TIDMBC39
RNS Number : 9476D
Yorkshire Electricity Distribution
30 March 2011
The following regulated information, disseminated pursuant to
DTR 6.3.5, comprises the Annual Report and Accounts of Yorkshire
Electricity Distribution plc for the year ended 31 December
2010.
Pursuant to LR 17.3.1, the document has been submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
www.hemscott.com/nsm.do
The 2010 Annual Report and Accounts are also available on the
website
www.ce-electricuk.com
Enquiries:
John Elliott 0191 223 5103
REPORT OF THE DIRECTORS AND
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010
FOR
YORKSHIRE ELECTRICITY DISTRIBUTION PLC
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
CONTENTS OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
Page
Company Information 1
Report of the Directors 2
Report of the Independent Auditors 26
Income Statement 27
Statement of Comprehensive Income 28
Statement of Financial Position 29
Statement of Changes in Equity 30
Statement of Cash Flows 31
Notes to the Financial Statements 32
YORKSHIRE ELECTRICITY DISTRIBUTION PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2010
DIRECTORS: R Dixon
T E Fielden
J M France
N M Gill
P A Jones
SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 4112320 (England and Wales)
AUDITORS: Deloitte LLP
Newcastle upon Tyne
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
The directors present the annual report and accounts of
Yorkshire Electricity Distribution plc (the "Company") for the year
ended 31 December 2010, which includes the business review and
audited financial statements for that year. Pages 2 to 25 inclusive
of this annual report comprise a directors' report that has been
drawn up and presented in accordance with the Companies Act
2006.
Cautionary statement regarding forward-looking statements
This annual report has been prepared for the members of the
Company only. The Company, its directors, employees or agents do
not accept or assume responsibility to any other person in
connection with this document and any such responsibility or
liability is expressly disclaimed. This annual report contains
certain forward-looking statements, which can be identified by the
fact that they do not relate only to historical or current facts.
In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in
results of operations, business prospects, the availability of
financing to the Company and anticipated cost savings are
forward-looking statements.
By their nature, these statements and forecasts involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. There are a
number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements and forecasts. The forward-looking
statements reflect the knowledge and information available at the
date of preparation of this annual report and will not be updated
during the year. Nothing in this annual report should be construed
as a profit forecast.
PRINCIPAL ACTIVITY
The Company is part of the CE Electric UK Funding Company group
of companies (the "CE Group") and its principal activity during the
year was to distribute electricity to customers connected to its
electricity distribution network.
The Company serves an area of approximately 10,700 sq. km
encompassing the counties of West Yorkshire, East Yorkshire and
almost all of South Yorkshire, together with parts of North
Yorkshire, Derbyshire, Nottinghamshire, Lincolnshire and
Lancashire, receives electricity from the National Grid's
transmission system and distributes it to approximately 2.2 million
customers connected to its electricity distribution network of
transformers, switchgear and overhead and underground cables, at
voltages of up to 132kV. The Company is an authorised distributor
under the Electricity Act 1989 and holds an electricity
distribution licence granted by the Secretary of State.
In common with the CE Group, the Company operates a business
model and strategy based on its six core principles (the "Core
Principles"), which are:
Principle Strategy Indicator
Financial strength Effective stewardship of Profitability,
the Company's financial cash flow and
resources, investing in maintenance of
assets and focusing on investment grade
long-term opportunities, credit ratings.
which contribute to the
Company's future
strength.
Customer service Delivering reliability, Improving network
fair prices and resilience and
exceptional service. performance,
measured by:
customer minutes
lost; customer
interruptions; and
customer
satisfaction.
Operational Setting high standards Effective asset
excellence for the Company's management,
operations and system managing
investment, operation commercial risk
and maintenance. and improving
network resilience
and performance.
Employee Equipping employees with Leading safety
commitment the resources and skills performance,
they need to operate engaging employees
successfully and in a and effective
safe and rewarding leadership.
environment.
Environmental Using natural resources Reducing
respect wisely and protecting environmental
the environment, where impact and
it is impacted by the promoting and
Company's operations. pursuing long-term
sustainability.
Regulatory Adhering to a policy of Strong internal
integrity strict compliance with controls,
appropriate standards, regulatory
policies and engagement and
legislation. industry
influence.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
The Company continues to put plans in place to deliver its
objectives against the strategy based on the Core Principles,
executes on those plans across a range of activities, measures its
progress and introduces corrective action wherever required.
Although there was only limited improvement in the general economic
environment, by adhering to the Core Principles, the Company was
able to deliver a continued, pleasing financial performance for the
year.
REVIEW OF BUSINESS
The Company made a promising start to the Distribution Price
Control Review 5 ("DPCR5") period, which took effect on 1 April
2010 for a five-year period and followed the Company's agreement to
the required modifications to its electricity distribution licence.
A change to the tariff charging methodology, introduced during the
year, has resulted in an increase in revenue compared to the prior
year.
Based on the DPCR5 final proposals, together with a rebalancing
of distribution charges between customer groups, the Company's
charges made in relation to the distribution of electricity to
domestic customers reduced by 1% on 1 April 2010, which was
equivalent to about 0.1% on their electricity bills. Changes to the
Company's charges made in relation to non-domestic customers varied
more widely between the different types of non-domestic
customers.
There is a focus in DPCR5 on rewarding Distribution Network
Operators ("DNOs") for delivering high standards of customer
service and providing the opportunity for outperforming Ofgem's
baseline expenditure and performance targets. In addition, Ofgem
has set out the "outputs" it expects the Company to achieve and, as
an incentive to provide better customer service, introduced new
statutory guaranteed standards of performance in respect of
connections to the distribution networks, more challenging targets
for network reliability and a new measure of customer satisfaction
with the service provided.
During the year, the CE Group was successful in winning funding
under the Low Carbon Network Fund arrangements for its customer-led
network revolution project, received an award under the electricity
distribution customer service reward scheme, implemented the new
guaranteed standards of performance in the network connections area
of its business and achieved a significant reduction in the number
of failures recorded against the various guaranteed standards of
performance so that it recorded its best ever performance in that
respect. Further details are given under sustainability within the
Core Principles section below.
There were some disappointing aspects to the Company's health
and safety performance for the year, with the Company missing its
internal targets in respect of lost time accidents, preventable
vehicle accidents and operational incidents.
DIVIDENDS
During the year, an interim dividend of GBP40,000,000 (13.8p per
share) was paid.
RESEARCH AND DEVELOPMENT
The Company supports a programme of research that is expected to
contribute to higher standards of performance and a more
cost-effective operation of its business. The main areas of
activity during the year, on which the Company invested GBP586,000
(Note 6 to the accounts), were:
- Active participation in programmes of national significance in
collaboration with other DNOs and academic institutions to make
significant technological progress for utilisation by the industry
as a whole;
- Continuing to support collaboration with other DNOs, both
through industry associations and on a multilateral basis, on a
range of incremental improvements to tools and equipment that, if
successful, will further add to overall efficiency
improvements;
- Development of a successful competitive bid to the newly
established Low Carbon Networks Fund, second tier. This project,
which is being delivered in collaboration with several key UK
technology providers, will trial novel technologies and approaches
to the installation and use of low carbon technologies likely to be
seen on the network in the near future and to explore the impact of
such technologies on network planning, design and operation;
- Building on the successful, and still ongoing, field trials of
newly developed superconducting fault limiters. A new project,
funded though the Low Carbon Networks Fund first tier, has been
instigated to implement this new technology at higher voltages and
thus provide further technology options as alternatives to
traditional engineering solutions for network constraints;
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
- Continuing to develop a suite of asset indices for improved
asset management alongside a new integrated database and expert
system to allow better decision making and improved exploitation of
information gathered in previous projects;
- Having completed a project at Durham University to assess
electrical network risk with the objective of improving decision
making for network reinforcement and operation the Company has
successfully obtained further funding through the Knowledge
Transfer Partnership programme to embed the learning developed
within the organisation to ensure maximum business impact for the
investment already made; and
- A new project, investigating demand side management impacts on
network risk, which will support also support the low carbon
network activities is now underway.
FUTURE DEVELOPMENTS
The financial position of the Company, as at 31 December 2010,
is shown in the statement of financial position on page 29.
The directors intend to intend to continue to develop the
Company's business in a manner that concentrates on its core skills
of electricity distribution by continuing to operate that business
with the goal of out-performing the allowances in the distribution
price control, while efficiently investing in the electricity
distribution network with the aim of improving the quality of
supply and service provided to its customers.
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2010 to the date of this report.
R Dixon Non-Executive Director
T E Fielden Finance Director, CE Electric UK
J M France Regulation Director, CE Electric UK
N M Gill Field Operations Director, CE Electric UK
P A Jones President and Chief Operating Officer, CE Electric
UK
COMPANY'S POLICY ON PAYMENT OF CREDITORS
The Company complies with the Better Payment Practice Code for
the prompt payment of suppliers in accordance with the normal terms
of trade. It is Company policy with respect to its suppliers to
settle the terms of payment with those suppliers when agreeing the
terms of each transaction, to ensure that those suppliers are aware
of the terms of payment and to pay in accordance with the Company's
contractual and other legal obligations. The number of days
purchases in trade creditors for the Company at 31 December 2010
was 11 (2009: 30).
POLITICAL AND CHARITABLE CONTRIBUTIONS
During the year, charitable donations of GBP31,385 were made
(2009: GBP29,313), principally to local charities serving the
communities in which the Company operates. No contributions were
made to political organisations (2009: nil).
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
STRATEGIC OBJECTIVES
The Company's strategic objectives remain based on the Core
Principles and are to build a business, which:
- continues to generate value over the long-term;
- invests in and manages its electricity distribution network in
an efficient and effective manner;
- provides its customers with an excellent standard of
service;
- engages with its employees so that they feel rewarded and
recognised as part of a team that sets and achieves increasingly
high standards of performance; and
- is viewed as being a leader in terms of shaping the future
direction of the electricity distribution network sector in the
United Kingdom.
As part of its strategy the Company continues to be committed to
putting safety first, respecting its customers, their time and
property, doing a quality job, responding effectively in times of
severe weather (when it is needed most) and caring for its local
environment.
CORE PRINCIPLES
Financial strength
During the year, the Company continued to implement tighter
expenditure controls through the wide-ranging cost mitigation
exercise, enhanced the reporting of management information and
embedded the culture of continuous financial improvement in all
areas of its operations.
The Company remains very aware of the impact that the general
economic climate has had and may continue to have for the
foreseeable future on it and its customers. In that respect,
procedures are in place to closely monitor and manage the issues
that may impact on the Company's business more significantly than
others, including lower activity in terms of new connections
required to the network and the potential for higher debt write-off
as the economic downturn further affects the Company's
customers.
Although it benefits from the stability provided by DPCR5 in
terms of its income until 31 March 2015, the Company recognises
that it needs to show that it is delivering reliable services at a
fair price to its customers, while operating in an efficient and
effective manner.
Key aspects of financial performance for the year were as
follows:
Revenue
The Company's revenue at GBP325,712,000 was GBP38,124,000 higher
than the prior year mainly due to an increase in units distributed
and also a change in the tariff charging methodology which was
introduced during the year.
Operating profit
The Company's operating profit at GBP172,487,000 was
GBP32,884,000 higher than the previous year reflecting the increase
in revenues in the year.
Finance costs and investments
Finance costs net of investment income at GBP37,705,000 were
GBP3,851,000 higher than 2009 reflecting the re-financing of
floating rate short term borrowings with the new long term debt
provided by the European Investment Bank.
Taxation
The effective tax rate in the current year is 22%. Details are
provided in Note 7 to the accounts.
Results and dividends
The Company made a profit after tax for the year of
GBP105,035,000. An interim dividend of GBP40,000,000 was paid
during the year and the directors recommend that no final dividend
be paid in respect of the year.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Share capital and debt structure
There were no changes to the Company's share capital during the
year.
On 2 July 2010 the Company entered into an agreement with the
European Investment Bank ("EIB"), which provided the Company with a
credit facility of GBP151m. The financial obligations of the
Company under this contract are guaranteed by CE Electric UK
Funding Company. On 20 July 2010, the Company drew on that facility
in its entirety at a fixed rate of 4.133%. These funds were used to
repay existing borrowings at floating rates of interest.
