The electricity industry connects generation sources to homes and businesses via transmission and distribution networks. Electricity is sold to consumers by companies who have bought it from the generators and pay to use the networks across which it is transmitted.
Generation is the production of electricity from fossil fuel and nuclear power stations, as well as renewable sources such as wind and solar.
In the US, we own and operate 50 fossil fuel powered stations on Long Island and 4.6 MW of solar generation in Massachusetts. We do not own or operate any electricity generation in the UK.
We sell the electricity generated by our plants on Long Island to LIPA under a long-term power supply agreement. The contract allows us to recover our efficient operating costs and provides a return on equity on our investment in the generation assets.
For solar generation, we recover our costs and a reasonable return from customers in Massachusetts through a solar cost adjustment factor. This is added to the electricity rate, net of revenues earned from the solar assets.
Transmission grids are often interconnected so that energy can flow from one country to another. This helps provide a safe, secure, reliable and affordable energy supply for citizens and society across the region.
Interconnectors also allow power suppliers to sell their energy to customers in other countries. Great Britain is linked via interconnectors with France, Ireland, Northern Ireland and the Netherlands. National Grid owns part of the interconnectors with France and the Netherlands.
We also jointly own and operate a 224 kilometre interconnector between New England in the US and Canada. We sell capacity on our UK interconnectors through auctions and on our US interconnectors through wholesale markets and bilateral contracts.
Transmission systems generally include overhead lines, underground cables and substations. They connect generation and interconnectors to the distribution system.
We own and operate the transmission network in England and Wales; we operate but do not own the Scottish networks.
In the US, we jointly own and operate transmission facilities spanning upstate New York, Massachusetts, New Hampshire, Rhode Island and Vermont. We will operate and maintain the transmission system on Long Island, under contract to LIPA, until December 2013.
Distribution systems carry lower voltages than transmission systems over networks of overhead lines, underground cables and substations. They take over the role of transporting electricity from the transmission network, and deliver it to consumers at a voltage they can use.
We do not own or operate electricity distribution networks in the UK.
In the US, our distribution networks serve around 3.4 million customers in upstate New York, Massachusetts and Rhode Island. In addition, we will operate and maintain the distribution system on Long Island, under contract to LIPA, until December 2013, providing service to around 1.1 million LIPA customers.
The supply of electricity involves buying electricity and selling it on to customers. It also involves customer services, billing and the collection of customer accounts.
We do not sell electricity to consumers in the UK.
All the states in which we operate in the US are deregulated and consumers can choose their energy supplier.
Where customers choose National Grid, they pay us for distribution and electricity costs. Where they choose to buy electricity from third parties, they pay us for distribution only and pay the third party supplier for the electricity. Our base charges for electricity supply are calculated to recover the purchased power costs.
As system operator (SO) for England and Wales, we coordinate and direct electricity flows onto and over the transmission system, balancing generation supply and user demand. Where necessary, we pay sources of supply and demand to increase or decrease their generation or usage.
We have the same role for the two high voltage electricity transmission networks in Scotland and we have been appointed as system operator for the offshore electricity transmission regime.
Our charges for SO services in the UK are subject to a price control approved by Ofgem. System users pay us for connection, for using the system and balancing services. As electricity transmission system operator, our price control includes incentives to minimize the costs and associated risks of balancing the system through buying and selling energy, as well as procuring balancing services from industry participants. The form of this incentive under RIIO has yet to be agreed and is currently subject to industry consultation.
In the US, these services are provided by independent system operators