National Grid ready to spend pounds 1bn on distributing in US

NATIONAL GRID is preparing for a major expansion into the US market through the pounds 1bn-plus acquisition of an electricity transmission and distribution business.

The company, which was floated three years ago, also indicated that it would be interested in buying a UK electricity distribution business provided it could strike a deal that was in shareholders' interests.

David Jones, chief executive of the Grid, said that it was studying several opportunities in the US and aimed to announce a deal before the end of this year.

Any US bid would be financed through the pounds 460m bond issue the Grid undertook earlier this year and debt. Mr Jones ruled out any further disposal of its shareholding in the telecoms group Energis to fund the expansion programme.

The Grid's 74 per cent stake in Energis is now worth pounds 1.9bn compared with pounds 600m when the business was floated in December.

The Grid's interest in a transatlantic deal means that it joins PowerGen and Scottish Power, in looking to buy a US electricity business. But both generators have run into obstacles because of the high valuations placed on US power companies compared with their UK counterparts.

Mr Jones declined to say which parts of the US the Grid was looking in but he said it would like to make an acquisition in an area where there was scope for growth. Unlike in the UK, which has a single, intergrated electricity transmission grid, the US divides up transmission state by state and in some states, supplier by supplier.

Mr Jones said that despite the high valuations of US electricity utilities, an acquisition could be made to work financially because of the scope for cost-cutting.

The Grid cut its controllable costs by 14 per cent last year from pounds 260m to pounds 232m and in the last six years has reduced them by almost a half.

The reduction in costs helped to offset the effect of new price controls, which resulted in a 21 per cent decline in pre-tax profits last year to pounds 468m.

The Grid's efficiency drive is ahead of target with more than half the 750 jobs it is planning to shed by 2001 already achieved. It has also squeezed transmission service costs - such as standby payments to the generators - from pounds 570m to pounds 270m.

Mr Jones said the acquisition of a UK distribution business was something the Grid would look at once the Government introduced legislation to separate distribution from the supply businesses of the regional electricity companies, now largely in the hand of US utilities. But he said the Grid was only likely to proceed if it could buy a distribution business for less than one of the American utilities had paid for it.

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