National Grid PLC

LSE:NG

Earnings Call Analysis

Key Points from Earnings Call

Operating profit dropped 14% to GBP 1.8 billion, while underlying EPS met expectations at GBP 23.8, with full-year guidance unchanged. The company will increase its investment in decarbonization, raising capital expenditure targets to GBP 42 billion, and integrates electricity distribution, achieving GBP 100 million in synergies. An interim dividend of 19.4p per share, representing 35% of the prior full-year dividend, was announced. Performance reliability remains robust with plans to increase grid capacity by 10 gigawatts and complete key infrastructure projects by 2026. The company reconfirms its EPS guidance for FY'24.

National Grid Six-Month Performance and Strategic Developments

Under the helm of CEO John Pettigrew, National Grid has had an eventful six months, marked by noteworthy financial performance and advances in strategic initiatives. The company's concerted efforts to shape government policies contributing to an energy transition ecosystem were fruitful, achieving significant headway in streamlining Electricity Transmission investments and obtaining pivotal legislative support in the UK.

Revised Five-Year Financial Frame

National Grid's updated investment forecast shows a rise to approximately £42 billion from April 2021 through March 2026, an increase from previous predictions. This amplification primarily backs the decarbonization of energy infrastructures and is estimated to modestly boost asset growth and underlying earnings per share, keeping within earlier specified ranges.

First Half Operating Profits and Dividend Declaration

The underlying operating profit saw a 14% decrease at constant currency, totaling £1.8 billion, attributed to the absence of prior year one-offs. However, the consistent underlying business performance complemented by notable investments promises alignment with full-year guidance. Moreover, a 35%-equivalent interim dividend of the prior year's full category has been declared as part of the dividend policy.

Boost in UK Electricity Distribution and Transmission

National Grid's UK division has witnessed a strong start to the new ED2 price control period, catalyzing over 40,000 domestic connections of low-carbon technologies. Capital investment in the UK Electricity Transmission scaled up to a record £800 billion, evidencing a 27% surge from the previous year, underscoring the capacity to integrate massive renewable projects such as the world's largest offshore wind farm, Dogger Bank.

Enhanced Investment in New York and New England

Investment in New York was marked by a 5% rise, channeling efforts into substantial transmission projects and progressive regulatory strides backed by broad support for increased investment geared towards state's 2050 net zero goal. New England also scored regulatory victories with approved annual rate adjustments for Massachusetts Electric and Gas, with heightened capital investment in electrical distribution and grid modernization efforts.

National Grid Ventures and Renewable Energy Achievements

The company's Ventures division delivered an underlying operating profit of £278 million and continued investment in energy interconnectors and renewables infrastructure, including the imminent completion of the Viking Link to Denmark. The operational commencement of Ohio's Yellow Bud solar project has elevated National Grid's renewable footprint to a 1.3-gigawatt operating capacity, with further projects under construction.

Continuity and Adjustments in Financial Goals

Despite some fluctuations, the company has maintained a solid financial outlook with a consistent capital investment program. The investment increase has been predominantly directed towards higher connection spend, with a strong half-year performance buttressed by indexation of allowed revenues and nonrepeat cost events from previous years.

Safety Commitment and Incident Response

National Grid demonstrated an improved lost time injury frequency rate, albeit with the tragic loss of a UK electricity distribution colleague. The incident has led to a concentrated effort to circulate lessons learned throughout the organization, reinforcing the company's commitment to safety.

Outlook for Continued Growth and Operational Excellence

As National Grid moves forward into the remainder of the year, Pettigrew underscored the company's preparedness to confront forthcoming challenges and seize the opportunities presented by the global energy transition and pertinent policy reforms.

Earnings Call Transcript 2024-Q2

[Nicholas Ashworth, executive]

Good morning, and welcome to National Grid's Half Year Results Presentation. I'm Nick Ashworth, Head of Investor Relations, and it's great to have so many of you on the call today. Firstly, please can I draw your attention to the cautionary statement at the front of the pack. As usual, a Q&A with John and Andy will follow the presentation, please join via the conference call to ask a question. All of today's materials are available on our website. And of course, for any further queries after the call, please do feel free to reach out to me or one of the IR team. So with that, I'd now like to hand you over to our CEO, John Pettigrew. John?

[John Pettigrew, executive]

