal to be announced in coming weeks, according to officials briefed on the matter.
However, the operating unit, which has responsibility for balancing supply and demand in the UK electricity network, will remain part of National Grid in defiance of calls from MPs for a split.
A report by the Commons energy committee warned in June that conflicts between the company’s roles as owner and operator of the network were “intractable and growing”.
MPs said National Grid could be influenced by its own commercial interests when deciding where to source power or when advising the government on investment in new energy infrastructure.
But the company has persuaded ministers and Ofgem, the energy regulator, that it would be a mistake to remove its operating role at a time of upheaval in the electricity system, as coal-fired power is replaced with cleaner technologies.
In an interview with the Financial Times, John Pettigrew, National Grid chief executive, declined to comment on the progress of talks with the government over the operator role. But he said he would welcome a decision that kept system operations within the company while making the role more independent.
“Putting in additional controls makes a lot of sense but I’m not convinced that creating a separate system would be beneficial to customers,” he said. “It would be hugely disruptive at a time when security of supply is critical and we need inward investment.”
National Grid makes most of its UK revenues from charging utilities for access to its high-voltage transmission network; its operations role gives it day-to-day control of the system and an influential voice in government energy policy.
The review of these roles comes as Britain heads into winter, the period of highest energy demand, facing tight supply marginsafter the closure of several coal-fired power plants. Mr Pettigrew said National Grid’s expertise was needed to keep power flowing.
Separation of system operations was mooted last year by Amber Rudd, then-energy secretary, who said there was a “strong case for greater independence”.
Concern about conflicts of interest has focused on National Grid’s interconnector business, which imports electricity from France and is building a further link with Norway. This potentially puts it in competition with domestic sources of power generation vying for access to the transmission system.
When the energy committee published its report urging a break-up in June, Angus MacNeil, the SNP MP who then chaired the panel, pointed to the success of the independent operator model in the US. “It is time for it to be brought to these shores,” he said.
Mark Fitch, an energy infrastructure expert at PA Consulting, said a compromise short of full separation looked the right decision for now, but he forecast further scrutiny in years ahead as the shift from big thermal power stations to more decentralised energy becomes clear, changing how electricity is produced and distributed.
The Department for Business, Energy & Industrial Strategy said: “British homes and businesses deserve a secure, flexible and affordable independent energy supply. The government works closely with National Grid and Ofgem to continually review and reform our electricity system and protect the interests of customers.”