Dividend policy
The Company's dividend policy is that dividends will be paid
only after having due regard to available distributable reserves,
available liquid funds and the financial resources and facilities
needed to enable the Company to carry on its business for at least
the next year. In addition, the level of dividends is set to
maintain sufficient equity in the Company so as not to jeopardise
its investment grade issuer credit rating.
Cashflow
The Company aims to collect from customers and pay suppliers
within contracted terms. Any surplus cash held is remitted to
Yorkshire Electricity Group plc ("YEG"), a company in the CE Group,
and invested accordingly, generating a market rate of return for
the Company.
Movements in cash flows were as follows:
Operating activities: Cash flow from operating activities at
GBP148,825,000 was GBP27,500,000 higher than the previous year
reflecting higher profitability in the year.
Investing activities: Net cash used in investing activities at
GBP136,248,000 was GBP7,991,000 lower than the previous year
reflecting lower net capital expenditure compared to the prior
year.
Financing activities: The net cash used in financing activities
at GBP12,577,000 represents a GBP28,492,000 adverse variance
compared to the previous year, reflecting re-financing
activities.
Treasury
The Company's short-term financial objective is to ensure that
it has access to sufficient liquidity to enable it to meet its
obligations as they fall due and to provide adequately for
contingencies. The long-term objective is to provide a stable and
low cost of financing over time whilst observing approved risk
parameters. The main risks are liquidity and interest rate
risk.
Liquidity risk
The Company has access to GBP75m under a three year committed
revolving credit facility provided by Lloyds TSB Bank plc, The
Royal Bank of Scotland plc and Abbey National Treasury Services
plc. This facility replaced the GBP50m five year committed
revolving credit facility provided by Lloyds TSB Bank plc and The
Royal Bank of Scotland plc, which expired on 31 March 2010. The
GBP75m three year committed revolving credit facility expires on 31
March 2013 and the Company expects to raise further facilities as
required, at that time.
In addition, the Company has access to further short-term
borrowing facilities provided by YEG, and a GBP2m overdraft
facility provided by Lloyds TSB Bank plc, which is renewable
annually.
The directors do not consider there to be any doubt over the
Company's ability to raise appropriate levels of finance in the
future, given its investment grade issuer credit rating and the
fundamental financial strength and nature of its business.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Interest rate risk
The Company is financed by long-term borrowings at fixed rates
and has access to short-term borrowing facilities at floating rates
of interest. As at 31 December 2010, 92% of the Company's
borrowings were at fixed rates and the average maturity for these
borrowings was 14 years.
Currency risk
No material currency risks are faced by the Company.
Trading risk
Throughout the year under review, the Company's policy was that
no trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2010 and during the year it was the Company's
policy not to hold any derivative financial instruments.
Pensions
The Company is a participating employer in the Northern Electric
Group of the Electricity Supply Pension Scheme (the "Scheme"), a
defined benefit scheme. Full details of the Company's commitments
to the Scheme and the associated deficit repair payments are
provided in Note 22 to the accounts.
During 2010, Northern Electric plc, the Company's immediate
parent company and the Principal Employer of the Scheme, was
engaged with the Group Trustees in the triennial actuarial
valuation process, as at 31 March 2010, in order to determine the
funding position of the Scheme and the associated deficit repair
arrangements. Those discussions are continuing as at the date of
these accounts.
Ofgem recognises that pensions, particularly with respect to the
current deficit positions of various schemes, represent a
significant cost to the DNOs and as part of the DPCR5 process
undertook a review of the pension principles it established in
2003. In its DPCR5 final proposals, Ofgem confirmed that DNOs would
be allowed to recover the full value of the deficits attributable
to a licensee's distribution business in existence as at 31 March
2010 (after an adjustment to reflect the residual of unfunded early
retirement deficiency costs as at 31 March 2010), via its regulated
revenues. However, given the regulated nature of the DNOs'
businesses, Ofgem took the view that there is not the same risk or
urgency as in other sectors of the economy to ensure that those
deficits are repaired as soon as possible and therefore set a
notional repair period of 15 years for the purpose of assessing the
DNOs' allowed revenues in respect of pension costs over the DPCR5
period.
As the actual repair period for each scheme is a matter for the
trustees of that scheme to agree with its sponsoring employer,
which, in the Company's case, is Northern Electric plc, Ofgem
recognised that there is the potential for there to be a difference
between the repair period so agreed and the 15 year notional repair
period used in DPCR5. Noting this position, Ofgem commented in the
DPCR5 final proposals that, should shorter deficit repair periods
be agreed between trustees and sponsoring employers, the DNOs'
allowed revenues over the remaining portion of the 15 years will be
adjusted so that the DNOs suffer no detriment on a net present
value basis.
The Company also participates in the Northern Electric Money
Purchase Scheme and the Yorkshire Electricity Pension Plan, which
are defined contribution schemes.
Insurance
As part of its insurance and risk strategy, the CE Group has in
place a range of insurance policies, including policies which cover
risks associated with damage to property, employer's and third
party motor liability and public liability. The CE Group carries
appropriate excesses on those policies and is effectively
self-insured up to the level of those excesses. Consequently, the
risk management and health and safety programmes in place are
viewed as extremely important elements of the business, given the
contribution they make to the elimination or reduction of exposure
to such risks.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Customer service
During the year, the Company distributed electricity to
customers in its distribution services area and continued to
improve the overall performance of the distribution network through
an investment strategy targeted at delivering improvements in an
efficient and cost-effective manner. The Company is focused on
delivering a reliable and dependable supply of electricity and a
high standard of service to its customers and, during the year, a
significant number of improvements were identified and delivered as
part of the overall goal to improve customer satisfaction with the
service provided.
Those improvements included:
- building on the introduction of the interactive voice response
system in the call centre. The system takes advantage of the latest
developments in automatic messaging and enables the provision of an
improved service, including text and voice-message updates, to
customers during loss of supply incidents;
- improving the accuracy of the times estimated for the
restoration of supply during network faults that are communicated
to customers;
- continuing to improve under-performing parts of the
distribution network by identifying "hot spots" and taking specific
action to address the issues in those areas;
- maintaining the priority services register so that the Company
is aware of people with disabilities or special needs, who may be
affected by interruptions to the electricity supply, and can take
appropriate action to assist those people in such
circumstances;
- undertaking a programme to reduce the number of instances in
which the Company fails to meet an electricity guaranteed standard
of performance; and
- improving customer service by resolving in excess of 95% of
enquiries at the initial point of contact.
The Company achieved a customer satisfaction score of 89.8%
(2009: 88.2%) for the regulatory year ended 31 March 2010 and
intends to build on the telephony system mentioned above in order
to more effectively integrate its other customer facing processes
to improve the service provided. Continued development of the
Company's customer service improvement plan will include increasing
focus on excellence in customer service in order to maintain a
customer satisfaction score of greater than 90% (2009: 90%).
The Company formally implemented the new electricity connections
guaranteed standards of performance in October 2010 following a
successful audit, which confirmed compliance with Ofgem's
requirements. Performance was positive throughout the opening
quarter following the implementation of those new guaranteed
standards, with the Company achieving a success rate of 99.94%.
Following the completion of a successful audit, the Company
submitted a regulated margin notice to Ofgem, in accordance with
the provisions of Charge Restriction Condition 12 of the
electricity distribution licence, of its intention to charge a
regulated margin on relevant connections activities. As a result, a
regulated margin of 4% has been charged on the relevant connections
activities since October 2010.
Ofgem has established an incentive scheme for quality of
service, by which the DNOs are provided with financial incentives
based upon targets set by Ofgem with regard to their performance in
the following areas:
- The number of interruptions to supply;
- The duration of interruptions to supply; and
- Customer satisfaction.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Customer minutes lost ("CML") and customer interruptions ("CI")
are the key performance indicators used by the Company to measure
the quality of supply and system performance. CML measure the
average number of supply minutes lost for every connected customer
due to faults and planned outages that last for three minutes or
longer. CI measure the average number of supply interruptions for
every 100 connected customers due to faults and planned outages
that last for three minutes or longer.
DNOs' performance against guaranteed standards, set for
activities such as restoring supplies after unplanned
interruptions, provides a measure of the level of customer service.
Performance against these measures forms part of the Company's
regular reporting to Ofgem.
In respect of the key customer service performance indicators,
the Company's reported performance for the regulatory year to 31
March 2010, against the targets determined by Ofgem, was as
follows:
Actual Target
CML: 63.5 (2009: 73.1) 65.1 (2009: 63.4)
CI: 71.4 (2009: 76.4) 68.5 (2009: 68.5)
Customer Satisfaction 89.8% (2009: 88.2%) 90% (2009: 90%)
Performance in the regulatory year to 31 March 2010 showed an
improvement in each category and was better than Ofgem's target for
CML, although CI and customer satisfaction missed target. The
Company continues to anticipate that the customer service
improvement actions mentioned above and the various improvement
actions in respect of the network's resilience will continue to
support improvements in performance.
At the time the above targets were set, no account was taken of
the customer service impact arising from additional vegetation
management obligations, which were not allowed for in the
distribution price control four ("DPCR4") settlement. The customer
service targets were not adjusted to take account of the effects of
the representations made by the Company and accepted by Ofgem.
Instead, the benefits arising from that decision were reflected in
a favourable adjustment to the Company's base allowed revenue. That
position continued until 31 March 2010 and the implementation of
DPCR5 with effect from 1 April 2010.
Operational excellence
The Company's core service continues to be providing and
maintaining an efficient distribution network that delivers
electricity effectively. During the year, GBP181,021,000 was
invested in the improvement of the distribution network, including
the replacement of assets and continuing network improvements
intended to increase the quality of the electricity supply provided
to customers.
Operational activity
The Company's investment strategy is designed to deliver
improvements in an efficient and cost-effective manner in order to
improve the network's resilience by minimising the number of faults
that occur, reducing the average number of customers affected by a
fault and providing a quicker restoration service in the event of a
fault.
The Company's Field Operations structure is designed to provide
the best possible foundation for optimum operational performance
and is based on six individual business units for the operation of
the network, as follows:
- Network Operations provides the day-to-day and reactive
management of the distribution network at all voltages and includes
activities such as network performance, emergency planning and
restoration activities associated with network faults;
- Service Delivery has responsibility for the control and
management of the craft-based staff, direct labour and the
provision of this resource to the other business units and is
structured across two geographic zones;
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
- Network Repairs focuses on core repair activities and
significant cost control initiatives in respect of expenditure on
the repair of faulted assets;
- Connections Delivery undertakes non-discretionary,
customer-driven work and is structured across two geographic
zones;
- Programme Delivery has a functional bias to its activities and
includes primary engineering projects, overhead programme delivery,
asset programme delivery and protection and technical services;
and
- Operational Services includes contract management, business
controls and administration, supply chain management, training and
health and safety services.
This operating structure enabled the focus in the year to
continue to be on delivering the core operational programmes and
assisted the Company in identifying the priorities it needs to
deliver in order to enhance its performance. Those priorities were
identified as including a reduction in the average level of fault
repair work in progress, the introduction of improvements in field
response and supply restoration times and in the management of
intermittent faults, the implementation of enhanced controls for
outage risk management and a more robust approach to the control of
operations on the low voltage network.
The major projects undertaken in support of those targets and as
part of the investment strategy included:
- Continuation of the major asset replacement of 132kV open
terminal substations with indoor gas insulated switchgear in the
Wakefield and Hull areas, of the replacement of 66kV assets at
Ferrybridge and of the replacement of three 66/11kV substations in
the South Yorkshire area;
- Completion of the replacement of 33kV oil-filled cables in the
Brighouse, Dewsbury and Leeds areas and of a substation replacement
scheme in the South Yorkshire area and the construction of 66/11kV
substations to provide increased capacity to the Scunthorpe and
Selby areas;
- Refurbishment of 13km of 132kV overhead line and refurbishment
or rebuilding of 47km of high voltage overhead line and 14km of low
voltage overhead line;
- Replacement of 66 units of high voltage outdoor switchgear, 39
high voltage distribution substations and 65 units of high voltage
indoor switchgear;
- The upgrade and reinforcement of 105 sites to address the
quality of supply performance issues relating to those circuits;
and
- The installation and commissioning of 452 new remote control
units.