Thank you, Nick. Good morning, everyone, and welcome to the call. As usual, I'm Heith Andy Agg, our CFO. And following our respective presentations, we'll be very happy to take your questions. It's been a busy 6 months for National Grid with solid progress, both in terms of financial performance and delivering against our strategic priorities. The energy transition remains a fundamental priority for governments around the world and at the core of National Grid's strategy. But you only need to look at the recent headlines to see a growing awareness of the practical challenges associated with delivering it. The way that decarbonization goals are met could have real implications on the affordability, reliability and security of energy. So we've continued to proactively engage with governments and regulators to push for faster progress on the reforms needed to provide a stable, predictable and investable environment to deliver net 0, and I'm pleased with the significant progress we've made in the first half. 6 months ago, we settled 5 priority areas for policy reform in the U.K., and we've seen positive progress for each. In Electricity Transmission, we are stepping up our investment with the 17 major projects awarded to us as part of the accelerated strategic transmission investment or ASD framework now included in our license. And in September, the Prime Minister's speech on the government's approach to net-zero, whilst delaying near-term bands on combustion engines and gas boilers, actually endorsed many of the policies we've been advocating for, including a strategic special energy plan that gives certainty to what needs to be built, where and when, fast-track planning processes for nationally significant projects and a new connector move approach to grid connections. We've also seen significant progress in the U.S., where we've submitted proposals in Massachusetts for the investments needed to support the Stage 2050 decarbonization goals. We've received approval to take forward our Propel New York Energy Transmission project with New York Transco, which will support offshore wind coming into the state. And there's been a step forward with the Twin States Clean Energy Link project, which will connect Canadian hydropower to New England, with it being selected by the Department of Energy for federal funding. And last month, our community offshore wind joint venture was successful in the most recent New York offshore wind solicitation with a provisional offtake award of 1.3 gigawatts. So clearly, the last 6 months show that we're now firmly in a new phase of capital delivery for the energy transition. And as a result, today, we've updated our 5-year financial frame. Between April 2021 and March 2026, we now expect to invest around GBP 42 billion, up from our previous guidance of GBP 40 billion and increasing our investment in the decarbonization of energy systems. This will modestly enhance both our asset growth and underlying earnings per share growth within the existing ranges. And as we enter this exciting new phase of strong capital delivery, we'll continue to play our part in mitigating the affordability challenge across our customer base, having now exceeded our GBP 400 million cost efficiency target 6 months early.So turning to our financial performance. On an underlying basis, that is excluding the impact of timing and exceptional items. Operating profit from continuing operations was GBP 1.8 billion in the first half, down 14% compared to the prior year at constant currency. The underlying business has performed well in the first half with the prior year helped by a number of one-offs as we completed transactions. Underlying earnings per share was broadly in line with expectations at GBP 23.8 with no change to our full year guidance. Our regulated businesses delivered a record GBP 3.5 billion of investment, up 10% year-on-year at constant currency. While capital investment for our continuing operations was GBP 3.9 billion. And in line with our policy, the Board has declared an interim dividend of 19.4p per share, reflecting 35% of last year's full year dividend. Turning next to our reliability and safety performance. Firstly, on reliability, which has remained strong across our U.K. and U.S. networks. In the U.K., many of you will have seen the winter outlook report published by the electricity system operator at the end of September. This year, the ESO's forecast an electricity capacity margin of 7.4%, slightly higher than last year's and broadly in line with recent winters. However, the ISO expects there will be some days when we'll need to utilize tools such as system notices. And following its successful pilot last year, the demand flexibility service, which incentivizes customers to reduce consumption during periods when margins are tight. We are confident in delivering our usual high standard reliability across our networks in the months ahead and remain vigilant as we move through winter in both the U.K. and the U.S. Moving to safety. Our lost time injury frequency rate was 0.09 compared to 0.11 last year and against a group target of 0.1. But tragically, one of our U.K. electricity distribution colleagues lost his life when he fell from height at a site in Ludlow in August. As you'd expect, this has been deeply felt right across the group, and we are focused as a leadership team on making sure that the lessons learned from this tragedy are shared across the organization.Moving now to our operating performance across the group and starting with the U.K. electricity distribution. We've had a good start in the new ED2 price control with capital investment in the first half reaching GBP 608 million, up 4% on the prior period, primarily reflecting higher spend on new customer connections, including the Hinkley Point nuclear connection. In July, we hosted our first investor event since acquiring WPD, where we set out our plans to deliver the RIIO-ED2 price control, including a 30% step-up in annual investment from ED1 to ED2. -- or we intend to deliver our target 100 to 125 basis points of outperformance with a focus on totex efficiency. And our progress in integrating electricity distribution into the group, including identifying GBP 100 million in synergies to be delivered over the next 3 years. In the first half, we also enabled more than 40,000 domestic connections of low-carbon technologies such as solar panels, EV charge points, batteries and heat pumps. And in the face of the huge surge in demand for connections to our network, in September, we announced a plan of action, which will release 10 gigawatts of incremental grid capacity to accelerate the connection of renewable generation assets. Moving to our U.K. Electricity Transmission business. Capital investment was a record GBP 800 billion in the first half, a 27% increase versus the prior year. This increased investment, including nearly 3 gigawatts and new connections in the period, including the world's largest offshore wind farm, DogaBank in Yorkshire and the Lark green solar project near Bristol, the first of its kind to be connected directly to the U.K. transmission network. We've also achieved 2 important milestones in the first half with the completion of tunnel boring at our London power tunnels, the project, which will future-proof the network for growing electricity demand in the capital remains on track for completion in 2026. And the completion of all 116 tea pylons on our Hinkley Connection project, which will provide low carbon energy to 6 million homes and businesses. We've also made significant progress in standing up our new strategic infrastructure organization, a business unit that will deliver our Asti projects with 320 people now working within the division. As the map shows, we are continuing the detailed engineering work for the 12 onshore and 5 offshore projects that we've agreed to progress so far with Ofgem and which are now in our electricity transmission license. In particular, in the period, we've selected the preferred suppliers for HVDC cable and converter stations on the Eastern Greenlink 1 and 2 projects and received all planning consents on the English side of the links. We've launched our engagement with the global supply chain to select enterprise partners for 9 of the 12 onshore projects within Asti, and we've made good progress in consenting the Orkard Green and Branford to Twinsted lines. As we continue to progress engineering works, the profile of  investment will become clearer with our expectation of around GBP 3 billion of CapEx on these projects as part of our financial frame to 2026, and including inflation, our current CapEx estimate is mid- to high teens across the 17 projects.In New York, capital investment of GBP 1.3 billion was 5% higher at constant currency. This was driven by continued work on the FERC-regulated SmartPath Connect project where we're rebuilding 110 miles of transmission lines in Upstate New York to enable larger scale renewable generation to connect and higher levels of leak-prone pipe replacement with 148 miles replaced in the first half, continuing to reduce methanemissions from our network. We've also continued to progress work on new transmission projects approved last year under the Climate Leadership and Community Protection Act. In total, we'll invest around $2.9 billion in projects that will enable incremental renewable generation capacity in the state. And we've also seen strong regulatory progress. At the beginning of September, the Public Services Commission staff responded to our rate filing for our downstate gas businesses, KEDNY and KEDLI. We're pleased to see broad support from the staff and our submission, including the need for increased investment and anticipate reaching a joint proposal early next year for new rates effective from April. Moving to our New England business, where we've also had a busy regulatory period. In September, we submitted our electric sector modernization plan, which sets out a road map for our network to help achieve the Stage 2050 net 0 goal. Within it, we've outlined the critical investments needed across our network over the coming decades, including proposing investment of around $2 billion over the next 5 years. In September, the regulator also approved annual rate adjustments for Massachusetts Electric of $67 million and for Massachusetts Gas of $57 million. These new rates became effective at the beginning of October. Capital investment in the first half was GBP 789 million. This was 9% higher than the prior period at constant currency and excluding the Rhode Island business, which we sold last year. This was driven by increased spend in electric distribution with higher customer connection requests and further investment in grid modernization. In the first half, we completed upgrades to the Tsp substation under the competitively awarded FERC 1000 process. These upgrades are a cost-effective solution to ensure grid reliability with an expected 2 gigawatts of fossil fuel generation in the Greater Boston area is retired next year.Finally, moving to National Grid Ventures, where capital investment totaled GBP 326 million and included continued investment on the Phase I expansion of our Eslegreen LNG facility and our Viking Link interconnector with the final sections of cable now laid and joined. Investment in the first half was GBP 205 million lower than the prior period at constant currency, following the completion of the selling converter station rebuild last year. With construction activity on our vacant linked to Denmark, no nearing completion. The project is moving into commissioning. We expect the 1.4-gigawatt interconnected to be online by the end of December, bringing the operating capacity of our interconnector portfolio to 7.8 gigawatts. In October, National Grid Renewables started operations of the 274 megawatt yellow bud solar project in Ohio. This takes the total renewable operating capacity to 1.3 gigawatts with a further 800 megawatts under construction. So with that overview of operational performance in the first half, let me now hand over to Andy to take you through the financials before I come back and talk about our priorities for the rest of the year. Andy?

[Andrew Agg, executive]

Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results excluding timing and exceptional items and the door results are provided at constant exchange rates and less specified. We continue to report our 40% remaining stake within U.K. Gas Transmission now National Gas as a discontinued operation following the agreement to set a further 20% interest to the Macquarie-led consortium and the option allowing them to acquire the remaining interest. As such, all earnings from this business have been excluded from the underlying earnings of the continuing group. So turning to our half year performance. We're pleased with the operating and financial results achieved with underlying operating profit on a continuing basis at GBP 1.8 billion, in line with expectations. The prior period was helped by certain one-off items, namely St William Property sales, 2 months contribution from NECO, our Rhode Island business that was sold to PPL and insurance proceeds received at our IP-1 interconnector following the fire in September 2021. In aggregate, these 3 items totaled over GBP 320 million and were the main reasons for the lower year-over-year performance. Key contributors to operating profit for this period were higher revenues across our regulated businesses as a result of indexation in the U.K. and increases in rates across our U.S. businesses. Our NSL interconnectors Norway receiving an upward cap adjustment following its post-construction review as well as a nonrepeat of the prior year Western Link settlement. In addition, we achieved a further GBP 53 million of efficiency savings in the half, taking our total to GBP 426 million ahead of our GBP 400 million target 6 months early. We will continue to drive efficiencies and expect a similar performance in the second half as we complete this program. With net interest charges remaining broadly flat, underlying earnings per share, therefore, followed operating profit and 23.8P per share was 27% lower than the prior year. Whilst underlying EPS was more weighted to the first half in the prior year than historically, we see this year reverting back to our long-term trend, where broadly, just under 2/3 of earnings are delivered in the second half. Turning now to our capital program, where we continue to make strong progress. Capital investment across our regulated networks at GBP 3.5 billion was another record level and up 10% year-over-year. Overall, capital investment from continuing operations was GBP 3.9 billion. This increase has been driven by higher connection spend and early investments relating to our new Asti projects in our U.K. electricity transmission business. Grid modernization work in Massachusetts and a step-up in our investments in the SmartPath Connect transmission project in Upstate New York. In line with our policy, the Board has declared an interim dividend of 19.4p per share, representing 35% of last year's total. Scrip uptake in the summer on the full year dividend was 4% and will again be offering the scrip option at the half year.Now let me take you through the performance of each of our business segments. Starting with U.K. electricity distribution. Underlying operating profit was GBP 563 million, down GBP 16 million versus the prior year. Revenues benefited from indexation of the RAV. However, this was more than offset by lower incentive revenues as expected at the start of the new ED2 period and profit from the sale of its smart metering business in the prior period. As we set out at our investor event in July, we expect to deliver operational outperformance of 100 to 125 basis points across the ED2 price control. This will largely be driven through totex efficiencies, strengthened by synergies following the acquisition. To date, we've delivered GBP 18 million of our GBP 100 million 3-year group synergy target, so far mainly procurement enabled, for example, through the adoption of lower-cost cabling designs taken from transmission. Capital investment increased to GBP 608 million for the half year, an increase of GBP 24 million compared to the prior period, primarily driven by higher spend on asset replacement and connections. This includes the GBP 65 million Hinkley Point Electricity Distribution Connection Link, which remains on track to complete in 2024. Moving to U.K. electricity transmission, where underlying operating profit was GBP 656 million, up GBP 92 million compared with the prior period. Strong first half performance was driven by higher allowed revenues given indexation as well as nonrecurrence of the GBP 69 million returned in the prior period relating to Western Link. Capital investment was GBP 800 million, 27% higher than the prior period. This is partly driven by work in our RIIO-T2 projects, including system resilience, asset health and new connections work as well as significant progress on our major capital projects. We've also seen a step-up in investment on our Asti projects in the half, notably driven by our offshore projects, Eastern Green link 1 and 2, where we've signed joint venture agreements with Scottish Power and SSE and selected the preferred suppliers for HVDC cable and converter stations. For our onshore Asti projects, we've launched our great grid upgrade partnership tender to source enterprise delivery partners and secure the supply chain that will help deliver these projects. We plan to award contracts in 2024. However, given the need to pace with our Yorkshire Green project, we have already signed contracts for overhead lines and substation work. Finally, in the U.K., the electricity system operator saw underlying operating profit down GBP 18 million in the period to GBP 34 million. Following the passing of the Energy Act to 2023 at the end of October, the business has been classified as held for sale.Moving now to the U.S., where underlying operating profit for New York was GBP 119 million, GBP 76 million lower than the prior year. Higher net revenue driven by increases in rates and continued delivery of its cost efficiency program were more than offset by higher depreciation given increasing investment levels, higher recoverable bad debts given the cessation of the state's bill relief program and a pension buyout gain occurring in the prior period. Capital investment was GBP 1.3 billion. This was GBP 62 million higher than the prior year. helped by a step up in investments in the $550 million SmartPath Connect transmission project in Upstate New York and increased investments in our gas distribution networks as we continue progress on our leaf replacement program. However, the prior period included noncash lease additions, including the Voni Marci transmission line lease, excluding this impact, capital investment was up nearly GBP 200 million. Turning to New England. Underlying operating profit was GBP 218 million, GBP 33 million lower than the prior period, excluding the impact of Rhode Island. Higher rates in Massachusetts gas driven by its capital tracker and in Massachusetts Electric driven through its annual performance-based rate mechanism were offset by higher recoverable storm costs and higher recoverable bad debts following an increase in commodity prices. Capital investment was GBP 789 million, GBP 64 million higher than prior year, again, excluding the impact of Rhode Island. This was driven by grid modernization investments in our electricity distribution networks and increased asset condition work across our New England Power transmission assets. Moving to National Grid Ventures. We continued to see good performance, delivering underlying operating profit of GBP 278 million, including joint ventures. This was helped by solid interconnect performance, notably on our NSL Interconnector and good performance at the Isle of Grain LNG facility. The decrease compared to the prior year of GBP 51 million can primarily be attributed to receipt of in insurance proceeds in the prior year as well as a change in the phasing of onshore renewables projects, where we now expect a higher proportion of sales into our joint venture in the second half. Capital investment across National Grid Ventures was GBP 326 million, driven by continued progress on the Viking Limpo Denmark as we near completion of our SIC interconnector and investment in our Grain LNG expansion project with the new tanks construction work nearing completion. Investment was lower by GBP 205 million as the prior year included the majority of the IFI converter station rebuild spend as well as peak investment at Viking and the Isle of Grain. Our other activities reported an operating loss of GBP 13 million versus a GBP 145 million profit in the prior period. This is principally driven by property sales completing last year, predominantly as part of the St William transaction. Capital investment was GBP 13 million. Turning to finance costs and tax. Net finance costs was GBP 711 million, down GBP 10 million. Lower inflation on index-linked debt and lower bridge financing costs were partially offset by the impact of higher interest rates. The underlying effective tax rate before joint ventures was 24.7%, 500 basis points higher than prior year due to the increase in the U.K. corporate tax rate from 19% to 25% and the change in profit mix given higher property sales in the prior year. For the full year, the underlying effective tax rate, excluding the share of joint venture post-tax profits, is expected to be around 26%. Underlying earnings were GBP 875 million with EPS at 23.8.Moving now to cash flow. Cash generated from continuing operations was GBP 3.1 billion, up 30% compared to the prior year. This increase is principally driven by favorable U.K. timing at the electricity system operator, partially offset by lower underlying operating profit compared to the prior year. Net cash outflow in the period amounted to GBP 2.6 billion, a reduction on the prior year as higher cash flows from operations were only partially offset by higher levels of cash dividend given a lower scrip uptake. As such, net debt increased by GBP 2.9 billion to GBP 43.9 billion compared to the prior year-end. For the full year, we expect net debt to increase by just over GBP 0.5 billion from the September level at a USD 1.2 exchange rate, including the GBP 700 million expected receipt of proceeds from the sale of 20% in national gas to the Macquarie-led consortium. As we announced this morning, we have updated our 5-year financial frame with group capital investment for the 2021 to 2026 period, now expected to be around GBP 42 billion, up from our previous guidance of up to GBP 40 billion. We expect this increased investment to be modestly enhancing to assets and EPS growth. We are committed to our strong investment-grade credit rating and expect to deliver this growth whilst maintaining our group gearing guidance with regulatory gearing to remain in the low 70% range for the period. This increase in investment is being driven by our ASTI projects, where we now expect to spend around GBP 3 billion, up from our prior GBP 1 billion guidance, which now leads to investment across electricity transmission of around GBP 11 billion, up from GBP 9 billion previously. The ASTI increase is driven primarily by progress we have made on 4 projects: Eastern Green, Link 1 and 2, YorkshirGreen and Branford to Twinster, with 17 ASTI projects now in our license and as we progress detailed engineering work, this is improving clarity around the scope of these investments. Reflecting this, our current best estimate for total investment in these projects is in the mid- to high teens billions of pounds range. Finally, and as usual, alongside updating our 5-year financial framework to 2026, we have also updated our more detailed forward guidance for this full year, which now includes the electricity system operator being held for sale. Excluding the accounting benefit of ceasing depreciation for the ESO, our overall guidance for underlying EPS for FY '24 remains the same as we set out in May. With that, I'll hand you back to John.

