Select Committee on Science and Technology Appendices to the Minutes of Evidence


Supplementary memorandum submitted by the National Grid Company plc

  Following the oral evidence session on 20 November 2002 I thought it would be helpful to clarify the position with respect to total expenditure by National Grid Company plc on Research & Development.

As noted in our written and oral evidence, the expenditure specified in our annual report and accounts on specialist R&D activity currently totals around £5 million per annum. These activities are primarily focused at improving the performance of our network assets, but also include activities which look at opportunities and risks to our network arising from new technologies that may feature in the electricity market. However, there is also a wider and additional R&D related spend of circa £15 million per annum on the design of the network, developments of operational and trading procedures, and developments to commercial and regulatory frameworks. Although this spend is not formally classified as R&D in our annual report and accounts, it nevertheless constitutes R&D related expenditure associated with meeting the requirements of new electricity technologies seeking to use the electricity system.

  Accordingly £20 million is more representative of the company's total annual R&D spend, representing 10% of our allowed controllable cost of circa £200 million per annum. (I suggest that for a capital intensive and regulated company such as National Grid, a comparison of our R&D expenditure with controllable costs rather than total turnover gives a more useful indicator for two reasons. Firstly, much of our turnover is concerned with the on-going non-optional funding of existing transmission assets, so a comparison with controllable costs better represents the extent to which we are able to exercise discretion in undertaking a specific level of R&D. Secondly, using our controllable costs allows a more meaningful comparison over time because our turnover is subject to changes as the result of regulatory developments.)

  Although £20 million per annum is more reflective of National Grid's R&D expenditure than the £5 million of specific R&D activities identified in our accounts, it does not include additional expenditure in development work associated with items of new transmission equipment. (For example, the development by National Grid of new high capacity conductor systems, 400kV power flow controllers and relocateable voltage control equipment.) This is because, under our regulatory framework, all equipment development costs incurred by manufacturers and ourselves are part of our regulated "capital expenditure" and not separately identified in the £3.5 billion of capital expenditure undertaken since 1990.

December 2002

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