National Grid Transco
The announcement of the merger of National Grid and Lattice Group to form National Grid Transco (NGT) and at the same time the largest UK utility company - has not been something that we have been expecting, although it is not perhaps a surprise given that the two companies provide similar services to the electricity and gas markets, are increasingly interdependent as more power is generated from gas and face almost identical issues in dealing with the Regulator. We have heard much mention in recent times of the need for larger companies in the UK utility sector to be able to compete with the giants such as E.ON, RWE and others from Europe.
This merger may be seen in some senses as a defensive strategy to safeguard the independence of the energy delivery system in the UK from foreign ownership. However, it may be seen much more as a statement that for the UK there remain plenty of opportunities from the full separation of the energy value chain into its constituent parts. It is even more important now to remember that Europe and North America have been moving along the same path as the UK. Separately owned Regional Transmission Organisations are being created in the USA and there will be a need for similar types of organisations in Europe. Already we have seen the Dutch Government restructuring Gasunie to create a state-owned gas delivery network to ensure the right of access on non-discriminatory terms for all Dutch gas suppliers.
The Italian gas transportation system was floated last year as a separate company, Snam Rete Gas, and there will be more of these operations. NGT will be able to utilize its scale to be the leading company in this newly-developing market. With gas and electricity markets so closely aligned, the opportunities for the group should be huge - and the mix of skills covers both markets. The companies talk about the scope for £100m financial benefits from the elimination of duplicate head office and other central cost savings and from combining the support services provided to the UK regulated electricity and gas businesses. There will be plenty of changes to add to those already occurring in both groups, but especially in Transco at this time. The further reductions in jobs in both groups need to be seen in the context of the additional opportunities for leveraging existing skills in other markets.
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