[John Pettigrew, executive]

Thank you, Andy. I want to finish by spending a few minutes on our priorities for the second half of this year, starting with the U.K. As I mentioned earlier, I'm encouraged by the progress we're seeing from government and Ofgem in response to our call for a greater urgency, both in terms of action and mindset. The Energy Act has now become law and will establish a new future system operator, introduce onshore competition for networks and implement a net zero duty for Ofgem. We've also seen consultations on national policy statements on community benefits on the nationally significant infrastructure projects process and on market reform. And Nick Winser, the Electricity Networks Commissioner has set out his recommendations for fundamental reforms to the planning system and the creation of a strategic special energy plan endorsed by the Prime Minister and his net zero speech. We've got an exciting few months ahead. We've seen good progress in the first half, and we'll continue to push for more in the coming months as we look to see consultations and announcements from government translated into real decisions and policy reform. Nowhere is the need for change more apparent than in the connections process, and the forthcoming connections action plan from government and Ofgem is a critical opportunity to move from the current first-come-first-serve approach to a connector move model and stop so-called Zombie projects from block in the queue. In the meantime, we are creating new solutions in electricity transmission to address this challenge. This includes evolving the way we coordinate with DNOs and how we treat storage. These changes will deliver 40 gigawatts of network capacity for projects that are ready to connect. We'll divee into the topic of connections in our next grid guide 2 series for investors in early 2024. Alongside connections, another key area where we're working with stakeholders is moving forward planning reforms over the coming months, we expect refreshed national policy statements from government to provide greater clarity and authority on the need and urgency of infrastructure projects to support their timely delivery. As part of this, we're continuing to support the development of a strategic special energy plan, together with a centralized strategic network plan, which will set up what needs to be built and where to support a more efficient system in the long term. In our U.K. Electricity Transmission business, our focus is on driving forward the 17 ASTI projects whilst we continue to work with government and Ofgem on the policy changes needed to deliver them. Last month, Ofgem published its future of system network regulation framework decision, which sets at how they see the framework evolving. We'll continue to engage with Ofgem as they move towards publishing their sector-specific methodology consultation at the end of this calendar year. This will be used as the basis for developing our RIIO T3 business plans for submission during 2024. Together, these will give us further confidence and clarity on the profile of investment over the second half of the decade.Moving away from regulation, another key priority for us in the second half is to deliver our new contractual model for working with the supply chain. We've now launched the procurement process for our enterprise partnership model, and over the coming months, we'll be selecting our strategic partners to ensure we have the supply chain in place to deliver these projects in the time frames required. And in electricity distribution, we're focused on closing out a strong first year of delivery under RIIO-ED2 as we step up our investment. Whilst the U.K. government has recently delayed the ban on the sale of combustion engine cars and gas boilers to 2035, our expected asset growth is not impacted as over 95% of our investment is already agreed within our baseline allowances. Moving next to our key priorities in the U.S. We'll continue to build regulatory momentum across our jurisdictions. In New York, alongside finalizing settlement negotiations on KEDNY and KEDLI, we also remain on track to file a new rate case for our Niagara Mohawk electric and gas business next summer. We've also got a busy regulatory agenda in Masachusetts where we filed our electric sector modernization plans. Within it, we outlined the investment required to help the state meet its targets under the 2050 Clean Energy and Climate Plan. Our proposal includes upgrades to improve the resilience of network infrastructure, increased digitization of the grid and new customer programs to encourage energy efficiency and the adoption of clean energy solutions. We're now engaging with stakeholders before making a formal filing in January next year. We're also finalizing the next rate filing for Massachusetts Electric business, which will submit later this month. On the policy front, we're continuing to advocate for reforms to support the clean energy vision. This includes progressing a new cleans heat standard with lawmakers in Massachusetts, which enables more renewable natural gas to be blended into our distribution networks. We hope to see similar legislation introduced in New York early next year. And across our U.S. operations, we're focused on efficiently delivering our capital program. We'll continue to progress our large-scale transmission projects in New York, in addition to the $550 million Smart Path Connect project I mentioned earlier, we've begun work on our $800 million CLCPA Phase 1 projects. This includes rebuilding 170 miles of transmission lines, upgrading 16 existing substations and building 2 new ones and the installation of new technologies, including dynamic line ratings. We're also continuing to develop our CLCPA Phase II projects, which includes a further 400 miles of transmission line rebuilds and 5 new substations and 11 substation upgrades. These projects will help New York to meet the goal of achieving 70% renewable electricity by 2030 whilst enhancing reliability and resilience of the transmission network. As I mentioned earlier, in October, the Twin States Energy Link project was selected to move to the next stage. Over the coming months, we'll work with the Department of Energy to progress the 1.2 gigawatt capacity project, which, if built, will deliver clean power from Canada into the region and has the potential to create significant savings for customers. And in National Grid Ventures, we're progress negotiations with NYSERDA on the provisional offtake award of 1.3 gigawatts for our community offshore wind joint venture with RWE. We also expect to progress our bid into the New Jersey offtake solicitations in the first half of the next calendar year. So we have a busy time ahead of us. But before I finish, I want to spend a moment on our role as a responsible business. As I've said before, at National Grid, we undertake -- we understand the important role we play in enabling both net zero and ensuring the benefits that transition are shared with everyone and that nobody is left behind. That responsibility is integral to our core strategy and underpins everything that we do. In 2020, we articulated this with our first business responsible charter. Since then, our business has evolved significantly with the repositioning of our portfolio. And so in September, we published a refresh charter. One of the areas I'm most proud of in the update is that, as a group, our near-term emissions reduction targets are now aligned to the 1.5-degree pathway as verified by the science-based target initiative or SBTi. With this, our aim is to reduce Scope 1 and 2 emissions by 60% by 2030 from a 2018/'19 baseline whilst reducing Scope 3 emissions by 37.5% by 2034. Further detail on our updated responsible business charter and a replay of recent ESG investor webcast are available on our website.So in summary, it's been a busy first half with solid financial and operational performance. For me, it's clear, the opportunity ahead of us is huge. We've made significant progress and have a clear understanding, not just on the scale of the challenges ahead, but also how to overcome them. The momentum around policy reform we've seen on both sides of the Atlantic makes me optimistic, but we now need to see announcements and consultations translated into decisions and actions. At National Grid, we're entering an exciting new phase of strong capital delivery. We're delivering the energy transition today, and we're ready to meet the opportunities of tomorrow. So let me stop there, and Andy and I will be happy to take your questions.

[Operator]

[Operator Instructions]

[John Pettigrew, executive]

Okay. So if we can start the Q&A session. Pavan from JPMorgan why don't  you take the first question and then Dominic from Barclays why dont you take  the second? So Pavan, why don't you open with a question?

[Pavan Mahbubani, analyst]

I have 3, please. Firstly, you've upgraded your CapEx guidance by $2 billion, and you talk about modest enhancements to asset growth and EPS CAGR within existing ranges. Could you give us a bit more of a steer particularly around EPS? I recall back in May, you were talking about towards the lower end of the range due to changes in capital allowances. Is it fair to assume that a decent base case now is toward the middle of the range for EPS. Second question, following on from that is if we were to then adjust for the capital allowance impact on your EPS, again, is it a fair assessment that today's announcement should actually be seen as on a like-for-like basis coming on top of the 6% to 8% EPS range or above the top of that range as you set it had before the capital allowance position changed? And then my final question is on New York rate filings. I noted in your statement this morning that the New York PSC has responded to your rate filing with a 9.1% allowed ROE versus your 9.8% request. Do you expect an improvement on this front or should 9.1% be our base case going forward?

[John Pettigrew, executive]

Thanks, Pavin. Why don't I take the first and third and Andy take a second. I mean in terms of the upgrade to our forecast in CapEx, you're right. Previously, we talked about GBP 40 billion between 2021 and 2026, and we've upgraded that to GBP 42 billion today. I mean the reason for that, just to give you some context is, over the last 6 months, we've done a huge amount of work on the early projects associated with ASTI, and in particular, 4 of them, a lot of engineering work, a lot of clarity around the scope, also engaged with the supply chain. And it's on the back of that, that we have a clearer view, and we always want to be as transparent as we possibly can that we've upgraded to the 42%. And as you said in the statement, we've said that, that will modestly enhance both the asset growth and the EPS. In May, Andy talked about the fact with the capital allowance change that we've been in the lower part of the 6% to 8% range. So yes, on the basis that it's a modest increase. It's going to head us towards the middle of that. In terms of the New York rate filing, I have to -- I'm really pleased, actually. So the team did a huge amount of work engagement with the PSC before we made the right filings. So there were no surprises when we actually made it. When we saw the initial response, there was strong recognition of the need for investment and also strong recognition for some of the programs we were suggesting to put in place for vulnerable customers. We initially went in with the 9.8% and the PSC staff will come back initially with a 9.1%. We're now in that sort of process. So looking to see if we can do a settlement and negotiation that will run for the next several months. I would hope that we'll find some middle ground between us, but we'll see where we get to with that. But their starting point is 9/1,and our rate case filing was 98. So we'll see where we get to in the next few months. Andy, do you want to take the second one?