In order to deliver its investment strategy the Company used a
mix of its own staff and contractors, including Integrated Utility
Services Limited, an affiliated company registered in the Republic
of Ireland, to undertake its activities.
Commercial risk
Managing commercial risk in the context of the difficult
economic and financial trading conditions, which continued
throughout the year, was, and will continue to be, of key
importance to the Company's operations. In that respect the Company
focused on ensuring that its policies for credit checking, payment
terms, payment performance tracking and debt management were
strictly adhered to.
The Company's relationship with its main customers is governed
by a distribution connection and use of system agreement ("DCUSA"),
which is in place with each of those customers. Those customers are
the electricity suppliers who, under the terms of the DCUSA, pay
charges for the use of the distribution network, in respect of
which it is necessary to ensure that the credit cover arrangements
in line with Ofgem's guidance remain in place. The principal
electricity suppliers that use the Company's network are RWE
Npower, British Gas, EdF Energy, E.on, Scottish and Southern Energy
and Scottish Power.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Employee commitment
Health and safety
During the year, the focus on health and safety continued to be
of paramount importance for the directors, as it is for all
employees. Providing and maintaining a safe working environment is
the first objective of the Company. There is a continuous drive for
improvement in safety performance through the setting of
challenging goals and the pursuit of a programme of on-site safety
audits, which reflect the Company's fundamental objectives that
none of its staff should go home injured and all employees should
commit to behaving safely all of the time. The Company makes no
compromise in respect of its health and safety obligations and
centres its safety plans and systems on the principles found in
companies with world class safety performance.
In 2010, the Company received its fifth successive Gold Medal
from the Royal Society for the Prevention of Accidents for
occupational health and safety performance and provision, to
recognise the achievement of continued or improving standards of
health and safety over a sustained period. The Gold Award is the
highest achievement award and the Gold Medal is presented for
receiving five or more successive Gold Awards. The Company
continued to maintain its OHSAS 18001 certification in 2010 and is
eligible in 2011 for the Royal Society for the Prevention of
Accidents' President's Award, for ten or more successive Gold
Awards.
The main key performance indicators used by the Company to
monitor safety performance are as follows:
2010 2009
Target Actual Target Actual
Lost time accidents 1 4 1 1
Restricted duty
accidents 2 2 2 4
Medical treatment
accidents 3 1 4 3
Operational incidents 4 6 4 5
Preventable vehicle
accidents 13 23 13 19
Although safety performance relative to the internal targets was
disappointing in certain areas during 2010, performance levels
continue to benchmark very well against others in the sector. The
Company continues to implement a safety improvement plan that
targets delivery of continuous improvement. As part of that plan,
the Company introduced a number of safety initiatives in order to
prevent slips, trips and falls, which proved successful during the
severe wintry weather conditions experienced both at the beginning
and end of the year. These initiatives included the use of "Spikey
Plus" ice cleats for use over other safety footwear and the
increased availability of grit salt for use on site works.
Performance in respect of preventable vehicle accidents was
worse than the target for the year and in comparison to 2009. A key
factor in looking to improve that performance is the progress being
made in respect of the CE Group's road risk management plan, which
involved a significant number of staff undertaking the Institute of
Advanced Motorists online driver assessment and training module
followed by an on-road refresher training session if required. In
2010 the road risk plan was named Van Fleet Initiative of the Year
by industry experts in a competition run by industry magazine Fleet
News.
Management structure
The Company has a clearly defined leadership team in which
specific roles are identified so allowing effective management of
the Company's business and response to any control weaknesses that
may become apparent, with single units being in place for field
operations, customer operations, asset management, and health,
safety and environment. The business systems, human resources,
procurement and finance functions are centralised in order to
provide those services across the CE Group.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Employees
The challenging external economic environment continued
throughout 2010 and the Company continued to implement its
programme of cost mitigation, which included the control of
headcount and salary cost allocation.
The Company has placed, and will continue to place, significant
emphasis on the importance and application of high standards of
management and performance in pursuit of the Core Principles and
ensures that a level of consistency is adopted in doing so. In
respect of employee relations, the Company and the trades unions
continue to work towards building a constructive relationship.
Given the demographics of the Company's workforce, the
increasing investment in the distribution network and in order to
encourage investment in a sustainable workforce, Ofgem provided an
allowance in its DPCR5 final proposals in order to fund the plans
for workforce renewal across the DPCR5 period. Ofgem has stated
that the allowance is on a "use it or lose it" basis and the
Company will need to demonstrate that it has used that allowance
appropriately and efficiently to recruit and train new staff or for
other means of renewing its workforce and report annually on its
progress in that respect. During the year, the CE Group recruited
45 new members of staff under its workforce renewal programme and
has plans in place to have recruited a total of 275 graduate
trainees and craft apprentices by the end of 2015.
The Company employed 1,106 staff at the end of December 2010.
(2009: 1,102).
Disabled employees
The CE Group is committed to equality at work and as such is
committed to the criteria underpinning the Employment Service
disability symbol. It is the CE Group's policy to provide all
protected groups including disabled people with equality at work in
respect of employment, training, career development and promotion,
having regard to their aptitudes and abilities. Should any member
of staff become disabled during their employment, the Company would
work to retrain and/or redeploy that member of staff wherever
possible.
Employee consultation
The CE Group has a constitutional framework in place and has
agreed that framework with trade union representatives. In
addition, the CE Group communicates directly, and through the
management structure, with personal contract holders and keeps them
informed of and involved as appropriate in any developments that
may impact on them now or in the future.
The CE Group is committed to maintaining and improving effective
communication with employees, principally through regular staff
briefs on current issues, meetings with staff and their
representatives and the issue of an employee publication. During
the year, the President and Chief Operating Officer of the CE Group
delivered regular broadcast briefings using telephone conference
call facilities in order to provide employees with updates such as
on the performance of the CE Group, financial, organisational and
safety issues and customer service performance.
Environmental respect
The CE Group's approach to environmental compliance is governed
by its environmental policy and the MidAmerican policy of
Environmental RESPECT (Responsibility, Efficiency, Stewardship,
Performance, Evaluation, Communication and Training). These
policies and their subordinate operational control procedures and
systems address compliance with legal and other key environmental
requirements, pollution prevention and continual improvement and
also promote environmental awareness and best practice amongst the
Company's staff and contractors.
The Company has operated a United Kingdom Accreditation Service
scheme since the late 1990s, certified to the environmental
management systems standard ISO 14001 and is subject to regular
six-monthly assessments by an accredited external certification
body in order to retain that status. The most recent assessments
were carried out by Lloyd's Register Quality Assurance in April and
September 2010. There were no major non-conformances noted and the
assessment reports concluded that the main management system
elements were seen to be effective and well maintained and
continual improvement was demonstrated.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Having met its key improvement target in the reduction of cable
fluid leakages for the two previous years, the Company did not
achieve its target for 2010. However, the position remained stable,
despite the adverse effect on the fluid-filled cable systems of the
extremely low temperatures in early and late 2010. Although falling
short of expectations, performance in 2010 continued to provide a
crucial contribution to the control of the CE Group's environmental
impact to ground and the associated risk to the business. Future
improvements are supported by the Company's continued asset
investment plan.
Improvements in support of the CE Group's environmental policy
objectives during the year included:
- Replacing selected fluid-filled cable sections with non-fluid
polymeric equivalents;
- Replacing oil-filled circuit breakers with vacuum and sulphur
hexafluoride gas filled units at outdoor substations to reduce the
potential for oil leakage;
- Installing underground cables using trenchless technology as
opposed to open-cut excavations;
- A depot energy efficiency improvement programme; and
- Environmental awareness training for new personnel and
contractors, complemented by periodic refresher training for all
staff.
Environmental impact on protected structures, features, areas,
wildlife and habitat is a central part of planning improvements to
the Company's electricity distribution network. This includes
protecting bird life by placing bird-diverters on power lines in
reserves or in locations where rare species of bird are known to
live or breed and in response to information from incident trends
and the proximity of wetlands and flight paths.
The Company recognises the importance of its service to
customers and the economy and is committed to forging strong links
with partners to improve its emergency response. The Company has
strengthened its relationship with the Environment Agency and local
authorities so that it can respond quickly when river levels rise.
Once the Environment Agency issues a flood warning, the Company's
database now identifies substations that are at risk so that staff
can be deployed immediately to erect perimeter flood defences at
major substation sites and portable defence barriers at lower-risk
sites. The CE Group now employs a full-time Civil Contingency
Co-ordinator who liaises with the Resilience Forums of those local
authorities in the Company's distribution services area to ensure
that its emergency response continues to improve.
Sustainability
The Company takes its responsibilities towards reducing the
impact of global warming seriously, both in its capacity as a major
participant in the UK energy industry and in terms of its own
carbon footprint. Through its involvement in industry groups and
its interactions with government and regulators, it is contributing
to the target of transforming the UK electricity industry into a
low carbon emitter. The Company also works with customers to assist
in solving issues raised by the introduction of low-carbon
generation and products and their implications for the planning and
operation of the electricity network.
System losses contribute to the UK's carbon footprint and the
Company's programmes include trialling technological innovations
that help to reduce those losses, such as the superconducting fault
current limiter projects. It is also involved in studies with
Durham University to examine behavioural influences on energy
demand patterns. In recognition of the fact that the advent of the
electric vehicle has the potential to radically alter how and when
electricity is used, the Company is working closely with key
partners in the North East who are installing a significant number
of electric vehicle charging points across the region and
monitoring their impact on energy demand patterns. The findings
will also influence the Company's future network investment.
The CE Group measures and publishes its own carbon footprint and
has set a target of reducing that footprint by 5% in both 2010 and
2011. Actions taken in 2010 to assist in meeting this target
included fitting speed limiters to its vehicle fleet, the training
of staff in the use of the building energy management systems
installed at its major office sites and extending the recycling of
office waste to a total of five sites. In addition the Company has,
in line with Ofgem's requirements, contributed to the
sustainability agenda through public reporting on the carbon
footprint of its business.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
In partnership with British Gas, Durham University and EA
Technology, the CE Group submitted a successful bid to Ofgem's Low
Carbon Networks Fund for its project, Customer-Led Network
Revolution. The project was the largest project supported by Ofgem
in the first year of the fund and the CE Group will incur
expenditure of GBP31m over the three year life of the project. Of
that expenditure, 90% is funded by electricity customers in Great
Britain and successful delivery of the project over the three years
agreed with Ofgem will enable the CE Group to recover the
additional 10% from customers and potentially qualify for a further
discretionary award. The project seeks to facilitate speedier and
more economical take-up by customers of low-carbon technologies
such as solar photovoltaics, heat pumps and electric vehicles. The
project will investigate customer behaviour in the use of
low-carbon technology, whether this can be influenced by financial
incentives and the extent to which customer response, when used in
conjunction with innovative network technology, can reduce network
costs.
The Company is also enabling customers in fuel poverty to reduce
their energy bills and carbon emissions by working with leading
suppliers of renewable energy technologies to minimise the impact
of these technologies on the network, ultimately reducing the
production cost for customers. The Company has already produced a
customer-friendly guide to sustainable energy production.
Regulatory integrity
The Company manages its business to the highest behavioural
standards and adheres to a policy of strict compliance with all
relevant standards, legislation and regulatory conditions. The
Governance and Risk Management Group ("GRMG") monitored and managed
performance in risk-related and compliance areas and met on three
occasions during the year.
As has been the case for some years, breaches by a DNO of its
licence conditions could lead to financial penalties, which Ofgem
has stated "will have a proportionate impact on shareholder
returns". In order to assure compliance with its licence and other
regulatory obligations, the Company operates a regulatory
compliance affirmation process, under which ownership of the
approximately 1,781 regulatory obligations contained within the
compliance database is currently assigned to 55 owners in the CE
Group. Those owners are required, on a quarterly basis, to review
compliance with their relevant obligations and report on any
perceived risks to the compliance process, which are then
addressed. The Regulation Manager reports to the board of directors
on the outcome of each quarter's exercise.
During the year, a revenue-related issue arose in that the
adjustment of settlements data by certain suppliers had the effect
of distorting the apparent performance of the Company under the
losses incentive scheme during the regulatory year ended 31 March
2010. The Company devoted a significant effort to investigating the
complexities of the settlement system data flows and presented its
findings to Ofgem, which agreed to the restatement of 2009-10
losses information on a revised basis proposed by the Company.
Ofgem's agreement to this restatement covered only the data flows
relating to the regulatory year ended 31 March 2010 and resulted in
an under-recovery being generated in respect of the Company's
maximum permitted revenue for that year of GBP8,158,000 to be
recognised as revenue over the 2011/12 regulatory period, as
opposed to the previously anticipated over-recovery.
Although this restatement is a favourable outcome and a
significant step towards resolving the overall commercial impact of
supplier activity on allowed revenues associated with the losses
incentive, the issue remains subject to the closing out of the
DPCR4 losses rolling retention mechanism. In addition, the impact
of the DPCR4 period performance on the DPCR5 final losses targets
remains uncertain and is to be resolved. Discussions with Ofgem in
respect of these issues are continuing as at the date of approval
of this annual report and accounts and the Directors aniticpate
that those discussions will be concluded by the end of 2011.
Implementation of the DPCR5 settlement from April 2010 included
the introduction, from October 2010, of a significant number of new
guaranteed standards relating to the Company's connection
activities and unmetered repairs activities. The Company
successfully met a licence requirement to pass an independent audit
of its readiness and ability to implement these new standards and
comply with the associated new financial reporting
requirements.
The outcome of the wholesale review of the regulatory framework
across the energy industry in the UK that was heralded by the
launch of Ofgem's "RPI-X@20" project in 2008, with the aim of
determining how best to meet the challenges and opportunities of
delivering the networks required for a sustainable, low-carbon
energy sector, was announced in October 2010. The Company took an
active part in the associated consultations and debates.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Under the resulting new RIIO (revenue = incentives + innovation
+ outputs) model for regulation, price controls will be set for
eight years (rather than five as at present), with provision for a
mid-period review of the outputs that network companies are
required to deliver. There will be increased involvement and
influence for other stakeholders. A particular potential issue, to
which the new regime may give rise, lies in the cash-flow impacts
of a proposed shift in the treatment of regulatory depreciation to
reflect economic asset lives, especially at a time when significant
investment is likely to be needed. The RIIO model will first be
applied in the transmission and gas distribution price control
reviews that are currently underway and are due to be implemented
in April 2013.
Corporate social responsibility
The Company values its relationship with its customers and their
communities, recognising the importance of a secure power supply to
the local communities and the economy. The Company aims to enhance
this relationship through wider involvement in the activities of,
and dialogue with, the communities it serves.
As part of its customer service strategy, the Company engages
directly with the communities it serves to create a dialogue on
quality of supply issues, the actions and investment planned to
improve the quality of supply, the environmental and social
implications of its operations and other opportunities to assist
and engage in the life of the local communities. The Company seeks
to engage disadvantaged groups in projects that bring about
benefits for participants and communities by actively promoting
participation and the development of transferable skills. This is
underpinned by a small donation programme focused on the Company's
key priorities for support for youth, education and the
environment.
Safety is a theme that unites every aspect of the Company's
operations and it participates alongside other key organisations in
Crucial Crew, which is a schools-based safety initiative that
teaches children to recognise and avoid situations that put them in
danger, such as climbing electricity pylons and fishing near power
lines. The campaign is supported through an interactive website and
mobile phone game.
In September 2010, the CE Group received an award under the
Corporate Social Responsibility category of Ofgem's Customer
Service Reward scheme for its work to assist customers installing
air source heat pumps.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties, which
could have an impact on the Company, its financial position and its
operations and may cause actual results to vary materially from
those expected or historically experienced. The principal risks are
outlined as follows:
Financial risk
As a holder of an electricity distribution licence, the Company
is subject to regulation by the Gas and Electricity Markets
Authority ("GEMA"), which acts through Ofgem.
Most of the revenue of the electricity distribution licence
holders is controlled by the distribution price control formula set
out in the electricity distribution licence. The price control
formula does not constrain profits from year to year but sets a
level of, and is a control on, revenue that operates independently
of most of the electricity distribution licence holder's costs.
It has been the practice of Ofgem to review and reset the
formula at five-year intervals, although the formula has been, and
may be, reviewed at other times at the discretion of Ofgem. The
current five-year price control period became effective on 1 April
2010 and has set the Company's revenues through to 31 March 2015. A
resetting of the formula requires the consent of the electricity
distribution licence holder but licence modifications may be
unilaterally imposed by Ofgem without such consent following review
by the Competition Commission. During the term of the price
control, changes in costs incurred will have a direct impact on the
Company's financial results.
The Company operates under a price control that determines the
maximum permitted revenue for each regulatory year. Where the
Company recovers more, or less, than this maximum the difference is
carried forward, with interest, into the entitlement for the
following year. In respect of the regulatory year to 31 March 2010,
the Company was forecast to exceed the maximum permitted under the
price control mainly as a result of late changes in the volumes of
sales reported by the electricity suppliers that had an impact on
the Company's entitlement under the electrical losses incentive of
its price control formula. The Company entered into a dialogue with
Ofgem in respect of this issue and proposed certain adjustments to
the relevant data for the regulatory year to 31 March 2010, which
Ofgem confirmed were necessary to restore the Company's allowed
revenue position to an appropriate level. This issue is discussed
further on page 14.
The other financial risks facing the Company are outlined in the
Treasury section on page 6 of this report.
Operational risk
There are a number of risks to the Company's operational
performance in respect of the other Core Principles, which
include:
- Counter-party security, with credit cover arrangements being
in place with the electricity suppliers, which would allow recovery
of defaulted payments through the price control mechanism;
- Severe weather incidents, which impact on the distribution
network's performance and are addressed through a robust major
incident management plan;
- The demand for copper, a key component in the construction of
distribution network assets, which has resulted in inflated prices
and an increased risk of unauthorised access to the Company's sites
for the purpose of theft;
- Public safety and network security issues, particularly
relating to the theft of copper; and
- The potential for the failure of major circuits, which would
put a significant number of customers at risk of losing supply.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Risk management
The CE Group operates a structured and disciplined approach to
the management of risk, as part of the overall risk management
approach. Risks are assessed with due regard to probability and
impact and the risk environment is reviewed continually in order
that new or emerging potential risks are identified. Those risks
assessed to be significantly high are logged within a risk register
that the Governance and Risk Management Group ("GRMG") reviews
regularly and key indicators track the number of significant risks,
which are actively monitored by the GRMG at any one time.
Risk mitigation and loss control plans are prepared in response
to strategic risks in order that the directors can be assured that
appropriate mitigating actions are in place and are being
implemented. These plans are monitored through to implementation
and reviewed to determine whether the level of residual, mitigated
risk is within an acceptable level of tolerance.
The CE Group identifies and assesses risks associated with the
achievement of its strategic objectives, including those of an
environmental and social nature. Any key actions needed to further
enhance the control environment are identified, along with the
person responsible for the management of the specific risk. A
regular review of the key risks, controls and action plans is
undertaken.
Risk management continues to be a central theme of senior
management priority setting as well as an explicit business process
that helps to stimulate the senior leadership's consciousness of
lower probability, high consequence threats to business success or
continuity. This approach is reinforced by the approach taken by
the wider MidAmerican Energy Holdings Company ("MidAmerican")
group, whose activities have continued to include a structured
benchmarking of risk management activities across the business
units, including the sharing of significant lessons learned
associated with risk management.
The risk management programme includes a regular review of
crisis management and disaster recovery plans which are
periodically tested. In 2010 activities included a review of the CE
Group's major incident plan for operational systems, participation
in exercises with local authorities to review the planned response
to major events and a disaster recovery test simulating the loss of
a non-operational office and support systems.
A key element and requirement of the risk management process is
that a written certificate is provided by the President and Chief
Operating Officer of the CE Group confirming that the effectiveness
of the system of internal controls has been reviewed during the
year. A self-certification process is in place, in support of this
review, whereby senior managers are required to confirm that the
system of internal control in their area of the business is
operating effectively.
Internal control
A rigorous internal control environment exists within the CE
Group based on regular reporting, a series of operational and
financial policy statements, investigations undertaken by internal
audit and a stringent process for ensuring the implementation of
any recommendations. MidAmerican, a parent company of the Company,
requires a quarterly control risk self-assessment to be undertaken
by all senior managers as part of its programme for compliance with
the requirements of the Sarbanes-Oxley Act. During the year, the
annual, extensive programme to review the company-wide controls was
completed and opportunities to enhance control arrangements,
identified by that review, have been implemented.
The CE Group is committed to proper business conduct and, in
common with MidAmerican, has adopted a code of business ethics that
emphasises the requirement for all staff to manage their activities
to achieve the highest level of ethical conduct.
The CE Group has a "speaking up" policy in place for staff to
raise any instances of unethical acts, malpractice or impropriety.
An additional process is also available to all staff via an
international, anonymous help line operated by an independent
company.
Human resource policies focus on skills, motivation and
excellence and the promotion of high standards of probity among
staff. In addition, the appropriate organisational structure has
been developed to control business units and to delegate authority
and accountability, having regard to acceptable levels of risk.
The Company has appropriate controls in place directed at
ensuring compliance with the conditions in its licence requiring
any payments made to, or received from, affiliates or related
undertakings in respect of goods and services provided or supplied
to be on an arm's length basis and on normal commercial terms.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Other key features of the internal control system are:
- Comprehensive business planning and financial reporting
procedures, including the annual preparation of detailed
operational budgets for the year ahead and projections for
subsequent years;
- Regular review of key performance indicators to assess
progress towards objectives;
- A range of policies, codes of practice and more detailed
instructions that define the processes to be followed;
- A strong internal audit function to provide independent
scrutiny of internal control systems and risk management
procedures, including the standards required by the Sarbanes-Oxley
Act;
- On-going health and safety performance reviews carried out by
in-house safety professionals in addition to the regime of routine
health and safety risk assessment and management processes carried
out within each of the operating units;
- Processes and procedures to operate under the Occupational
Health and Safety Assessment Series ("OHSAS") standard OHSAS 18001,
which is subject to external certification and regular
assessment;
- An external obligations programme, which provides a robust
approach to, and compliance with, financial, legal and regulatory
obligations;
- Centralised treasury operations that operate within defined
limits and are subject to regular reporting requirements and audit
reviews; and
- Established procedures for planning, approving and monitoring
major capital expenditure, major projects and the development of
new business which includes short and long-term budgets, risk
evaluation, detailed appraisal and review procedures, defined
authority levels and post-investment performance reviews.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
CORPORATE GOVERNANCE STATEMENT
The Financial Reporting Council issued a revised version of the
Combined Code on Corporate Governance (the "Combined Code") in June
2008. The Disclosure and Transparency Rules ("DTR") require an
issuer, to which section 7.2 of the DTR applies, to provide, in its
annual directors' report, a corporate governance statement. That
statement sets out how the issuer has applied the main principles
in the Combined Code and, to the extent that it departs from the
Combined Code, the issuer is required to explain from which parts
of the Combined Code it departs and the reasons for doing so.
The Company, therefore, provides the following statement by
reference to the principles incorporated in the Combined Code.
Compliance statement
Set out below and in the review of the year in the directors'
report are the areas in which the Company adopts and complies with
the principles of the Combined Code. The Company has not complied
with certain principles of the Combined Code, including the
principles A2, A3, A4, A6, A7, B1, B2, C3, D1 and D2. The directors
confirm that such non-compliance was of a continuing nature
throughout the year but consider the governance framework in place
to be appropriate to the circumstances of the Company, given that
the framework is agreed with MidAmerican and includes regular
reporting to and meetings with the President and senior management
of MidAmerican, the presence of an independent non-executive
director at board meetings of the Company and a strong internal
control environment designed to meet the standards required by the
Sarbanes-Oxley Act.
The intention of the Combined Code is that companies should be
able to explain their governance policies in light of the
principles contained in the Combined Code, including any special
circumstances applying to them, which have led to a particular
approach. The directors are of the opinion that, in the instances
where the Company does not comply with certain provisions of the
Combined Code, this approach is justifiable, given that the Company
is a wholly-owned subsidiary of MidAmerican and, as mentioned
above, the governance framework in place throughout the CE Group is
agreed with MidAmerican.
A Directors
Principle A1: The Board:
The board of directors is responsible for the overall management
of the Company and its system of internal controls. The directors
have agreed a quarterly schedule of board meetings at which they
review performance, strategy and operational and risk-related
issues. Regular items on the agenda for consideration at board
meetings are general business performance, internal control, key
business activities and projects and the regulatory compliance
process.
In addition, the President and Chief Operating Officer of the CE
Group participates in weekly performance review meetings with the
President of MidAmerican and other senior managers of the
MidAmerican group, including the Senior Vice President and Chief
Financial Officer. At those weekly meetings, the views of the
President of MidAmerican and the senior management team regarding
the key, current issues facing the Company are discussed.
The President of MidAmerican also receives weekly, monthly and
quarterly reports on the Company's performance from the CE Group's
President and Chief Operating Officer. MidAmerican's Senior Vice
President and Chief Financial Officer and General Counsel also hold
similar weekly review meetings in respect of MidAmerican's
financial and legal functions, at which the Company's Finance
Director and General Counsel present their respective weekly
reports.
The board meets quarterly and as required to consider relevant
issues and met on eight occasions in total during the year, with
the attendance of those directors, who were directors as at 31
December 2010, being as follows:
R Dixon Non-Executive Director 8
T E Fielden Finance Director 8
J M France Regulation Director 5
N M Gill Field Operations Director 7
President and Chief Operating
P A Jones Officer 7
Operational management of the Company's business (and that of
its affiliate, NEDL) is delegated to a single senior management
team, with specific functional responsibilities. That senior
management team meets monthly with the senior management of the CE
Group to monitor performance and address issues of policy across
all areas of the business and holds weekly conference calls to
report on and consider performance related issues for that week.
Further details of the management structure of the CE Group are
provided in the directors' report.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
The directors have overall responsibility for the internal
control environment, which, within the CE Group, is based on
regular reporting, a series of operational and financial policy
statements, investigations undertaken by internal audit and a
stringent process for ensuring the implementation of any
recommendations. In addition, MidAmerican requires a quarterly
control risk self-assessment to be undertaken by all senior
managers as part of its programme for compliance with the
requirements of the Sarbanes-Oxley Act.
A review is undertaken of the company-wide controls in place on
an annual basis and the review carried out in 2010, while not
identifying any areas of significant weakness, resulted in the
implementation of various recommended improvements. The key
features of the CE Group's internal control system and the issues
addressed by the Company and the CE Group during the year can be
found in the review of business in the report of the directors.
A schedule of key delegations of authority has been approved by
the board, which delegates authority for decision-making to senior
and other managers in respect of issues such as capital
expenditure, procurement, contractual, human resource and payment
matters and for the conduct of claims and litigation. That schedule
reserves decision-making to the directors above certain financial
limits.
During the year, there were a number of committees in operation,
acting under delegated terms of reference, which oversee CE Group
and, therefore, Company policy. As part of the approved terms of
reference, those committees report regularly to the board on their
activities and were as follows:
Health and Safety Management Committee
The board of CE Electric UK Funding Company has established the
CE Group Health and Safety Management Committee with delegated
powers to manage the health and safety policy and performance of
the CE Group. Membership of the committee comprises:
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
P A Jones President and Chief Operating Officer
A J Maclennan Managing Director, Integrated Utility
Services Limited
P McCormick Director of Group Health, Safety and
Environment
The committee meets on a regular basis in order to oversee
implementation of health and safety policy, review and agree
strategy for the management of health and safety issues, monitor
health and safety performance across the CE Group, establish goals
and targets, review the effectiveness of the health and safety
policies and the health and safety management system and consider
recommendations for changes in CE Group policy due to changes in
appropriate legislation, codes of practice or guidance or due to
recommendations arising from significant incidents.
Treasury Committee
The Treasury Committee oversees and implements the treasury
policies outlined in the directors' report and comprises:
G E Abel President, MidAmerican
P Ainsley Financial Controller
D Brady Treasurer
T E Fielden Finance Director
P J Goodman Senior Vice President and Chief Financial
Officer, MidAmerican
P A Jones President and Chief Operating Officer
R D McHaddan Assistant Treasurer
O Sutherland Investor Reporting Manager
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Pensions Committee
The Pensions Committee oversees the CE Group\'s approach to the
pension schemes to which it contributes and comprises:
P Ainsley Financial Controller
T E Fielden Finance Director
J M France Regulation Director
K Mawson Head of Finance Development and
Systems
A Patterson Director of Human Resources
N Dawson Pensions Manager
L Taylor Director of Business Systems
L Tweedie Head of Service Delivery
Governance and Risk Management Group
During the year the GRMG became the principal management forum
in the CE Group with regard to corporate governance. Its purpose is
to ensure that CE Group companies apply and maintain appropriate
arrangements to deliver sound corporate governance and comply with
the overall strategy, framework and supporting policies. The GRMG
monitors and reviews the strategic risk environment, ensuring the
continued suitability, adequacy and effectiveness of risk
management arrangements and reports to the CE Group's Audit
Committee. The GRMG comprises:
J P Barnett Director of Customer Operations
R Dixon Non-Executive Director
M Drye Director of Asset Management
J Elliot Company Secretary
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
A Patterson Director of Human Resources
L Taylor Director of Business System
The risk management framework was monitored regularly during the
year to ensure that all strategic risks, including those relating
to environmental and social issues, were being addressed. Risk
management policies and procedures were reviewed and updated to
ensure a robust and clear approach was maintained. Mr Dixon
attended meetings of the GRMG to provide an independent view in
respect of the matters discussed.
Asset risk continued to be a strong focus through the Asset Risk
Management Executive Review Group and comprehensive plans continued
to be in place to manage risks affecting all critical property
assets and to strengthen the arrangements for crisis management and
business continuity planning.
Further details of the CE Group's approach to corporate
governance and the management of internal controls can be found in
the directors' report.
As explained in Principles A4 and B1, the Company does not have
a remuneration committee or a nomination committee.
Principle A2: Chairman and Chief Executive
The Company does not have a formally appointed Chairman or Chief
Executive. However, in common with each of MidAmerican's business
platforms, the President and Chief Operating Officer of the CE
Group is responsible for the operation and management of the CE
Group and reports directly to the President of MidAmerican.
Principle A3: Board balance and independence
The board comprises four executive directors and Mr Dixon, a
non-executive director, who, collectively, bring a range of skills
and experience to the board. Although Mr Dixon is the sole
non-executive director, so the board does not include a balanced
number of executive and non-executive directors, the board believes
that it possesses the skills and experience necessary to provide
effective leadership, stewardship and control of the Company.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
The directors of the Company, as at the date of approval of the
report and accounts, were as follows:
R Dixon Non-Executive Director
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
P A Jones President and Chief Operating
Officer
Principle A4: Appointments to the Board
The Company does not have a nomination committee. Appointments
to the board are made by MidAmerican, in conjunction with the
President and Chief Operating Officer.
Principle A5: Information and professional development
Directors receive monthly reports outlining progress against the
Company's goals and targets, enabling financial performance against
budget and operational performance against a number of indicators
to be reviewed, and are also able to participate in weekly
meetings, which consider the key issues of that week in some
detail. The directors are able to utilise the advice and services
of the Company Secretary, in respect of their duties and
responsibilities as directors and any new legislation that may
affect those duties and responsibilities. The directors also have
access to external legal advice should they feel it necessary.
Interim briefings are provided to the non-executive director, as
appropriate.
Principle A6: Performance evaluation
As part of their approved terms of reference, the committees
report regularly on their activities, enabling the directors to
evaluate the activities of those committees. However, the board
does not have a process of evaluation of its own performance or of
the performance of individual directors in their capacity as
directors. MidAmerican has a performance appraisal and development
scheme in place, under which each senior manager of the CE Group is
subject to a formal annual appraisal of performance against his
individual and MidAmerican's goals.
Principle A7: Re-election
The Company's articles of association do not require periodic
retirement and re-election of directors.
B Remuneration
Principle B1: The level and make-up of remuneration
The Company does not have a remuneration committee. Annual
remuneration awards for senior management of the CE Group are
subject to the performance appraisal and development scheme process
and consideration by the President of MidAmerican and the President
and Chief Operating Officer. As the Company has no equity
securities listed on the London Stock Exchange, it is not required
to make directors' remuneration disclosures, other than those
required for private companies.
Principle B2: Procedure
As mentioned under Principle B1, the annual remuneration awards
for senior management of the CE Group is subject to the performance
appraisal and development scheme process and consideration by the
President of MidAmerican and the President and Chief Operating
Officer. Mr Fielden, Dr France, Mr Gill and Dr Jones are subject to
the performance appraisal and development scheme process in their
capacity as senior managers of the CE Group and not, specifically,
in their capacity as board directors. No director is involved in
deciding his own remuneration.
C Accountability and Audit
Principle C1: Financial Reporting
The board believes that the directors' report and review of the
year provide a balanced and understandable assessment of the
Company's position and prospects. The directors explain, at page
23, their responsibility for preparing the report and accounts,
have reported, at page 24 in the directors' report, that the
Company is a going concern and included the independent auditors'
report to the Company at page 26 of the report and accounts.
Principle C2: Internal Control
The principal risks and uncertainties facing the Company and the
key features of the internal control system, together with details
of the issues addressed by the Company during the year, can be
found at pages 17 to 18 of the directors' report.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
Principle C3: Audit committee and auditors
The board of CE Electric UK Funding Company has established an
audit committee for the CE Group, under delegated terms of
reference, which include monitoring of the financial reporting
process, the effectiveness of the internal control, internal audit
and risk management systems, the statutory audit of the accounts,
the independence of and the provision of additional services by the
auditor.
The Audit Committee receives annual reports from the GRMG and
from the CE Group's Head of Internal Audit on the work of the
Internal Audit Section during the year and the audit plan for the
following year. Combined Code provision C.3.1 states that the board
should establish an audit committee of at least three independent
non-executive directors and should satisfy itself that at least one
member has recent and relevant financial experience. Given that Mr
Dixon was the CE Group's sole independent non-executive director
during the year, the Audit Committee comprises:
R Dixon Non-Executive Director
T E Fielden Finance Director
The directors confirm that no fees were payable by the Company
to Deloitte LLP in relation to non-audit services during the
year.
The internal control section on page 17 of the directors' report
contains details of the Company's "speaking up" policy.
D Relations with shareholders
Principle D1: Dialogue with Institutional Shareholders
This section of the Combined Code is not applicable to the
Company, as it is a wholly-owned subsidiary of a privately held
group of companies and, therefore, has no institutional
shareholders.
Principle D2: Constructive use of the AGM
This section of the Combined Code is not applicable to the
Company, as it is a wholly-owned subsidiary of a privately held
group of companies and, therefore, has no institutional
shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Report of the
Directors and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by in the
European Union. Under company law the directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the company and the
group and of the profit or loss of the group for that period. In
preparing these financial statements, International Accounting
Standard 1 requires the directors to:
-- -- Properly select and apply accounting policies;
-- Present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information; -- Provide additional disclosures
when compliance with the specific requirements in
IFRSs are insufficient to enable users to
understand the impact of particular transactions,
other events and conditions on the entity's
financial position and financial performance; and
-- Make an assessment of the company's ability to
continue as a going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's and
the group's transactions and disclose with reasonable accuracy at
any time the financial position of the company and the group and
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the company and the group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
GOING CONCERN
The Company's business activities, together with details
regarding its future development, performance and position are set
out in the Report of the Directors. In addition, the Company's
objectives, policies and processes for managing its capital, its
financial risk management objectives and details of its exposures
to trading risk, credit risk and liquidity risk are included in the
Directors' Report and the appropriate notes to the accounts.
When considering continuing to adopt the going concern basis in
preparing the annual report and accounts, the directors have taken
into account a number of factors, including the following:
- The Company is a stable electricity distribution business
operating an essential public service and is regulated by GEMA. In
carrying out its functions, GEMA has a statutory duty under the
Electricity Act 1989 to have regard to the need to secure that
licence holders are able to finance the activities, which are the
subject of obligations under Part 1 of the Electricity Act 1989
(including the obligations imposed by the electricity distribution
licence) or by the Utilities Act 2000;
- The Company is profitable with strong underlying cash flows
and holds investment grade credit ratings; and
- The Company is financed by long-term borrowings with an
average maturity of 14 years and has access to borrowing facilities
provided by Lloyds TSB Bank plc, Royal Bank of Scotland plc and
Abbey National Treasury Services plc. On 2 July 2010 the Company
entered into an agreement with the EIB, under which the EIB
provided the Company with a GBP151m loan facility. On 20 July 2010,
the Company drew on that facility in its entirety.
Consequently, after making enquiries, the directors have a
reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and accounts.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
Each of the directors, who is a director of the Company as at
the date of this report, confirms that:
a) so far as he is aware, there is no relevant audit information
of which the Company's auditors are unaware; and
b) he has taken all the steps he ought to have taken as a
director in order to make himself aware of any relevant audit
information and to establish that the auditors are aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies Act
2006.
AUDITORS
A resolution to re-appoint Deloitte LLP as the Company's
auditors and authorise the directors to determine their
remuneration will be proposed at the Annual General Meeting.
ON BEHALF OF THE BOARD:
J Elliott
Secretary
18 March 2011
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2010
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORT AND ACCOUNTS
Each of the directors as at the date of the Annual Report, whose
names and functions are set out on page 4 of the Report of the
Directors confirms that, to the best of their knowledge:
a) the Company accounts, prepared in accordance with applicable
UK law and in conformity with IFRS, give a true and fair view of
the assets, liabilities, financial position and profit or loss of
the Company; and
b) the Report of the Directors includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties it faces.
This responsibility statement was approved by the Board of the
Directors on 18 March 2011 and signed on its behalf by:
P A Jones
President and Chief Operating Officer
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF
YORKSHIRE ELECTRICITY DISTRIBUTION PLC
We have audited the financial statements of Yorkshire
Electricity Distribution plc for the year ended 31 December 2010
which comprise the Income Statement, the Statement of Comprehensive
Income, the Statement of Financial Position, the Statement of
Changes in Equity, the Statement of Cash Flows and the related
notes 1 to 25. The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union.
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
a Report of the Auditors and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page 23, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board's Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the company's affairs
as at 31 December 2010 and of its profit for the year then ended;
- have been properly prepared in accordance with IFRSs as adopted
by the European Union; and
- have been prepared in accordance with the requirements of the
Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Report of the
Directors for the financial year for which the financial statements
are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
- adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited
by us; or
- the financial statements are not in agreement with the accounting
records and returns; or
- certain disclosures of directors' remuneration specified by law
are not made; or
- we have not received all the information and explanations we require
for our audit.
Christopher Powell FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
29 March 2011
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 325,712 287,588
Cost of sales (12,035) (11,162)
GROSS PROFIT 313,677 276,426
Operating expenses 9 (141,190) (136,823)
OPERATING PROFIT 172,487 139,603
Other gains 209 733
Finance costs 5 (37,705) (33,854)
PROFIT BEFORE INCOME TAX 6 134,991 106,482
Income tax 7 (29,956) (29,131)
PROFIT FOR THE YEAR 105,035 77,351
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
GBP'000 GBP'000
PROFIT FOR THE YEAR 105,035 77,351
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 105,035 77,351
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2010
2010 2009
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 11 4,131 6,118
Property, plant and equipment 12 2,121,931 2,006,945
2,126,062 2,013,063
CURRENT ASSETS
Inventories 14 792 535
Trade and other receivables 15 63,864 61,685
64,656 62,220
TOTAL ASSETS 2,190,718 2,075,283
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 16 290,000 290,000
Retained earnings 17 308,112 243,077
TOTAL EQUITY 598,112 533,077
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 18 612,028 593,197
Borrowings 19 546,267 449,414
Deferred tax 21 209,706 218,544
Provisions 20 736 712
1,368,737 1,261,867
CURRENT LIABILITIES
Trade and other payables 18 66,914 64,692
Borrowings 19 135,193 201,244
Tax payable 20,310 13,188
Provisions 20 1,452 1,215
223,869 280,339
TOTAL LIABILITIES 1,592,606 1,542,206
TOTAL EQUITY AND LIABILITIES 2,190,718 2,075,283
The financial statements were approved by the Board of Directors
on 18 March 2011 and were signed on its behalf by:
P A Jones
Director
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2010
Called up
share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
Balance at 1 January 2009 290,000 205,726 495,726
Changes in equity
Dividends 8 - (40,000) (40,000)
Total comprehensive income - 77,351 77,351
Balance at 31 December 2009 290,000 243,077 533,077
Changes in equity
Dividends 8 - (40,000) (40,000)
Total comprehensive income - 105,035 105,035
Balance at 31 December 2010 290,000 308,112 598,112
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 25 214,946 182,512
Finance costs paid (34,484) (33,586)
Group relief paid (365) (1,885)
Tax paid (31,272) (25,716)
Net cash from operating activities 148,825 121,325
Cash flows from investing activities
Purchase of tangible fixed assets (177,724) (179,901)
Proceeds from disposals 727 692
Receipt of customer contributions 40,749 34,970
Net cash used in investing activities (136,248) (144,239)
Cash flows from financing activities
Movement in external loans 104,500 21,300
Movement in borrowings from Group undertakings (77,077)
34,615
Equity dividends paid (40,000) (40,000)
Net cash used in financing activities (12,577) 15,915
Decrease in cash and cash equivalents - (6,999)
Cash and cash equivalents
at beginning of year - 6,999
Cash and cash equivalents - -
at end of year
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2010
1. GENERAL INFORMATION
Yorkshire Electricity Distribution plc is a company originally
incorporated in England and Wales under the Companies Act 1985. The
address of the registered office is Lloyds Court, 78 Grey Street,
Newcastle-upon-Tyne, NE1 6AF.
The nature of the Company's operations and its principal
activities are set out in the Report of the Directors and in Note
3.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). The financial
statements have also been prepared in accordance with IFRSs adopted
by the European Union and therefore comply with Article 4 of the EU
IAS Regulation and with those parts of the Companies Act 2006 (the
"Act") that are applicable to companies reporting under IFRS.
The accounts have been prepared under the historical cost
convention.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the financial statements. Further detail is contained
within the Report of the Directors.
Judgements in applying accounting policies and key sources of
estimation uncertainty
Many of the amounts included in the financial statements involve
the use of judgement and/or estimation. These judgements and
estimates are based on management's best knowledge of the relevant
facts and circumstances, having regard to previous experience, but
actual results may differ from the amounts included in the
financial statements. Information about such judgements and
estimates is contained in the accounting policies and/or the notes
to the financial statements and the key areas are summarised
below.
Areas of judgement and estimation which have the most
significant effect on the amounts recognised in the financial
statements are:
- The estimation of useful economic lives for property, plant
and equipment;
- The split of operating and capital expenditure and the
allocation of overheads to capital projects; and
- Impairment reviews carried out to evaluate the carrying value
of assets held at the balance sheet date.
Critical accounting policies
The critical accounting policies adopted by the directors relate
to property, plant and equipment, taxation, pensions and revenue
and are described below. The accounting policies have been applied
consistently throughout the year and the preceding year.
Adoption of new or revised standards
In the current year, the following new and revised Standards and
Interpretations have been adopted and have affected the amounts
reported in these financial statements.
Standards affecting presentation and disclosure;
IFRS 8 Operating Segments - Amendments to IFRS 8
The amendments to IFRS 8 clarify the requirements with respect
to the measurement of assets for each reportable business segment.
This change has not led to any change in the disclosures contained
within these financial statements. Further detail can be found in
note 3 to the accounts.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
Standards affecting the reported results and the financial
position;
IAS 17 Leases - Amendments to IAS 17
IFRIC 18 Transfer of Assets from Customers
The amendments to IAS 17 relate to the categorisation of leased
land as an operating or a finance lease. These amendments have not
had a material impact on these financial statements.
IFRIC 18 is an interpretation which applies to utility companies
who have received assets, or funds to build assets, on behalf of
their customers. The interpretation aims to ensure that these
assets are reflected in the balance sheet of the utility companies.
The adoption of the amendments to IFRIC 18 has not had a material
impact on these financial statements.
Revenue
Revenue is only recognised when the risks and rewards of
ownership have been transferred to a third party. No revenue is
recognised where there are significant uncertainties regarding the
consideration to be received or the costs associated with the
transaction.
Revenue represents charges for the use of the Company's
distribution network, amortisation of customer contributions,
recharge of costs incurred on behalf of related parties and the
invoiced value of other goods sold and services provided, exclusive
of value added tax.
Revenues from charges to end customers for the use of the
Company's distribution network include estimates of the units
distributed. The estimated usage is based on historic data,
judgement and assumptions. Revenues are gradually adjusted to
reflect actual usage in the period during which actual meter
readings are obtained.
Any under or over-recovery of allowed distribution network
revenues, as prescribed by Ofgem, is not provided for in the
financial statements and will be recovered/repaid through future
tariffs.
Customer contributions towards distribution system assets are
included in deferred revenue. The Company's policy is to credit the
customer contribution to revenue over 15 - 45 years on a
straight-line basis, in line with the useful life of the
distribution system assets.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable.
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established.
Operating profit
Operating profit is stated before investment income and finance
costs.
Software Development Costs
Costs in respect of major developments are capitalised and
amortised over the expected life of the software. Capitalised
software costs that are not an integral part of the related
hardware are included in intangible assets on the balance sheet and
amortised over the expected life of the software of up to 10
years.
Investments
Fixed asset investments are stated at cost less provision for
impairment in value.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
2. ACCOUNTING POLICIES - continued
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost. Cost includes
the purchase price of the asset and any costs, including internal
employee and other costs, directly attributable to bringing the
asset to the location and condition necessary for it to be capable
of operating in the manner intended by management.
The charge for depreciation is calculated to write off assets to
their residual values over their estimated useful lives using the
straight-line basis:
Distribution system assets 45 years
Distributed generation 15 years
Metering equipment included in distribution system up to 6 years
assets
Information technology equipment included in distribution up to 10 years
system assets
Non-operational assets:
Buildings - freehold up to 60 years
Buildings - leasehold lower of lease
period or 60
years
Fixtures and equipment up to 10 years
Freehold land is not depreciated.
Assets in the course of construction are carried at cost.
Depreciation on these assets, on the same basis as other assets,
commences when the assets are commissioned.
The estimated useful economic lives of property, plant and
equipment are based on management's judgement and experience. When
management identifies that actual useful lives differ materially
from the estimates used to calculate depreciation, that charge is
adjusted prospectively. Due to the significance of the Company's
investment in property, plant and equipment, variations between
actual and estimated useful lives could impact operating results
both positively and negatively, although historically, few changes
to estimated useful lives have been required.
The Company is required to evaluate the carrying values of
property, plant and equipment for impairment whenever circumstances
indicate, in management's judgement, that the carrying value of
such assets may not be recoverable. An impairment review requires
management to make judgement concerning the cash flows, growth
rates and discount rates for the cash-generating units under
review.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
2. ACCOUNTING POLICIES - continued
Financial instruments
Financial assets and financial liabilities are recognised on the
balance sheet when the Company becomes a party to the contractual
provisions on the instrument.
Financial assets are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there
is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been
impacted.
For certain categories of financial assets, such as trade
receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a
collective basis. Objective evidence of impairment for a portfolio
of receivables could include the Company's past experience of
collecting payments, an increase in the number of delayed payments
in the portfolio past the average credit period of 30 days, as well
as observable changes in national or local economic conditions that
correlate with default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectable, it is written off against
the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
income statement.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangement entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Company after deducting all
of its liabilities.
Inventories
Work in progress is valued at the cost of direct materials and
labour plus attributable overheads based on the normal level of
activity less progress payments.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Company's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements, and
the corresponding tax bases used in the computation of taxable
profit and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the year when the liability is settled or asset realised,
based on tax rates and tax legislation enacted or substantively
enacted at the balance sheet date.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
2. ACCOUNTING POLICIES - continued
Research costs
Expenditure on research activities is written off to the income
statement in the year in which it is incurred.
Leases
Leases are classified as finance leases wherever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Operating lease rentals are charged to the income statement in
equal annual amounts over the lease term.
Pensions
The Company contributes to the Northern Electric Group of the
Electricity Supply Pension Scheme (the "Northern Electric Group of
the ESPS"). The Northern Electric Group of the ESPS is a defined
benefit plan that shares risk between various entities under common
control. There is no contractual agreement or stated policy for
charging the net defined benefit cost for the plan as a whole to
individual group entities and accordingly the Company accounts for
the Northern Electric Group of the ESPS as if it were a defined
contribution scheme. Contributions to the Northern Electric Group
of the ESPS are charged to the income statement or capitalised as
appropriate. The capital costs of ex-gratia and supplementary
pensions are normally charged to the income statement in the period
in which they are granted.
The Company also participates in two defined contribution
schemes. Contributions payable to the defined contribution schemes
are charged to the income statement in the year. Differences
between contributions payable in the year and contributions
actually paid are shown as either accruals or prepayments in the
balance sheet.
Provisions
Provisions are recognised when the Company has a present
obligation as a result of a past event and it is probable that the
Company will be required to settle that obligation. Provisions are
measured at the directors' best estimate of the expenditure
required to settle the obligation at the balance sheet date.
Reasonable estimates involve judgement made by management after
considering information including notifications, settlements,
estimates performed by independent parties and legal counsel,
available facts, identification of other potentially responsible
parties and their ability to contribute and prior experience.
Where the effect is significant, provisions in respect of
material future liabilities are stated at their net present value
and arrived at by discounting the anticipated future costs, at the
market rate at the balance sheet date.
Trade receivables
Trade receivables are measured at initial recognition at fair
value. Appropriate allowances for estimated irrecoverable amounts
are recognised in the income statement when there is objective
evidence that the asset is impaired.
Trade payables
Trade payables are not interest bearing and are stated at their
nominal value.
Borrowings
Borrowings are classified as other financial liabilities and are
held at amortised cost. They are recorded at the proceeds received,
net of direct issue costs. Finance charges, including premiums
payable on settlement for redemption and direct issue costs, are
accounted for on an accruals basis in the income statement using
the effective interest rate method. They are added to the carrying
amount of the instruments to the extent that they are not settled
in the period in which they arise.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
3. SEGMENTAL REPORTING
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Company that are
regularly reviewed by the President and Chief Operating Officer of
the CE Electric UK Funding Company group of companies (the "CE
Group") to allocate resources to these segments and to assess their
performance.
In practice, the President and Chief Operating Officer allocates
resources and assesses performance based upon the aggregate results
of the Company and Northern Electric Distribution Limited, another
distribution network operator in the CE Group, suggesting that no
segmental reporting is required.
Revenue, profit before tax and net assets are attributable to
electricity distribution. Revenue is all in respect of sales to
United Kingdom customers.
Revenue represents charges made to customers for use of the
distribution system, the recharge of costs incurred on behalf of
related parties, amortisation of customer contributions and other
services and is included net of value added tax.
4. EMPLOYEES AND DIRECTORS
2010 2009
GBP'000 GBP'000
Salaries 45,282 44,253
Social security costs 4,043 3,952
Defined benefit pension costs 13,056 13,083
Defined contribution pension costs 244 238
62,625 61,626
Less charged to property, plant and equipment (41,579) (40,293)
21,046 21,333
The majority of the Company's employees are members of the
Northern Electric Group of the ESPS, details of which are given in
the pension note.
The average monthly number of employees during the year was:
2010 2009
No. No.
Technical 273 266
Industrial 618 626
Administration 121 123
Other 94 94
1,106 1,109
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
4. EMPLOYEES AND DIRECTORS - continued
DIRECTORS' REMUNERATION
2010 2009
Highest Paid: GBP'000 GBP'000
Short-term employee benefits 125 131
Post employment benefits 9 11
Other long-term benefits 146 59
280 201
Total:
Short-term employee benefits 336 431
Post employment benefits 73 107
Other long-term benefits 275 154
684 692
Directors who are member of the defined benefit
scheme 33
Accrued pension benefit relating to highest --
paid director
OTHER KEY PERSONNEL REMUNERATION
2010 2009
Total: GBP'000 GBP'000
Short-term employee benefits 311 283
Post employment benefits 72 76
Other long-term benefits 106 26
489 385
Other key personnel includes a number of senior functional
managers who, whilst not board directors, have authority and
responsibility for planning, directing and controlling the
activities of the Company.
The directors and key personnel are remunerated for their
services to the CE Group, of which the Company is a subsidiary. The
figures above represent the share of the costs borne by the
Company.
5. NET FINANCE COSTS
2010 2009
GBP'000 GBP'000
Finance costs:
Interest payable on other loans 32,957 29,754
Interest payable on loans
from Group undertakings 4,748 4,100
37,705 33,854
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after
charging/(crediting):
2010 2009
GBP'000 GBP'000
Depreciation - owned assets 67,245 61,790
Profit on disposal of fixed assets (209) (733)
Software development costs amortisation 1,987 2,162
Research costs 586 431
Amortisation of deferred revenue (17,097) (16,122)
Impairment of trade and other receivables 327 263
Analysis of auditors' remuneration is as follows:
2010 2009
GBP'000 GBP'000
Fees payable to the Company's auditors for
the audit of the Company's annual accounts 105 105
There were no fees payable in relation to non-audit services in
2010 or 2009.
7. INCOME TAX
Analysis of the tax charge
2010 2009
GBP'000 GBP'000
Current tax:
Tax 38,793 29,135
Deferred tax (8,837) (4)
Total tax charge in income statement 29,956 29,131
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
7. INCOME TAX - continued
Factors affecting the tax charge
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2010 2009
GBP'000 GBP'000
Profit on ordinary activities before tax 134,991 106,482
Profit on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 28% (2009 - 28%) 37,797 29,815
Effects of:
Receipt under service level agreements (15) (280)
Over provision for prior years (90) (392)
Change in tax rates (7,767) -
Permanent disallowances 31 -
Tax free income net of permanent disallowances - (12)
Total income tax 29,956 29,131
2010 2009
Tax expense comprises: GBP'000 GBP'000
Current tax expense:
Corporation tax charge for the year 38,703 29,098
Under provision for prior years 90 37
Total current tax charge 38,793 29,135
Deferred tax:
Deferred tax expenses relating to the origination
and reversal of temporary differences (1,070) (4)
Effect of changes in tax rates (7,767) -
Total deferred tax credit (8,837) (4)
Tax on profit before tax 29,956 29,131
The Finance Act 2010 includes a provision that the standard rate
of corporation tax in the United Kingdom will reduce from 28% to
27% from April 2011. Accordingly, this rate has been applied when
calculating deferred tax assets and liabilities throughout the CE
Group as at 31 December 2010.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
8. DIVIDENDS
2010 2009
GBP'000 GBP'000
Interim dividend at 13.8p per share 40,000 40,000
9. OPERATING EXPENSES
Operating expenses comprise:
2010 2009
GBP'000 GBP'000
Distribution costs 102,297 94,195
Administrative expenses 38,893 42,628
141,190 136,823
10. OPERATING LEASE COMMITMENTS
2010 2009
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 2,867 3,739
At the balance sheet date, the Company had outstanding
commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
2010 2009
GBP'000 GBP'000
Within one year 2,800 2,391
In the second to fifth year 6,816 4,701
After five years 1,397 921
11,013 8,013
11. INTANGIBLE ASSETS
Software
development
costs
GBP'000
COST
At 1 January 2010
and 31 December 2010 29,497
AMORTISATION
At 1 January 2010 23,379
Amortisation for year 1,987
At 31 December 2010 25,366
NET BOOK VALUE
At 31 December 2010 4,131
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
11. INTANGIBLE ASSETS - continued
Software
development
costs
GBP'000
COST
At 1 January 2009
and 31 December 2009 29,497
AMORTISATION
At 1 January 2009 21,217
Amortisation for year 2,162
At 31 December 2009 23,379
NET BOOK VALUE
At 31 December 2009 6,118
12. PROPERTY, PLANT AND EQUIPMENT
Non
operational Fixtures
land & Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2010 3,588 2,357,710 14,552 2,375,850
Additions 368 181,021 842 182,231
Disposals (52) (5,085) (738) (5,875)
At 31 December 2010 3,904 2,533,646 14,656 2,552,206
DEPRECIATION
At 1 January 2010 1,153 355,926 11,826 368,905
Charge for year 262 65,623 1,360 67,245
Eliminated on disposal (52) (5,085) (738) (5,875)
At 31 December 2010 1,363 416,464 12,448 430,275
NET BOOK VALUE
At 31 December 2010 2,541 2,117,182 2,208 2,121,931
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
12. PROPERTY, PLANT AND EQUIPMENT - continued
Non
operational Fixtures
land & Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2009 6,000 2,191,778 12,980 2,210,758
Additions - 170,193 1,708 171,901
Disposals (2,412) (4,261) (136) (6,809)
At 31 December 2009 3,588 2,357,710 14,552 2,375,850
DEPRECIATION
At 1 January 2009 2,800 300,384 10,142 313,326
Charge for year 167 59,803 1,820 61,790
Eliminated on disposal (1,814) (4,261) (136) (6,211)
At 31 December 2009 1,153 355,926 11,826 368,905
NET BOOK VALUE
At 31 December 2009 2,435 2,001,784 2,726 2,006,945
Assets in the course of construction included above:
Distribution Fixtures
system and fittings Totals
GBP'000 GBP'000 GBP'000
At 1 January 2010 74,601 - 74,601
Additions 170,193 842 171,035
Available for use (165,626) (842) (166,468)
At 31 December 2010 79,168 - 79,168
The Company has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP10,447,000 (2009: GBP27,255,000).
Net book value of non-operational land and buildings
comprise:
2010 2009
GBP'000 GBP'000
Freehold 1,359 1,489
Long leasehold 934 946
Short leasehold 248 -
2,541 2,435
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
13. INVESTMENTS
Details of the principal investments of the Company at 31
December 2010 are listed below:
Name of Company Country of Holding Proportion Nature of Business
Registration of Ordinary
Shares
Electralink England and 717 at 10p 7.2% Data transfer
Limited Wales network operator
MRA Service England and 1 at GBP1 1.0% Governance of the
Company Limited Wales electricity
industry's Master
Registration
Agreement
DCUSA Limited England and 1 at GBP1 1.0% Management and
Wales governance of the
Distribution
Connection and Use
of System
Agreement
The above investments are unlisted. The cost and net book value
of the investments are Electralink Limited GBP72 (2009: GBP72), MRA
Service Company Limited GBP1 (2009: GBP1) and DCUSA Limited GBP1
(2009: GBP1).
14. INVENTORIES
2010 2009
GBP'000 GBP'000
Work in progress 792 535
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
15. TRADE AND OTHER RECEIVABLES
2010 2009
GBP'000 GBP'000
Current:
Distribution use of system receivables 53,141 45,309
Amounts receivable from
sale of goods and services 3,894 11,984
Prepayments and accrued income 6,829 4,392
63,864 61,685
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
15. TRADE AND OTHER RECEIVABLES - continued
The directors consider that the carrying amount of trade and
other receivables approximates their fair value calculated by
discounting the future cash flows at the market rate at the balance
sheet date. The maximum exposure to risk to the Company is the book
value of these receivables less any provisions for impairment.
Distribution use of system receivables
The customers served by the Company's distribution network are
supplied predominantly by a small number of electricity supply
businesses with RWE NPower plc accounting for approximately 31% of
distribution revenues in 2010 (2009: 34%). Ofgem has determined a
framework which sets credit limits for each supply business based
on its credit rating or payment history and requires them to
provide credit cover if their value at risk (measured as being
equivalent to 45 days usage) exceeds the credit limit. Acceptable
credit typically is provided in the form of a parent company
guarantee, letter of credit or an escrow account. Included within
other payables are customer deposits of GBP1,755,000 as at 31
December 2010 (2009: GBP1,754,000).
Ofgem has indicated that, provided the Company has implemented
credit control, billing and collection processes in line with best
practice guidelines and can demonstrate compliance with the
guidelines or is able to satisfactorily explain departure from the
guidelines, any bad debt losses arising from supplier default will
be recovered through an increase in future allowed income. Losses
incurred to date have not been material. Included in the Company's
use of system ("UoS") receivables are debtors with a carrying value
of GBPnil, which have been placed into administration and have
therefore been provided in full at the year end (2009:
GBP6,000).
Amounts receivable from sale of goods and services
Sales of goods and services comprise all income streams which
are not classified as UoS income. Examples of non-UoS income
streams would be service alterations/disconnections and recovery of
amounts for damage caused by third parties to the distribution
system.
