Breakingviews - Britain’s power grid picks bad time to screw up

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LONDON (Reuters Breakingviews) - It’s a bad time to be National Grid. The listed company tasked with overseeing Britain’s gas and electricity networks had a day to forget on Friday. A major power cut left trains at a standstill and 1 million homes without power. Even if the blame lies with someone else, failure on this scale hands powerful ammunition to the company’s critics.

In the hotchpotch UK energy system, the 29 billion pound National Grid’s main job is to balance supply from generators of power with demand from users. Too much supply could fry the appliances using the electricity; too little and power cuts may be necessary. On Friday the latter occurred after two key generators, one gas and one wind-powered, suddenly stopped contributing. The question - which National Grid’s regulator, Ofgem, is currently asking – is why balancing mechanisms didn’t work.

Whatever the answer, National Grid was already in the crosshairs. The company is in the middle of negotiations with Ofgem over the prices it can charge customers, which account for around 3% of the average annual joint gas and electricity bill. At the same time National Grid and the companies which run local power networks need to invest more in so-called “smart grids”, which manage supply and demand more intelligently. The regulator may feel that being tough on customer bills is more important than being generous about investment needs.

There’s a bigger political problem. It’s now pretty clear that if the opposition Labour party, led by Jeremy Corbyn, wins any snap election, the new administration would nationalise the energy networks. National Grid’s debt and equity exceed the value of its regulated assets. That could be viewed as a sign that the returns it has been allowed to make so far have been too high.

Calls for change don’t just come from left-wing politicians. A 2017 review by academic Dieter Helm suggested the UK system operator be a public sector body. National Grid’s best defence against such attacks has been to radiate competence. Whatever its report on Friday’s fail shows, the debacle gives its critics new ammunition.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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