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*[[Southern Union Company]] - Southern Union operate natural gas storage and transport services, and produces and refines [[natural gas]]; its utilities business operates in Missouri and Massachusetts. *[[Southern Union Company]] - Southern Union operate natural gas storage and transport services, and produces and refines [[natural gas]]; its utilities business operates in Missouri and Massachusetts.
-==References==+In the complicated world we live in, it's good to find simple solutonis.
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Revision as of 01:40, January 13, 2012

National Grid Transco (NYSE: NGG) is one of the largest utilities companies in the world. The company operates 4,300 miles of gas transmission pipelines, 93,800 miles of gas utilities infrastructure, and 71,000 circuit miles of electric utilities infrastructure. All of the company's operations are subject to rate regulations from the national governments of the United States and United Kingdom, as well as numerous U.S. state governments; this guarantees the company relatively steady income (averaged across its regulatory bodies, NGG's utilities companies earn a return on equity of 11%) but it also makes it difficult for National Grid to adjust when costs rise, as passing them on to consumers requires a lengthy lobbying process without the guarantee of success.

The Company owns electricity transmission networks in the United Kingdom and Wales, and operates the system across Great Britain. It also owns and operates high pressure gas transmission systems in the United Kingdom, and its distribution business delivers gas to 11 million homes and businesses. In the United States, National Grid delivers electricity to approximately 3.3 million customers in Massachusetts, New Hampshire, New York and Rhode Island, and manages the electricity network on Long Island. The Company is the distributor of natural gas in the northeastern United States, serving approximately 3.4 million customers in Massachusetts, New Hampshire, New York and Rhode Island.[1]

The company operates in 20 different regulatory regions, diluting the individual decisions of any one body in the company's larger revenue pool. National Grid is also looking to its aging infrastructure to spur earnings growth; as pipelines and cabling need to be replaced, the value of the company's assets will rise, bringing up the total value of the company's allowed returns with it. National Grid doesn't have any real competitors within its markets because the high cost of infrastructure for utilities companies means that the business creates natural, regional monopolies.

Company Overview

National Grid plc engages in the transmission and distribution of electricity and gas in the United Kingdom and the United States. The company owns and operates high-voltage electricity transmission systems in England and Wales, as well as high pressure gas transmission systems in Britain and electricity transmission systems in the northeastern United States. It offers its services to generators, distributors, suppliers, interconnector users, and directly-connected customers in the United Kingdom, as well as to other industrial, commercial, and domestic consumers.

Wait, I cannot fhatom it being so straightforward.

Business Segments

Transmission

The Company owns and operates the electricity transmission network in the United Kingdom, the gas transmission network in Great Britain, and electricity transmission networks in the northeastern United States. It is also responsible for the operation of the electricity transmission networks in Scotland. The transmission business operates in both United Kingdom and United States.

National Grid owns the electricity transmission system in England and Wales. The electricity assets comprise approximately 7,200 kilometers of overhead line, about 690 kilometers of underground cable and 337 substations at 241 sites. It owns the gas national transmission system in the United Kingdom. It comprises approximately 7,600 kilometers of high pressure pipe and 26 compressor stations, connecting to eight distribution networks and to third party independent systems for onward transportation of gas to the consumers.

It operates the gas national transmission system. The Company owns and operates the United Kingdom assets and a portion of the subsea cables, which comprises the electricity interconnector between the United Kingdom and France as part of a joint arrangement with the French transmission operator. It owns and operates four liquefied natural gas (LNG) storage facilities in the United Kingdom.

The Company owns and operates an electricity transmission network of approximately 13,800 kilometers spanning upstate New York, Massachusetts, Rhode Island, New Hampshire and Vermont. The United States electricity transmission facilities operate at voltages ranging from 69 kV to 345 kV, utilizing nearly 13,700 kilometers of overhead line, nearly 140 kilometers of underground cable and 524 substations.

It owns and operates a 224 kilometer direct current transmission line rated at 450 kV that is a key section of an interconnector between New England and Canada. It works with two independent system operators in New England and New York.

Gas Distribution

The Company owns and operates gas distribution systems in the United Kingdom and the northeastern United States. The Gas Distribution UK segment comprises four of the eight regional gas distribution networks in Great Britain. The networks comprise approximately 132,000 kilometers of gas distribution pipelines. It also transports gas on behalf of approximately 25 active gas shippers from the gas national transmission system to around 10.8 million consumers.

The Gas Distribution US segment comprises gas distribution networks providing services to around 3.5 million consumers across the north-eastern United States, located in service territories in upstate New York, New York City, Long Island, Massachusetts, New Hampshire and Rhode Island. The network of approximately 58,000 kilometers of gas pipelines covers an area of approximately 26,400 square kilometers.

Electricity Distribution & Generation

The Company, through electricity distribution networks serve approximately 3.4 million electricity customers over a network of approximately 116,700 circuit kilometers (72,500 miles) in New England and New York. The electricity distribution system spans upstate New York, Massachusetts, Rhode Island and New Hampshire, which, together with the system on Long Island owned by the Long Island Power Authority (LIPA), provides energy to homes, small businesses, and large commercial and industrial enterprises.

Non-regulated Businesses

The non-regulated businesses in the United Kingdom are metering services, property management, the LNG importation terminal on the Isle of Grain, and the construction and operation of an electricity interconnector between The Netherlands and the United Kingdom through the BritNed joint venture. The non-regulated businesses in the United States include LNG storage, LNG road transportation, unregulated transmission pipelines, United States gas fields and home energy services.

Trends and Forces

Government Regulation of Gas Distribution Gives the Company Little Control over its Margins

Utilities are regulated businesses in both the U.S. and the UK. In the U.S., the national government sets regulations for transmissions while state governments set rules for distribution; in the UK, the national government regulates both. U.S. rates are set based on an allowed return on equity; across National Grid's U.S. operations, its average return on equity allowed is 11%. British regulations are different; rates are set, and then allowed to rise in five year cycles. For transmission, rates are allowed to rise at the rate of inflation plus 4.4% through 2012; electricity distribution sees rate increases of inflation plus 5.5% through 2010 and gas distribution sees rate increases of inflation plus 4.9% through 2013. The increases above inflation are allowed to support the company's need for capital investments. For example, the 4.4% increase for transmission is meant to support £4.4 billion in investments.[2]

These rules are designed to ensure both profitability for the company and accessibility for the consumer, but often hold back utilities companies, like National Grid, from achieving potential revenues and profitability by preventing them from charging delivery rates that the level of demand would allow. Regulation can also cause the company's margins to be volatile, as lobbying the government is the only way the company can control its prices. Unfortunately, natural gas costs fluctuate rapidly, but it takes a long time for NGG's lobbyists to convince state and regional regulators to raise the price ceiling. For the most part, regulators will only raise rates if the company can show that something, whether rising costs or inflationary pressure, is causing their margins to shrink to unfair levels; sometimes, they even decide to lower rates. Fortunately for National Grid, the company operates in twenty different regulatory environments, greatly reducing the overall effect of any one negative regulatory decision on the company's revenues.

Old Transmission Infrastructures in Both the U.S. and UK Need Replacing

Electric and gas distribution in both the U.S. and UK are beginning to age. Old, fraying wiring and rusting pipelines are risky; on April 15th 2008, for example, National Grid announced it would perform studies on its pipelines in New York City, after numerous leaks, fires, and explosions occurred the weekend before.[3] Bad infrastructure can lead to consumer deaths, bad publicity, and angry regulators, so National Grid has incentive to spend the large amounts of money needed to repair, expand, and replace them. Furthermore, the company's old capital has had years to depreciate, decreasing the value of its rate base, and of its equity; by replacing the pipelines and cabling, the company increases the value of both, and thus increases the amount of money it is allowed to earn.

The Credit Crunch Makes Accessing Funds for Capital Investment More Difficult

Transmissions pipelines and distribution infrastructure are both expensive endeavors for companies to undertake, which is why transmissions companies are parts of natural oligopolies and utilities are natural monopolies. National Grid Transco will need to make a number of new and upgraded installations, especially given the age of its capital and the early 2008 press over gas leaks and explosions. Such capital expenditures can cost billion of dollars, too much for the company to finance even with the rate increases allowed by the British government, so the company will need to turn to capital markets for funding. The credit crunch, however, as well as a worldwide recession means that lenders are less willing to hand their money out, making it more difficult for NGG to secure the funds needed to finance its investments at low interest rates.

Competition

High infrastructure costs make NGG a monopolist utility in the regions it services, though government regulation keeps the company from exploiting customers with high prices.

Other American gas utilities include

  • AGL Resources - AGL Resources operates gas delivery services in Florida, Georgia, Maryland, New Jersey, Tennessee, and Virginia, and has close relationships with twelve different gas marketing companies.
  • Atmos Energy - Atmos operates in Texas, Kentucky, Louisiana, Mississippi, Colorado, Kansas, Tennessee, Georgia, Illinois, Iowa, Missouri, and Virginia. It is not only a gas utility but also a natural gas marketing, pipeline, and storage company.
  • Energen - Energen is an energy holding company that operates in businesses ranging from oil exploration and production to natural gas marketing and distribution. Its utilities business is the largest gas distributor in Alabama.
  • Equitable Resources - Equitable Resources is a vertically integrated natural gas company that operates from the upstream to natural gas distribution. Its gas utilities operate in Pennsylvania, West Virginia, and Kentucky.
  • ONEOK - ONEOK is a transport and distribution company that acts as a utility in Oklahoma, Kansas, and Texas.
  • National Fuel Gas Company - NFG is a diversified natural gas company that does exploration, production, transportation, marketing, and distribution of gas; its utilities segment operates in New York and Pennsylvania.
  • Sempra Energy - Sempra is a gas and electric utilities company in California.
  • Southern Union Company - Southern Union operate natural gas storage and transport services, and produces and refines natural gas; its utilities business operates in Missouri and Massachusetts.

In the complicated world we live in, it's good to find simple solutonis.

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