[Andrew Agg, executive]

Yes, sure. Thanks, Pavan. So just building on what John's point around with the updated guidance this morning, putting us closer back towards the middle of the range, you're absolutely right. If it weren't for the capital allowances impact to the 6 to 7, we would now be looking at EPS CAGRs above the top of the 6% to 8%, absolutely.Â

[John Pettigrew, executive]

Should we take Dominic and then Deepa Venkateswaran from Bernstein.

[Dominic Nash, analyst]

Can you hear me? I've got 2 questions. My first one has probably got 2 parts to it. So first of all, you've increased your CapEx to or your investment of GBP 42 billion out to the end of 2026. And that basically means that your run rate, I think, goes from EUR 8 billion this year to sort of EUR 10 billion for the following 2 years. But you spent quite a lot of time on this presentation talking about the fact that ASTI is only EUR 3 billion, perhaps 2026, and we've got one another, probably around about another GBP 15 billion to go, but there's another -- as framework potentially coming at the beginning of 2024, that the U.S. is clearly looking like the CapEx is going to go up. So the first question I've got on that is what do you actually think the potential for the run rate for sort of the ASTI spend and the new -- beyond the 17 projects we're going to get to and what sort of time frame is that GBP 15 billion going to be spent? Secondly, 2026 is going to be there in the bar and led, I think, we're only looking at sort of 2 years out. When do you think you'd be in a position to come back to to us with a view of what your investment and balance sheet management will look like how soon do you going to have clarity so that we can sort of see auto 2030 and beyond. And then the third question is on the ESO. I see it's now an asset held for sale. Could you provide some sort of guidance on the time line and how the price is going to be set and what happens to a guess that at a level that is not satisfactory for you.

[John Pettigrew, executive]

Okay, Dominic. Let me take those questions. So in terms of how we're thinking about the capital investment beyond 2026, it's similar to what I said in May, actually. So I think we've had good progress over the last 6 months. And the way I would describe it and I do describe it to my team actually is the mists starting to rise. And you've seen that today in terms of our upgrade in the short term with the projects that we've been developing that took us from the 40 to the 42%. But actually, over the next period, actually, we need to get a bit more clarity about exactly what is the CapEx we're being asked to deliver over the longer period. And there's still some uncertainty around that. Secondly, and probably most importantly, what's the profile of that CapEx. So obviously, we're waiting to see what the outcome of things like the Nick Winser review are and where the government is going to get to on some of the policy decisions such as community benefits and so on. And that's going to influence what the profile of that CapEx looks like. And then finally, of course, we're waiting to see what the regulatory framework will look like in terms of incentives around delivery. Once we've got that transparency and that clarity, we'll be able to share with the market how we see the CapEx profile looking beyond 2026. In terms of timing, for the things that we control, then we will absolutely update the market when we have better information and that's exactly what we've done today with the update for the $42 billion. But there are certain elements that aren't in our control. But we've got a broad indication of what we're hoping to see. So over the next period, we are hoping to see a response from the government in terms of the Nick Winser review around streamlining the planning process and the national policy statements. We've got the sector-specific consultation coming out in December. And depending on how much information is in that, that will help us with the regulatory framework. You got the ESO publishing its next centralized network plan with the investment receives beyond 2030 out to 2035, hopefully, in the first quarter of next year. So if those things happen in the time frames that are currently been indicated, the mist will continue to clear and we'll be able to provide some transparency. But those things are not actually in my gift in terms of control. So the answer is as soon as we've got that transparency, we will share it with you.In terms of the ESO, so let me just start by saying we're sort of delighted that the energy build has gone through. Actually, the energy bill was required for the government to be able to actually to buy the system operator from National Grid. As you know, we've always been supportive of the fact that with the role that the ESO has been asked to provide, it's right that it's separated from National Grid. Over the last 12 months, we, in the background, have been busy preparing for that separation potentially in the summer of next year. We're doing a lot of the IT separation work that you'd expect us to do now that the energy bill has gone through, we're now in a position where we can engage with government on the commercial side of it. They've recently appointed their advisers, and we're just initiating those conversations now. So we'll keep the market informed as that goes through, but we've literally just started those discussions.

[John Pettigrew, executive]

Okay. So if we could -- we'll take the question from Deepa next and then James from Deutsche Bank.

[Deepa Venkateswaran, analyst]

I have 2 questions. The first one is on the community energy project for offshore wind that you won with RWE. Could you talk about what your return expectations would be for taking FID in this project? I know FID is not until maybe around 2027, but if you could contextualize your return expectation in the context of, say, your 10% FERC allowed returns for transmission projects, that would be helpful. And then could you, in the same way and also comment on some of the problems that other projects are being having in both New York and New Jersey? And how do you feel comfortable with the East Coast offshore wind at this point? So that was my first question. Second one is on the Ofgem debt indexation informal consultation that's expected at the end of this year, what do you expect them to say? And how have your engagement with Ofgem been so far? And do you see that they're fairly open to not doing anything or looking at this data? So those would be my 2 questions.

[John Pettigrew, executive]

Yes. Thanks, Deepa. I'll actually answer your first question in reverse order. Just talk a little bit about the problems that you referenced in the offshore market in the Northeast. I mean, obviously, we've seen what's been going on in the Northeast with a number of projects either withdrawing or looking to renegotiate. And obviously, you'd have to talk to those companies about the specifics of that. What I would say is that given the timing of our response to the Smitation in New York, we were able to reflect in our bids what was actually going on in the supply chain, including things like indexation, which we have the opportunity to provide in our bid. So we're pleased that provisionally we've got an agreement for the 1.3 gigawatts as part of our joint venture with RWE. We now enter into the negotiation phase with NYSERDA. So ultimately, that's a process that we have to go through over the next few months. But ultimately, our position hasn't changed in terms of we -- this is a discretionary investment in our Nasal Ventures business. It needs to fit into the overall capital program for the group, and it needs to have returns, which we've historically said need to be in excess of what we 'd see in our regulated businesses given the nature of them. But the negotiation will determine whether that's the case. I'll also just remind you, I'm sure you're aware that as part of the joint venture, we've always got the option to withdraw right up to FID, if we find that the investment proposition is not something that works for National Grid. So that's an option that we have going forward. But we are hopeful that the negotiations will start relatively soon and are likely to run into the first quarter of next year, I suspect.In terms of the inflation consultation that Ofgem is doing on debt indexation, I have to say, to be fair to talk to, I think they've been very balanced about this. They absolutely recognize the importance of inflation as a foundation stone in regulation in the U.K., and they also recognize the importance of creating a regulatory framework and encouraging investment going forward. As you know, the consultation set out, I think, 5 options from do nothing to voluntary contribution and everything in between. NYSERDA has been working with the ENA and has set out our response, which is if you take a long-term spectrum on this, we don't think there is an issue. But clearly, Ofgem need to look at it given where inflation has been over the last couple of years. I don't know where they're going to land. I think potentially dealing with it as part of RIO-T3, maybe the right thing to do. But I do think they are taking a very balanced approach to it in the conversations I've had with them.

[John Pettigrew, executive]

Okay. So if we could take James from Deutsche Bank next and then Martin Martin Young from Investec.

