YOUR MONEY: Plugged into the National Grid

Regional electricity companies will post new share certificates to up to 2 million people in the coming weeks. Steve Lodge reports

UP TO 2 million people will tomorrow become shareholders in the National Grid, a new quoted electricity group in an industry that in recent months has been all about takeovers reducing the number of companies.

The good news is that Grid shares do not require the recipients to stump up any cash, that small savers will be able to sell them free of charges, and that all of us - even non-shareholders - will get a pounds 50 windfall discount on our electricity bills next year as part of the deal.

The bad news is this is no privatisation bonanza, even though the Grid was once a nationalised entity. Do not expect big gains in the short term on the launch price, likely to be around 208p. And for those getting Grid shares, their value will be offset by falls in the price of their shares in the regional electricity companies, called RECs. The few hundred Grid shares that REC investors might typically get are no instant windfall: their value comes directly out of their original REC shareholdings.

Shareholders in seven of the 12 regional electricity companies - named in the table - get the Grid shares. Shareholders in Southern Electric may also get shares - a decision should be made in January. But the four other RECs - Norweb, Manweb, Eastern and South Western - will not be handing out Grid shares. And investors in PowerGen, National Power and the Scottish and Northern Irish electricity companies get nothing.

One reason for the lack of noise about tomorrow's flotation is that it does not involve a privatisation-style sale of shares to the public. The National Grid, which is responsible for high-voltage electricity transmission in England and Wales - is already owned by the RECs. They are simply "demerging" it - hiving it off as a separate company either by giving their investors shares or, if not, selling their holdings in the stock market at a later date.

Many of the 2 million beneficiaries could be forgiven for not being aware of much of this. In the words of one stockbroker, the pounds 3.5bn flotation has been "badly publicised". Most people due to receive shares should have had some notification from their REC. But the broker says: "The information is the most confusing I've seen for a long time."

Here then are some pointers:

q Official dealings in National Grid shares start tomorrow. But small shareholders should think twice before selling immediately. The Grid share certificates will go out on or around 18 December, along with a free selling offer run by Lloyds Bank registrars for the Grid. This is a postal service that requires you to send in your certificate with the sell order. The free offer only covers sales of holdings of 500 shares or less and will be available until 31 January.

Alternatively, investors can sell their holdings this week before they receive their share certificates through a stockbroker. But this will cost, and investors will be expected to have sent their share certificates in by 22 December, according to Trevor Smith, private client director at stockbroker Waters Lunniss. Note that the Christmas post may mean you miss this deadline - potentially incurring additional costs - and that many of the cheapest selling offers require the certificates up front.

q With the Grid offering a yield - in effect its annual income - of 6 per cent-plus of the price, the shares may seem attractive. Fraser McLaren, electricity analyst at stockbroker Greig Middleton, says other positives include the potential for further cost-cutting and buying from big investors supporting the price. But having been in the private sector since the RECs were sold off in 1990, the Grid has already undergone much cost- cutting. Negatives for the future include political and regulatory worries - the Grid is facing a price review - and the fact that the companies not handing out their Grid shares have to sell them in the stock market over the next year, which will offset big investors buying.

q The actual number of Grid shares you will receive and the effect on the share prices of the seven RECs handing them out will vary a lot, as our table shows. The numbers vary in part because the RECs held different stakes in the Grid. The figures for the effect on the share prices are based on a Grid price of 208p, which was the price at the end of trading last week in advance of joining the stock market officially.

The greater the allocation level, the greater the value of Grid shares to each REC share - and the greater the expected fall in the price of the REC. So do not feel cheated if, say, you hold Seeboard, which is only giving 48 Grid shares for every 100 Seeboard shares held. You may get fewer Grid shares, but your Seeboard shares will fall less. Equally, those who have been investors in the four RECs not handing out Grid shares - all of which have in effect been taken over - should not feel they are missing out. The prices paid for their shares have included the value of their Grid holdings.

q The Grid shares will be treated like a dividend in tax terms - paid net of basic-rate tax. So basic-rate taxpayers will be square, but higher- rate taxpayers will owe another 25 per cent of the value of the shares, which they should declare in their annual tax return. The value of the Grid shares will be the closing price in the stock market on Monday, according to Mr Smith. When you sell your shares, any gains from this Monday price will only be subject to further tax if you fall within the capital gains tax net.

q If you hold your REC shares in a tax-free personal equity plan, the Grid shares should be automatically paid into that PEP, says Matthew Orr of stockbroker Killik & Co. You will also benefit from a 25 per cent boost to their value from the PEP manager claiming back tax that is deemed to have been deducted already - called the tax credit. (Non-taxpayers will also be able to claim this extra 25 per cent.) But Mr Orr warns that if you hold your REC shares in a single-company PEP, while you will still be able to benefit from the tax credit, you will then be required by the Revenue to remove the Grid shares from your plan. Your PEP manager should be able to explain all this and any costs in greater detail.

UNLOCKING THE GRID

Electricity Grid shares per Value of Grid shares

company (REC) 100 REC shares per REC share/

possible fall in

REC share price*

Northern 107 223p

South Wales 91 190p

London 85 177p

Midlands 80 168p

Yorkshire 75 157p

East Midlands 71 148p

Seeboard 48 100p

* Based on National Grid share price of 208p

Suggested Topics
PROMOTED VIDEO
News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
News
Lane Del Rey performing on the Pyramid Stage at Glastonbury 2014
people... but none of them helped me get a record deal, insists Lana Del Rey
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
News
i100
Arts and Entertainment
British author Howard Jacobson has been long-listed for the Man Booker Prize
books
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
tech
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Sport
Louis van Gaal watches over Nani
transfers
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Business Analyst - Banking - Scotland - £380-£480

£380 - £480 per day: Orgtel: Business Analyst - Banking - Edinburgh - £380 - ...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn