Grid fights order to repay pounds 44m to scheme

National Grid Group, the privatised company which operates the electricity transmission network, was last night poised for confrontation with the pensions industry ombudsman over a provisional order to repay pounds 44m removed from its pension scheme.

David Jefferies, chairman of the Grid, said the company would reject the ruling in its formal response, due to be submitted today.

If the ombudsman, Dr Julian Farrand, upholds his original conclusion that the cash was wrongly removed from the fund, a move which is widely expected, then the Grid is certain to take the case to the High Court.

The Grid is thought to have examined whether it needs to write off the pounds 44m in its accounts for the year to April as an exceptional charge. Even if Dr Farrand rules against the company in his final judgment, the Grid believes it would not automatically have to make provisions for the cash until the outcome of a court case.

Dr Farrand is thought unlikely to make his final judgment for several months, but the case is being closely watched by other privatised electricity companies, which together could be forced to repay a total of almost pounds 1bn. More than 200,000 fund members across the power industry stand to benefit from the ruling, because each of the companies' funds is also part of the main Electricity Supply Pension Scheme.

Yesterday Mr Jefferies made it clear that the Grid's only option was to fight the ombudsman in the interests of shareholders. He said: "Obviously there's some way to run on this issue, but we believe there's been a very fair distribution of benefits to staff and to the company."

Meanwhile, the head of another electricity company, who did not want to be named, expressed concern that the City had still not realised the serious implications of the dispute: "An awful lot of big investors haven't thought through what this really means. It could be important for them. Also some of the companies involved don't seem to appreciate it."

In his judgment, made before Christmas, Dr Farrand said the Grid had misused a pounds 62.3m surplus in its pension fund, identified after an actuarial valuation in 1992. The company had allocated 70 per cent of the surplus to itself in order to fund early retirement and redundancy payments, while pension scheme members were paid the rest in enhanced benefits. Dr Farrand argued the rules of the electricity supply scheme specifically blocked such payments to employers.

The total surplus cash removed by privatised power companies after the 1992 valuation was some pounds 500m, but it has subsequently emerged that another actuarial valuation was carried out in 1995, where similar surpluses were also identified.