[James Brand, analyst]

I've got 2. First is on the -- both on the balance sheet to some degree. Firstly, within the 5-year financial plan, you said in the statement that you expect gearing levels and other credit metrics to sit within your current rating bands. However, there's a bit of perception out there, at least among some investors that the metrics get a bit tighter over the plan period. So first question is, is that a fair perception? Or do you think there's still a very comfortable buffer that persists on your rating metrics throughout the period? And then secondly, long term, obviously, the CapEx is -- looks like it's going to be pretty huge. I'm sure you're not going to set out just now in detail how you're going to fund that. But I was just wondering if there was any preferred way that you were prepared to share for funding that future CapEx. In the past, you've obviously sold assets when needed in order to fund the big CapEx program, would that be the preference going forward or all options are on the table...

[John Pettigrew, executive]

Okay. Thanks, James. Andy, do you want to...

[Andrew Agg, executive]

Yes, sure. Firstly, on the current 5-year frame, I mean, just to reiterate, I think what we've said again this morning, which is very consistent with what we've previously said that even with the step up to the GBP 42 billion driven by ASTI,as John set out, we very much see that continuing to deliver gearing regulatory gearing in the low 70s, very consistent with what we said previously. -- and very much in line with maintaining the sensible and appropriate buffer against the credit metrics. And as you know, the 2 key ones we look at are the Moody's RCF to debt and S&P's FFO to debt. So absolutely no change. I can't comment on how other people are modeling that, but that's very clear from us, and that's unchanged from where we were at year-end as well. In terms of the longer term, as John said out already, I think there's a lot of work still to do in terms of the cadence of the spend, the timing, the regulatory frameworks that we're just starting to engage with Ofgem on in terms of the future looking out to T3 and the ASTI framework. And of course, we will want to work through all that. And then absolutely, we would look at what's the appropriate funding strategy but it's fair to say that if you look at the approach we have today, we continue to have access to a wide range of tools. We continue to use today, obviously, senior debt. We utilize the script on an ongoing basis. We have existing and future potential access to the hybrid market where we have considerable headroom that we haven't tapped previously. We've demonstrated that we can utilize asset moves as well. You've seen that over the last few years. And of course, we have a complete toolkit up to utilizing things like partnerships as we've done across interconnectors and things and of course, wider access to the capital markets, debt and equity. So all of that is available to us. But as we said a couple of times, we will come back to the appropriate tools when we're clear on the cadence and timing of the CapEx.

[John Pettigrew, executive]

Okay. So we take Martin next and then Harry Wyburd.

[Martin Brough, analyst]

My question is one that sort of follows on in a bit of the same vein from what James was asking and comments that John has made earlier around offshore wind in the U.S. It strikes me that you've got a significant opportunity to do a lot of things well into the next decade. Not all of those are going to be mandatory. You've mentioned partnerships as one potential route to doing things. But maybe you could just give us a sort of high-level overview as to how you will approach whether or not you want to do something that potentially lands at your door because at the end of the day, that does link back to James' question about how it all can be financed.

[John Pettigrew, executive]

Yes. Thanks, Martin. I mean I think the answer I and Andy have just given us sort of reflects that, which is I've always said for National Grid venture investments, it's right that we're in adjacent markets because we're able to take the capabilities we have across grid and identify opportunities to potentially give us incremental returns above what we see in our regulated businesses. But we will only do that in a very disciplined way where the returns are in excess of our hurdle rates for -- on a risk-adjusted basis and where it fits into the overall group capital investment plan, and that approach hasn't changed, whether it's looking at onshore wind, offshore wind or any even the investments we make in National Grid ventures, including things like interconnectors and -- so that will be the disciplined approach that we continue to apply. As I said in my previous answer with regards to the offshore wind. We're now in the negotiation phase. We will see what it looks like financially, but we also have the option should we choose to exit that without any loss of income to National Group going forward as well.

[John Pettigrew, executive]

Okay. So I was going to take Harry, Harry Wyburd next. And just looking down the list and then we'll take Sam Arie.

[Harry Wyburd, analyst]

It's Harry Wyburd from me. Exane. Two for me, please. The first one is on politics and specifically on -- great British Energy, which popped up a few times again at the labor conference. And I just wondered whether you had any more thoughts on how you think great British Energy might interact with what you're doing? And specifically, would it -- thanks, Andy, for the list, I guess, of tools on the balance sheet. But is there a possibility that Great British Energy could be another tool that you might have on the balance sheet. So for instance, would the government perhaps be willing to co-invest with you in some projects? Or might this be a way of accessing actually very cheap government-backed capital for your projects? And then the second one is on debt cost. So I think since you last had your full year results, get yields in your secondary market traded bond yields have gone up by about 50 to 100 basis points. So I just wonder whether that factored into what you've mentioned this morning on your EPS CAGR. So have you adjusted up slightly your new issue costs on debt? And how are you feeling about the interaction of that with the, obviously, indexation on your cost of debt allowances, which acts a bit more slightly than the changes in rates that we've been seeing over the last few months?

[John Pettigrew, executive]

Okay. Thanks, Harry. Why don't I take the first question, I'll ask Andy to take the second. With regards to GB and more broadly, sort of policy with the labor party, I mean, as you'd expect, given the position NaturalGlo plays in the U.K., we always engage both with the government and with the labor party opposition. And I have to say they recognize as does the government actually about how important networks are in the energy transition. And a lot of things that we put in our spring policy document around policy reform and community benefits and a special energy plan, they're very much aligned with us. With regards to Great British Energy, we've had some really good conversations with them about that. And we do see potential benefit in some of the things that they talk about that GB Energy could do. For example, using the convenient powers of government to coordinate potentially the supply chain at the U.K. level so that we can capture some of the capacity that's going to be needed worldwide is certainly an area that potentially could be beneficial in. Similarly, they've talked about investing in technologies that perhaps are not yet ready for private capital, and that seems a very sensible thing. They did reference at the conference, potentially investing in competitive transmission where necessary. And end I think our personal view is if we get the right regulatory framework and we get the right stable policies that actually there's plenty of access to capital in the private market, and that's probably not best where public funds should be spent. But they're at very early stages of thinking on this as well, and we continue to engage with them. Andy?

[Andrew Agg, executive]

Yes. Thanks, Harry for that. On -- in terms of debt yields, I think, firstly, you will have seen actually in the results that we announced this morning, overall interest costs and treasury costs were flat, slightly down. But within that, yes, we're absolutely seeing higher interest rates, both in terms of refinancing existing debt and, of course, financing growth as well, is offset by other factors this first half. In terms of future guidance, yes, to be clear, I don't second guess that the forward curves, we very much use the curves that we see in different markets. And your point on spreads, absolutely cognizant of that today. Again, we tend to make sensible assumptions around forward spreads, and again, I don't assume anything heroic in our forward guidance. So I'm comfortable that the updated guidance we've given out to 26  very much takes account of macro factors that we're seeing. In terms of the link through to the debt mechanisms in regulation, as you know, in the U.S., obviously, we continue to have a right of pass-through treatment as long as we continue to issue efficiently, which, of course, we always look to do. And in the U.K., with the way the index works and the true-up mechanism, I think, absolutely, we still believe, particularly with the adjustment that Ofgem made to the ED2 mechanism later on, that gives us opportunity to continue to perform well against that. What I think I would say, though, is as we look ahead to T3 in particular, I do think that the cost of debt mechanism will be something that we would work with Ofgem on recognizing a growing CapEx book in a growing interest rate environment is something that I think we will have to look again at the existing cost of debt mechanism. And I think that's something often recognized today as well.

[John Pettigrew, executive]

Sam, why don't we take your question, then we'll go to Rob from Morgan Stanley Sam first.

