Capital structure
The principal measure of our balance sheet efficiency is our interest cover ratio as described under financial discipline. Our long-term target range for interest cover is between 3.0 and 3.5, which we believe is consistent with single A range long-term senior unsecured debt credit ratings within our main UK operating companies (National Grid Electricity Transmission plc and National Grid Gas plc), based on guidance from the rating agencies.
Interest cover for the year ended 31 March 2009 decreased to 3.1 from 3.2 for the year ended 31 March 2008. The decrease occurred primarily as a result of a full year’s interest charge relating to the KeySpan acquisition debt partially offset by higher cash flows generated from continuing operations.
In addition, we monitor the regulatory asset value (RAV) gearing within each of National Grid Electricity Transmission plc (NGET plc) and the regulated transmission and distribution businesses within National Grid Gas plc (NGG plc). This is calculated as net debt expressed as a percentage of RAV, and indicates the level of debt employed to fund our UK regulated businesses. It is compared with the level of RAV gearing indicated by Ofgem as being appropriate for these businesses, at around 60%. The table below shows the RAV gearing for NGET plc and for the regulated transmission and distribution businesses within NGG plc as at 31 March 2009 (estimated) and 31 March 2008 (actual). To calculate RAV gearing for the regulated transmission and distribution businesses within NGG plc, we exclude an element of debt that is associated with funding the metering business within NGG plc.
| RAV gearing | 2009 % |
2008 % |
|---|---|---|
| Regulated transmission and distribution businesses within National Grid Gas plc | 60 | 55 |
| National Grid Electricity Transmission plc | 58 | 52 |
Some of our regulatory agreements impose lower limits for either the long-term credit ratings that certain companies within the group must hold or the amount of equity within their capital structures. These requirements are monitored on a regular basis in order to ensure compliance.
Gearing at 31 March 2009 and 31 March 2008, calculated as net debt expressed as a percentage of net debt plus net assets shown in the balance sheet, amounted to 85% and 77% respectively. We do not consider that this gearing ratio is an appropriate measure of our balance sheet efficiency as it does not reflect the economic value of the assets of our UK and US regulated businesses.