By Sudip Kar-Gupta
LONDON (Reuters) - Gas and power regulator Ofgem says it has conditionally approved National Grid Transco’s planned $11 billion sale of four gas distribution networks as it would help customers save money.
National Grid agreed last year to sell the networks for 5.8 billion pounds. A company spokesman reiterated it expects to complete the sales during the second quarter, and investors widely expect the deal to gain all necessary regulatory approvals.
The transaction also needs clearance by the Department of Trade & Industry and Health & Safety Executive.
"Lower distribution charges are the prize from this sale which Ofgem, through comparative regulation, will begin to capture for customers from the next price control in 2008," Ofgem Chairman John Mogg said in a statement.
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However, it added that National Grid had to implement new industry structures before the sale could proceed.
National Grid shares rose as much as 1.7 percent to hit a year-high of 515 pence in morning trade. The stock later eased back to trade up 0.2 percent at 507-1/2 pence in early morning trade.
"Ofgem’s approval is another step in the right direction," said Williams de Broe analyst Angelos Anastasiou, who rates National Grid as a "buy" with a price target of 550 pence.
CONDITIONS
Last year, National Grid said it was selling the assets to raise money to return to shareholders and to invest in growing U.S. markets.
National Grid sold the networks to buyers including Scottish & Southern Energy and United Utilities, as well as Australia’s Macquarie Bank and Cheung Kong Infrastructure Holdings -- a unit of Hong Kong businessman Li Ka-shing.
Ofgem said it had identified the potential for savings of around 225 million pounds from the transaction.
The regulator said the new network owners must have clearly defined roles and responsibilities, however, and also demanded the introduction of a new agency to carry out functions that National Grid currently undertakes centrally, including administering the processes needed to support gas competition.
National Grid shares have gained nearly 30 percent over the last year, and have outperformed the benchmark FTSE 100 index by nearly 20 percent.