[Samuel Arie, analyst]

I'm going to come back to the topic that I think everyone is kind of scratching away at, which is the kind of CapEx... CAPEX outlook, sustainability financing formula. I recognize that you're kind of not wanted to delay or your card there at the minute, but perhaps I could just add you and so I'm sharing a bit more thinking on how this is all going to add up and perhaps correct me if I'm understanding anything wrong here. But I think my first observation is that your -- what you might call business as usual CapEx is probably going up in the next period. We hear a lot about the importance of debottlenecking the network side of the energy transition and clearly, there's demand and so on. So you're probably going to need to spend the lease as much as you currently are doing plicat.Then you have the SC projects on top, then you maybe have some other things in the U.S. It seems like quite a big bump to the CapEx outlook. On the ASTI project, second point, I think we were previously hoping that Ofgem might have some kind of special help for you on the FT projects. But it seems like in October, they there seems to have said no to that, that will just be dealt with within the wider price control. So I'm wondering if you kind of that was a disappointment from your point of view. I heard your comment earlier that you kind of continue to work with Ofgem. I wonder if that's what you were referring to. But I think more generally, it still seems like there's quite a big question here. And you mentioned, of course, you can access debt and equity markets that you could do more asset rotation. I suppose and those things would be dilutive. So if I turn this all into a question, it might be -- am I right in thinking that the longer-term earnings growth rate has got to go down either because you can't keep the CapEx equation balanced in the same way as you have done in the current plan or  because you have to take some fairly dilutive measures. -- to make the financial equation work and then that dilutes the EPS growth. I mean I'm just trying to get a sense of like -- it seems to me that if I can pick an answer question here, then it may be a bit stressful, but I may be estimating. And I'd just love to understand how how difficult a problem you think this is to solve.

[John Pettigrew, executive]

Thanks, Sam. Let's break that down. So I'll have to go in the first 2 questions, and then I'll ask Andy, if you could pick up the third I mean, in terms of the CapEx outlook, I mean, I'm sort of going to reiterate, but I'll try and expand on what I said earlier, which is, from our perspective, we think it's really important that we can provide transparency and clarity to the market when we've got a degree of certainty. We don't need absolute certainty, but we need a degree of certainty. And we're still not yet in a position where we know exactly what we're being asked to deliver in terms of CapEx -- and you quoted some of the things that are uncertain whether it's the KEDLI and KEDNY rate case in the U.S., the Massachusetts Electric brakes, which we're filing this month, we've got the electricity sector modernization plan in the U.S. And then in the U.K., we've got the ESO due to do its next transitional network plan in the new year. So we're working through that at the moment to get clarity on what we're being asked to do and what will be put out to competition and all those sorts of things. Probably most importantly, from my perspective, and then is what's the profile of that CapEx. As you know, without any reform in the U.K. for planning, for example, it takes between 7 and 12 years to build a transmission line. If we see some streamlining, which is one of the things that Nick Winser was recommending in his report, then that profile would be very different to if we don't see that profile -- we don't see those reforms.Similarly, local communities are quite active, particularly in the East Anglia part of the country about how they feel about investments. So getting the community benefits right is going to influence what our profile looks like as well. So that's what we're working through at the moment. And then ultimately, we need to get a good understanding of what the regulatory framework is, which leads into Andy's answer around funding in terms of what is the speed of cash and slow money and fast money, what's the depreciation rates, what are the returns? What's the incentives to deliver it quicker or not. So all of that has to be worked through. And once we've got that, we'll be able to articulate very clearly what does the profile of CapEx look like beyond 2026. In terms of frameworks and the ASTI framework and separating it out, I'll answer it more broadly. I think the decision document that came out recently from Ofgem. I think it's sort of aligned with our expectations, and there were many things in it that we're very pleased about. So Ofgem's recognition for the need for change of the regulatory framework, I think was really important. They talked about evolving the RIIO framework. I think the recognition that there will be a separate framework for large projects, I think, is in that document, and I think that is important. But they also talked about their desire to streamline and simplify the regulatory framework, but also create a framework that actually is attractive for investors. So all of that, I was really pleased about. There was in that documented statement about dealing with the sort of the financial side of ASD as part of RIIO T23. That is something we will continue to have dialogue with Ofgem on. I do think there is advantages in separating that out. We can live with it if it's dealt with in T3, but I have a preference to try and deal with it sooner and we'll continue that dialogue with Ofgem over the months to come.

[Andrew Agg, executive]

Yes. Thanks, Sam. I mean in terms of what it may or may not mean for future trends and to a degree, getting very hypothetical here, given sort of the previous answers around all the uncertainties and the things we need to work through. But I think what I would say is, as we've seen in previous price controls, actually, the -- it's not just the levels of CapEx, but it's other levers that will have a big impact on earnings profiles, particularly in the U.K. businesses. And I think, actually, if you go back to the FSN document, there was positive commentary in there around sort of the need to create an investable framework, recognizing what that -- we may need to look at returns and so forth. But I think as we've seen in T2, also recognition that you need to look at the wider set of cash levers, which could involve things like asset lives, it could involve things like farslow-money mix as well. So all of those things will absolutely play into future profile. So I think it's way too early to start to speculate on what EPS CAGRs may or may not do in the long term. And there's an awful lot of water to flow under the bridge before we can get there.Â

[John Pettigrew, executive]

Okay. I'm going to take the next question from Rob from Morgan Stanley and then Jenny from Citi.

[Robert Pulleyn, analyst]

There's only one -- it's a different tack on the prior topic, which I think is very much part of investors debate at the moment, and that's the impact of inflation. Maybe ask what this mid- to high teens, so let's assume GBP 15 billion to GBP 19 billion of ASTI CapEx you've firmed up today. What was that, say, a year ago when you looked ahead? And whilst inflation is obviously passed through in your regulatory regime, it still needs financing in advance -- and on that basis, aside from, shall we say, the quantum of work or the cost of finance, which was the previous question, could the inflation we're seeing in these infrastructure projects lead to difficult decisions on capital allocation between, frankly, the opportunities you have in IT, ED, U.S. and NGV. And if I can push the envelope a bit, which of those lines would be the priority for capital allocation.

[John Pettigrew, executive]

Well, let me have a go answering question one. I'll reference a little bit of question two, but then hand it over to Andy. That's okay. I mean in terms of the mid- to high teens for the 17 ASTI projects, -- what we've done over the last 6 months is a huge amount of work on the early ASTI project. So I think Andy referenced them. So the Eastern Link projects 1 and 2, Branford Twin stead and Yorkshire Green. And in doing that, we've got a much clearer view of the scope. We've got a much clearer view of the engineering solutions, and we've engaged with the supply chain and entered into contracts. So all of that has driven the 40 to 42 million. We haven't really talked about ASTI for quite a long time, actually in terms of the overall cost of it as we've been sort of working through with Ofgem about what's going to be our license obligation and actually whether we're going to do them all '17, which we only actually got information on at the beginning of this year. Actually, last time it was referenced, I think often put in the consultation a number around 12 for the 17 projects. So that was back in '21, '22. So with inflation indexation and the latest feel of what we're seeing in the supply chain, you quite quickly get to mid- to high teens and that was the logic for it. And as I've already said today, as we work through the later projects in ASTI, we'll continue to update the market. But really, it was 12 that was in the consultation document 18 months or so ago, if you index it for inflation and then reflect what we said today, you sort of get to mid- to high teens. In terms of your inflation question, the only point I was going to make, which links to the major projects in the U.K., which is the way that the regulatory process does work is that actually, as we develop these projects out from an engineering perspective, prior to agreeing the allowances with Ofgem, we actually do get the opportunity to go to the market and see what the cost of those projects are. So to the extent that we're seeing inflationary pressure in the supply chain, we're able to have that conversation with Ofgem prior to setting the allowances for each of those individual projects. And we're just going through that process for these early projects that I've just referenced. So to the extent that we're seeing inflationary pressure, we're able to reflect that and have that conversation with Ofgem upfront, Andy?

