Take the long view – National Grid CFO Andrew Bonfield


29 July 2015


Being CFO of National Grid is a peculiar gig. Not least, explains Andrew Bonfield, because of what the company is sometimes perceived to do… and not do. From growth in the US to implementing new tech in the UK, Christian Doherty details how the company strikes the right balance and keeps the big picture in check.


National Grid is a well-known business in the UK. "People are aware of the company," says CFO Andrew Bonfield, "although it gets mistaken for [the UK's high-voltage electric power transmission network] the National Grid, which people tend to think of as an invisible body that magically makes electricity, then delivers it to your home."

Despite the confusion, Bonfield is clear on the fundamentals: "As a business, National Grid tries to balance everything. Value is created by paying cash dividends to shareholders and by growing the asset base in order to improve earnings, to create value and capital appreciation.

"Thius is important, because the regulators want to fund the firm through large debt, which is cheaper for consumers, and , gives the firm enough financial firepower to retain its rating."

The UK and US are National Grid's two most important markets. Last year, operations in the former generated over £4 billion, with assets of £34.7 billion.

The US networks, which are mostly in the north-east and New England, supply more than 3.3 million customers with electricity and 3.4 million with natural gas.

The business has grown in the past decade, spurred, in part, by a $7.3-billion acquisition of natural gas distributor, Keyspan, in 2007.

Asset management

While its US business has experienced strong growth, National Grid probably won't look to add to its possessions.

"At the moment, assets are highly priced in the US, so an M&A strategy probably won't work. It may do in the future, but not today," explains Bonfield. "The acquisition of Keyspan has been enough to focus on, and investments are growing, thanks to lower natural gas prices, so there are opportunities to convert more customers who are currently using fuel oil."

National Grid's recent decision to ditch quarterly reporting and adopt a more long-term focus chimes with how Bonfield envisages a CFO's role.

"I was 36 when I became CFO of SmithKline, and if I'd just pursued the short term, I wouldn't be around today," he opines. "My reputation wouldn't have survived, so I think it's always about having an eye on legacy.

"The numbers come out of the system, and there are discretionary items, but the idea of playing with figures to hit the right note for the market and so on are long gone, and you can see the consequences of that: they make you longer-term focused.

"My peers are largely like that, and can see where we should be focusing. The average tenure of a FTSE 100 CFO is just over four years, and, we'd all really like to be around for longer than that, if possible."

"The CFO's role is to ensure that companies are not just focused on the short term. I believe that passionately, now that National Grid has gone through a number of challenges. The business must not only be relevant to people's lives, but also be seen to be doing the right thing."

"We've seen that through banking crises, we saw it with Deep Water Horizon, where you had CNN running non-stop news of leaking oil well. Businesses must understand that their role in society has changed, and the tax debate is another one in which I'm involved, through the Hundred Group."

Despite the freedom that the end of quarterly reporting brings, a list of headaches remains, and tax is near the top. More specifically, responding to the changes to the landscape that have made tax avoidance a hot issue, politically, in business and with regard to the lives of the rich and famous.

Bonfield's stance on the growing demand for transparency for businesses' tax strategies encompasses his belief in corporate responsibility and a plea for better understanding of how firms contribute.

"When the Hundred Group started the Tax Contribution Survey a few years ago, for every pound raised through corporate tax, another was borne by companies in other forms, such as business rates, taxes on employees, and so forth," he explains.

"Now, corporation tax is less than a quarter of companies' total tax burden. For every pound of corporation tax there's another three in other taxes. There's been a significant shift away from corporation tax to taxes on buildings and people, because they aren't as volatile from a revenue perspective.

"Companies get ahead of the game, and not be seen as being dragged, kicking and screaming, to the table."

Tax aside, Bonfield acknowledges that the energy indistry - generation and distribution - is facing perhaps its most volatile and scrutinised period for decades. Climate change, energy pricing, political instability and consumer activism have put companies firmly in the spotlight, a position some find difficult. For the CFO, however, the challenge of shaping the future of energy makes the job more exciting.

A promising - but difficult - innovation is smart meters designed to help consumers monitor their energy use. "We're running a pilot in Massachusetts," says Bonfield. "The technology is certainly evolving, and the ability is definitely there: it's about helping people manage their energy needs more effectively. There's a lot of learning to be done about managing smart grids, though, and that will be a significant technological challenge, because not everyone will be 'smart'."

The benefits are that people will be able to manage their energy use and will become more aware of opportunities to reduce overall costs by optimising usage and becoming more efficient. This, in turn, enables grids to manage energy flows better. Also, moving to a world of distributed generation, in which people have solar panels on their roofs, means you; you're looking at evolving technology, and you might have people putting energy back onto the grid."

Mass market

Coordinating the mass adoption of new technologies is hard, even in the UK, however, not least because it's up to energy suppliers to fit things like smart meters.

The US pilot is helping to educate National Grid on how such developments might be managed in an optimal manner. "Another challenge is to keep consumer enthusiasm going," he says. "The early adopters are keen, and they look at it for the first two weeks, after which it tends to wane. You need to have other appliances hooked up, and then have differential pricing for it to really take hold. That's not there yet, so there's still work to be done."

Predicting which technology will be revolutionary, and which will end up on the scrapheap is tough. The CFO likens the challenges he faces to "the cliché about the advertising industry: 'I know I'm wasting half of the money we spend, I just don't know which half.'

"It's the same thing with new technology," he says. "Having to bet on innovations means that CFOs must now take the lead in ensuring sure that the right strategic decisions are made, because no-one wants to look back in five years' time and realise they got something wrong."

For now, though, Bonfield has his hands full with negotiating the next round of regulatory bartering with the energy regulator, continuing his careful stewardship of one of the UK's most important businesses and ensuring National Grid remains a key player with its investors, communities and society at large.

"A CFO I used to work for said that a good way to judge your contribution to a company was to look at its share price five years after you've left. Wanting to leave a positive legacy is a good way to encourage CFOs: its hitting short-term marks might get you off the hook today, but long term it's a different story."

Smart meters, which enable people to monitor and manage their own electricity use, may point to the way to a more sustainable future.
National Grid: not to be confused with the National Grid, which is the UK’s power infrastructure.