Foreign Investment in Energy: Lessons Learned

1
Foreign Investment in Energy Lessons Learned

• David J. Manning, Executive Vice President,
  National Grid

2
The Context

• The American public and its political leadership
  were sensitized to foreign investment when China
  National Offshore Oil Corporation endeavored to
  acquire Unocal.
• Not long after, more controversy developed over
  the perception that the Dubai government had
  gained control of 6 ports in major U.S. cities by
  acquiring PO Shipping.
• Sir John Parker, POs highly regarded Chairman,
  in his capacity as Chairman of National Grid,
  Plc, acquired KeySpan the same week.
• National Grids successful acquisition has
  created one of the largest utilities in the U.S.,
  well positioned due to its scale, European
  experience with climate change response and
  environmental initiatives.

3
The Transaction

• National Grid, one of the worlds largest energy
  utilities, had previous international experience,
  including as developer of the worlds longest
  underwater transmission cable connecting
  Tasmanian wind power to Australia.
• The company was well aware of the importance of
  Washington to its expansion plans within the
  United States and immediately empowered KeySpan
  to partner on U.S. approvals
• Regulatory challenges occurred at the state
  level, but federal approvals were timely (via
  Committee on Foreign investment in the United
  States and FERC)
• A full and open communication strategy with
  political leadership and media also mitigated any
  issue around foreign ownership.

4
National Grid An international electricity and
gas company
National Grid Electricity and Gas Service Areas -
US

• Northeast US
• Distributes electricity to 3.3 million customers
• Services 1.1 million customers of Long Island
  Power Authority (LIPA)
• Provides natural gas to 3.5 million customers
• Currently owns over 4,000MW of generation
• Blue Electric
• Purple Gas
• Orange Gas Electric

• Based on customer numbers includes the servicing
  of LIPAs 1.1 million customers

5
US business at a glance

• 10,000 miles of electricity transmission lines
• 122,000 circuit miles of electricity distribution
  lines
• 32,000 miles of gas main and distribution lines
• Approximately 18,000 employees
• Corporate offices in Massachusetts, Brooklyn,
• Syracuse and on Long Island

6
National Grid An international electricity and
gas company
Gas Distribution - UK Transmission
Electricity and Gas - UK
Owns the high-voltage electricity transmission
system in England and Wales and operates the
system across Britain. Also owns and operates the
high pressure gas transmission system in Britain.
Operates the UK gas distribution system
distributes gas on behalf of shippers and
suppliers to 11 million consumers.
7
UK Business at a Glance

• UK Electricity -Transmission
• Nearly 9,000 circuit miles of high-voltage
  overhead line
• Approximately 100 miles of underground cable
• 200 supply points to distribution companies and
  large users
• 337 substations at around 240 sites

• UK Gas - Transmission
• 4,300 miles of high
• pressure pipeline
• 7 coastal terminals
• Connecting to eight
• distribution networks
• 26 compressor stations

• UK Gas Distribution
• 82,000 miles of distribution pipelines
• Distributes gas on behalf of gas shippers and
  suppliers to 11 million consumers
• Network covers just over a quarter of Great
  Britain
• Operates the free national gas emergency number

8
U.S. Political Landscape

• National Grid had a good story
• World class expertise in transmission. London has
  one power plant, while New York City is blessed
  with twenty six. St. Johns Wood is a model for
  energy supply in complex urban environments.
• Climate change. National Grid has made real
  progress in CO2 reduction, and includes carbon
  budgets in business unit compensation.
• Energy efficiency. National Grid U.S. was already
  a leader in energy efficiency programs in New
  England and upstate New York and introduced those
  programs throughout the Northeast with this
  acquisition.

9
U.S. Political Landscape

• Alignment between the White House, the Senate and
  the House of Representatives creates new capacity
  to move the energy and environmental agenda.
• This administration is convinced that strategic
  investment in a clean energy future will be a
  cornerstone of economic recovery.
• National Grid shares this view.
• Our investment strategies are consistent with a
  low carbon future connecting new renewables
  through a smarter grid to efficient consumers.
• We have not experienced any impediments to our
  strategy tied to international ownership.

10
Key Drivers

• National Grid has worked hard to be seen as part
  of the solution at both the state and federal
  level.
• There is a high respect for Washington in the
  Home Office, but issues such as lobbying and
  political contributions require extra care.
• Investments in solar, smart grid and energy
  efficiency support positive testimony on the
  issues of climate change and energy legislation.

11
Energy and Environment Agenda

• The current and urgent Washington agenda has
  implications for all investment, including
  foreign players.
• The Waxman Markey Bill captures current
  Congressional work on three major issues
• Renewable energy
• Energy efficiency
• Cap and trade (climate change)
• It is only a matter of time before a price is set
  for carbon through a cap and trade regime or form
  of carbon tax.

12
Energy and Environment Agenda

• The energy sector will be made up by
• Those who invest in new technologies and help
  shape the agenda
• Those who await the rules and adapt as best they
  can, and
• Everyone else
• Even in a time of constrained capital, a case can
  be made for further consolidation as a result of
  the pace of change

13
Foreign Investment in Energy Lessons Learned

• David J. Manning, Executive Vice President,
  National Grid