[Andrew Agg, executive]

And I think the other part of your question was around how does this feed into potential thinking about capital allocation. And I think a couple of broad thoughts on that. One is, of course, as I'm sure you're aware, in terms of sort of the regulated businesses that we operate, we will have absolutely meet our regulatory obligations. So as the owners of those businesses, those CapEx plans are agreed with our regulators meet customer needs, and we're obligated to deliver, and we will always prioritize and ensure we do that on both sides of the Atlantic. I think you've heard us say before that the post the pivot, the mix that we've moved to in sort of the electric gas towards 75-25 is one we're very comfortable with. The U.K. U.S. overall split to the group again, relatively close to 50-50 again, is something we're very comfortable with. So -- and as John said a couple of times this morning, I think in his opening comments that when we think very carefully about the discretionary opportunities in National Grid Ventures, we will, of course, be disciplined, and it would depend on the return opportunities available and of course, how and whether they fit into the overall capital frame of the group. So that's broadly how we would think about capital allocation going forward.Â

[John Pettigrew, executive]

So I'll go to Jenny from Citi and then Bartek from Societe Generale. So Jenny?

[Jenny Ping, analyst]

So just a question for Andy. At the full year results, when we talked about the 6 to 7p, you at the time, alluded to that being a temporary change and therefore, being reflected in your earnings. But I remember you saying that if it does become an enduring change and it is going to stick around, then you would certainly look to remove that impact. And as we go into autumn statement, there is more discussion about full expensing and therefore, the impact from that. I just wondered whether if we did have confirmation of that, you would effectively then add back the 6 to 7p into your earnings?

[Andrew Agg, executive]

Yes. Thanks, Jennie. No, I would just reiterate precisely what I said in May and which is at the moment, it is a temporary phenomenon of 3 years that it has previously been announced. We didn't believe it was the right thing to do to change our fundamental way of presenting our results. I'd repeat what I said there, though. And I've seen the exactly the same commentary and speculation in the media around what the chance may or may not say. If it does become enduring, then absolutely, we would look again. And as I said then, if it's material and it's distortive to how we present our economic performance, we would absolutely look at the right way to do that, and that may lead us to add it back. But we'll wait and see what the chances as first year.Â

[John Pettigrew, executive]

Bartek?

[Bartlomiej Kubicki, analyst]

Still free to come, please, very short ones. Firstly, I mean, plenty of discussions on ASTI and future investments and the potential funding and regulatory changes. I guess you can indeed speed up cash generation in the future with, for instance, higher share of fast money or shorter depreciation period. But just hypothetically, would you consider changing the nominal you favor changing the regulatory framework in the U.K. to a nominal one where actually the returns will be higher in terms of course, and then cash flow generation will be quicker to fund future growth. Secondly, in your presentation, you mentioned about the first transmission connected solar farm. I just wonder if this is something what could happen more often in the U.K. And as a result, it does pose an upside risk to your investments in the future? And thirdly, on your FY '24 technical guidance, just 2 things when I compare this guidance and the one presented at FY '23 stage, you have decreased your contribution expectations from JVs claiming that the contribution from interconnections would be lower. So I just wondered if you are already seeing a normalization of earnings coming from interconnectors or we are still at levels above historical ones? And on the technical guidance, you are also mentioning about additional 4 bps of one-off ROE creation in New England. And I think it's coming from the property tax return. If you can perhaps describe what is this and whether it will have an actual impact on your earnings and cash flows?

[John Pettigrew, executive]

Thanks, Bartek. Why don't I take the first 2 and then I'll ask Andy to talk about guidance. I mean in terms of the regulatory framework. So I do think it's important that we get the right regulatory framework for these major projects. And you heard me say already this morning, as we think about this, one of the things that's important to us is that clarity on that, whether it's returns, whether it's fast money, slow money, whether it's depreciation periods, all of that is up for the debate, and we need to work through that. In terms of regulation, actually, one of the things that I think is very beneficial for investors in National Grid is to have that mix of nominal and real regulation between the U.K. and U.S. That gives you a slightly different mix between yield and growth, as you know, which is beneficial. And I'd add to that as well that a shift to nominal regulation would have quite a significant impact on customer bills, which is something we need to be mindful as part of the NG transition. So I'm not really an advocate phenomenal regulation in the U.K. for those reasons. But we do need to get the right regulatory framework. I do agree with you on that. In terms of the transmission farms, I mean, actually, it's the first transmission directly connected solar pumps to the transmission system. If you look at the connection queue that currently exists in the U.K., there's over 400 gigawatts of people looking to connect to the transmission system and actually, of that 400 gigawatts about 80 gigawatts of it is, I think, is solar. So there's an awful lot of people out there that are looking to connect to the transmission system. So I don't see it as much as a risk as they are customers that would look to connect to the transmission system, or we will need to reinforce it. Ultimately, as you know, there's a lot of work going on around connection queues and who are the real projects and which ones do we need to remove. But nonetheless, we will need to serve those customers in the same way as we serve other technologies. Andy?

[Andrew Agg, executive]

In terms of our guidance, I think you've raised the 2 points. Firstly, on our guidance in relation to joint ventures. And as you say, in terms of interconnectors, it's probably too early to say is this just a reversion to long-term rates. I think what we have seen, obviously, as you know, over the last year or 2 is higher levels of arbitrage payments coming through on the capacity auctions. We are absolutely seeing that soften a bit this year. But again, if you look at the curves, you do see them coming down, but I think we'll have to wait and see whether that is actually a long-term normalization. It's still healthy returns, just to be clear. It's just slightly lower than that we've seen over the last year or 2. So we're still very pleased with the performance of those interconnector assets overall. And then in terms of the one-off item in Massachusetts, what it is, it relates to regulatory agreements that we reached with the DPU earlier this half in relation to property tax costs that we've incurred in prior years, that they've now agreed that we should be entitled to recover, which is why we recognize it through the ROE this year. Now we've got that clarity from the regulator in Massachusetts.

[John Pettigrew, executive]

That's all the questions we've had on the telephone, but I think we've got time, Nick for one question maybe is coming online.

[Nicholas Ashworth, executive]

I just do one last question then. So from Ahmed Farman Jefferies. So there's a couple of questions. The first one actually is on ASTI CapEx. I think, hopefully, we've answered that with some of the other questions that have been asked. So the other question is, the first half results show a year-on-year decrease in the U.S. regulated business operating profits. Could you please share some thoughts on the performance you're expecting for this business over the second half? And what ROE you're expecting to achieve in New York and New England this year?

[Andrew Agg, executive]

Yes, sure. Thanks, Ahmed. I think, firstly, I'd draw your attention to a couple of comments we made in the presentation that we do see the U.S., as always, having a very skewed first half, second half split. And therefore, we continue to be very positive about the overall performance of the U.S. business for the full year. You will have seen in our detailed guidance for New York and New England that we do expect significant growth in New York. You'll see that pro year end slightly lower because of the update that we gave to the environmental charge in our preclose. But even allowing for that, we expect significant year-on-year operating profit growth in New York. In terms of ROEs, our guidance is unchanged other than the single items that I just referred to in Massachusetts. So -- and again, that's unchanged from the guidance that we gave back in May.

[John Pettigrew, executive]

Okay. In which case, I'd like to just thank everybody for joining us today and for a fantASTIc set of questions. I mean, I guess, just to finish off our key messages, really with strong -- really solid financial performance in the first 6 months and reconfirming our full year guidance today, as you just heard from Andy, very pleased with the operational performance across the group and the regulatory progress that we're making and also the influence we're having on policy agenda as well. But very much entering an exciting phase of delivery of the en transition, as you've seen with the CapEx numbers that we reported today, but we feel very well positioned both to navigate the challenges to take advantage of the opportunities that are ahead of us as part of this energy transition. So thank you all for joining us, and I look forward to seeing you all in the next couple of weeks.