The average credit period on sales of goods and services is 30
days. Interest is not generally charged on the trade receivables
paid after the due date. An allowance for doubtful debts is made
for debts past their due date based on estimated irrecoverable
amounts from the sale of goods and services, determined by
reference to past default experience.
Included in the Company's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP1,173,000
(2009: GBP840,000) which are past due at the reporting date and for
which the Company has provided an irrecoverable amount of
GBP291,000 (2009 : GBP226,000) based on past experience. The
Company does not hold any collateral over these balances. The
average age of these receivables is 261 days (2009: 303 days).
Included in the Company's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP743,000
(2009: GBP811,000) which are past due at the reporting date and for
which the Company has not provided for any amounts as not being
recoverable, because there has not been a significant change in
credit quality and the amounts are still considered recoverable.
The Company does not hold any collateral over these balances. The
average age of these receivables is 61 days (2009: 99 days).
Ageing of past due but not impaired receivables
2010 2009
GBP'000 GBP'000
30-60 days 531 382
60-120 days 178 376
120-210 days 34 53
Total 743 811
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
15. TRADE AND OTHER RECEIVABLES - continued
Movement in the allowance for doubtful debts
2010 2009
GBP'000 GBP'000
At 1 January 232 627
Amounts utilised/written off in the year (268) (657)
Amounts recognised in income statement 327 263
At 31 December 291 232
In determining the recoverability of the trade and other
receivables, the Company considers any change in the credit quality
of the trade and other receivable from the date credit was
initially granted up to the reporting date. The concentration of
credit risk, other than in relation to UoS receivables, is limited
due to the customer base being large and unrelated. Accordingly,
the directors believe that there is no further credit provision
required in excess of the allowance for doubtful debts.
Included in the allowance for doubtful debts are specific trade
receivables, with a balance of GBP134,000 (2009: GBP86,000) which
have been placed in administration. The impairment represents the
difference between the carrying amount of the specific trade
receivable and the present value of the expected liquidation
dividend.
Categories of financial assets
2010 2009
GBP'000 GBP'000
Loans and receivables at amortised cost 57,035 57,293
Total financial assets 57,035 57,293
Non current assets 2,126,062 2,013,063
Inventories 792 535
Prepayments and accrued income 6,829 4,392
Total non-financial assets 2,133,683 2,017,990
Total assets 2,190,718 2,075,283
16. CALLED UP SHARE CAPITAL
2010 2009
No./GBP No./GBP
Ordinary shares of GBP1 each
Authorised 400,000,000 400,000,000
Allotted, called up and fully paid 290,000,000 290,000,000
The Company has one class of ordinary shares which carries no
right to fixed income.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
17. RESERVES
Retained
earnings
GBP'000
At 1 January 2010 243,077
Profit for the year 105,035
Dividends (40,000)
At 31 December 2010 308,112
18. TRADE AND OTHER PAYABLES
2010 2009
GBP'000 GBP'000
Current:
Payments on account 17,893 16,192
Trade creditors 4,648 2,544
Amounts owed to Group undertakings 398 442
Social security and other taxes 6,872 4,625
Other creditors 2,030 2,145
Deferred revenue 18,104 18,756
Accrued expenses 16,969 19,988
66,914 64,692
Non-current:
Deferred revenue 612,028 593,197
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
18. TRADE AND OTHER PAYABLES - continued
The directors consider that the carrying amount of other
financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the balance sheet
date. Trade creditors and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. Invoices are
paid at the end of the month following the date of the invoice. The
Company has financial risk management policies in place to ensure
that all payables are paid within the credit timeframe.
The following tables detail the remaining contractual maturities
for the non-derivative financial liabilities. The tables have been
drawn up based on the discounted cash flows of financial
liabilities based on the earliest possible date on which the
Company can be required to pay. The tables include both interest
and principal cash flows.
Less than 3 months 1 to 5 5+ years Total
3 months to 1 year years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2010:
Non-interest bearing 30,917 - - - 30,917
Variable interest
rate liability 52,983 - - - 52,983
Fixed interest
rate liability 18,500 20,001 154,003 949,696 1,142,200
102,400 20,001 154,003 949,696 1,226,100
2009:
Non-interest bearing 29,744 - - - 29,744
Variable interest
rate liability 176,127 - - - 176,127
Fixed interest
rate liability 18,500 13,773 129,092 787,496 948,861
224,371 13,773 129,092 787,496 1,179,849
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
18. TRADE AND OTHER PAYABLES - continued
Categories of financial liabilities
2010 2009
GBP'000 GBP'000
Loans and payables at amortised cost (688,536) (655,789)
Total financial liabilities (688,536) (655,789)
Payments received on account (17,893) (16,192)
Income tax liabilities (230,016) (231,732)
Other taxes and social security (6,872) (4,625)
Accruals (16,969) (19,988)
Deferred Revenue (630,132) (611,953)
Provisions (2,188) (1,927)
Total non financial liabilities (904,070) (886,417)
Total liabilities (1,592,606) (1,542,206)
Deferred Revenue
2010 2009
GBP'000 GBP'000
At 1 January (611,953) (595,479)
Additions (35,276) (32,498)
Amortisation 17,097 16,024
At 31 December (630,132) (611,953)
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the income statement over 15 - 45 years on a straight line
basis, in line with the useful economic life of the distribution
system assets.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
19. BORROWINGS
The Directors consideration of liquidity, interest rate and
foreign currency risk are described in detail in the Directors
Report.
Fair
Book Value Value
2010 2009 2010 2009
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed
to Group
undertakings 108,042 184,325 116,675 190,467
Loans 573,418 466,333 628,320 500,805
681,460 650,658 744,995 691,272
The borrowings are repayable
as follows:
On demand or within one
year 135,193 201,244 135,193 201,244
After five years 546,267 449,414 609,802 490,028
681,460 650,658 744,995 691,272
Analysis of borrowings:
Short term loan - 46,500 - 46,500
Inter-company short term
loan 52,983 129,627 52,979 129,627
Yorkshire Electricity
Group plc 2016 6.5% 55,059 54,698 63,696 60,840
Eurobond 2020 9.25% 216,287 216,292 282,417 270,229
Bond 2035 5.125% 203,536 203,541 195,728 184,076
EIB 2022 4.133% 153,595 - 150,175 -
681,460 650,658 744,995 691,272
The fair value of the 2020 and 2035 bonds are determined with
reference to quoted market prices. The directors' estimates of the
fair value of the EIB and internal borrowings are determined in
accordance with generally accepted pricing models based on
discounted cash flow analysis using prices from observable current
market transactions or dealer quotes for similar instruments. The
fair value of short-term borrowings is equal to their book value.
All loans are non-secured and are denominated in sterling.
Interest on the inter-company short term loans is charged at
base rate and interest on short-term loans is charged at a floating
rate of LIBOR plus 1.5%, thus exposing the Company to cash flow
interest rate risk. A 1% movement in interest rates would subject
the Company to an approximate change in interest costs of GBP0.8m
per year. This is considered to be an acceptable level of risk. All
other loans are at fixed interest rates and expose the Company to
fair value interest rate risk.
The covenants associated with the 2035 bonds issued by the
Company, include restrictions on the issuance of new indebtedness
and the making of distributions dependent on the scale of the ratio
of Senior Total Net Debt to Regulatory Asset Value ("RAV"). The
definition of Senior Total Net Debt excludes any subordinated debt
and any debt incurred on a non-recourse basis. In addition, it
excludes interest payable, any fair value adjustments and
unamortised issue costs.
The Company's Senior Total Net Debt as at 31 December 2010
totalled GBP658.1m. Using the RAV value as at March 2011, as
outlined by Ofgem in its Final Proposals for Distribution Prices
published in December 2009, and up rating for the effects of
movements in the value of the Retail Price Index gives an
approximation for the RAV value as at December 2010 of GBP1,222.4m.
The Senior Total Net Debt to RAV ratio for the Company is therefore
estimated at 54%.
At 31 December 2010, the Company had available GBP77.0m (2009:
GBP6.7m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
20. PROVISIONS
2010 2009
GBP'000 GBP'000
Provisions 2,188 1,927
Analysed as follows:
Current 1,452 1,215
Non-current 736 712
2,188 1,927
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2010 830 1,097 1,927
Utilised/paid in the year (1,011) (744) (1,755)
Charged to income statement 1,271 745 2,016
At 31 December 2010 1,090 1,098 2,188
Claims: Provision has been made to cover costs arising from
actual claims, which are not externally insured. Settlement is
expected substantially within 12 months.
Other: Primarily consists of a provision for future safe
disposal of transformers which contain oil contaminated with
Polychlorinated Biphenyls (PCBs) and for an amount to cover claims
made under section 74 of the New Road and Street Works Act 1991.
Costs are expected to be incurred over the next 20 years.
21. DEFERRED TAX
Accelerated
Tax Depreciation Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2010 218,712 (168) 218,544
Credit to income statement (8,825) (13) (8,837)
At 31 December 2010 209,887 (181) 209,706
GBP'000 GBP'000 GBP'000
At 1 January 2009 219,074 (526) 218,548
Credit to income statement (362) (358) (4)
At 31 December 2009 218,712 (168) 218,544
Other comprises provisions and employee expenses deductible for
tax on a paid basis and claims for hold over relief.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
22. EMPLOYEE BENEFIT OBLIGATIONS
The Company has three retirement benefit schemes.
The Northern Electric Group of the ESPS is a defined benefit
scheme for directors and employees, which provides pension and
other related benefits based on final pensionable pay. The assets
of the Northern Electric Group of the ESPS, which was closed to
staff commencing employment on or after 23 July 1997, are held in a
separate trustee-administered fund. The Northern Electric Money
Purchase Scheme and the Yorkshire Electricity Money Purchase Scheme
were made available to new employees from that date.
The Northern Electric Group of the ESPS and the Northern
Electric Money Purchase Scheme are operated by Northern Electric
plc on behalf of the participating companies within the CE
Group.
The last triennial actuarial valuation of the Northern Electric
Group of the ESPS was carried out by the Group Trustees' actuarial
advisors, Hewitt Associates, as at 31 March 2007. The current
triennal valuation is ongoing. The projected unit method was used
for the 2007 valuation. The principal actuarial assumptions were
that pre retirement investment returns would exceed salary
increases by 1.8% per annum (inclusive of merit awards) and post
retirement returns would exceed future pension increases by 1.8%
per annum.
The total market value of the assets of the Northern Electric
Group of the ESPS, at the date of the actuarial valuation, was
GBP926.7m.
For the Northern Electric Group of the ESPS, the actuarial
valuation showed that the value of the assets represented 90.7% of
the actuarial value of the accrued benefits. This represents a
shortfall of assets compared to the value of accrued benefits of
GBP95.1m. The accrued benefits include all benefits for pensioners
and other former members, as well as benefits based on service
completed to date for active members, and allows for an estimate of
future salary increases.
The CE Group reached agreement during March 2008 with the Group
Trustees to repair this deficit. The agreement comprised monthly
cash payments of GBP2.4m (GBP28.8m per annum) backdated to commence
in April 2007 in addition to the normal employer contributions. Of
these annual payments, GBP6.9m was paid by the Company. These
payments aimed to remove the shortfall of GBP95.1m by December 2010
subject to the actuarial assumptions adopted for the triennial
valuation as at 31 March 2007 being borne out in practice.
The Northern Electric Group of the ESPS is a defined benefit
plan that shares the risk between various entities under common
control. There is no contractual agreement or stated policy for
charging the net defined benefit cost for the plan as a whole to
individual group entities and accordingly the Company accounts for
the scheme as if it were a defined contribution scheme.
The contribution rates to the Northern Electric Group of the
ESPS, in addition to the deficit repair contributions mentioned
above, for 2009 were 44.7% for certain senior management and 26.3%
for other employees. These rates will remain in place until a time
as a new schedule of contributions is agreed between the trustees
of the Northern Electric Group of the ESPS and the Company as part
of the triennial valuation process.
The money purchase pension schemes are accounted for as defined
contribution schemes.
The Company pension cost for the year ended 31 December 2010 was
GBP13.3m (2009: GBP13.3m).
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
Disclosures in relation to the Northern Electric Group of the
ESPS are:
Principal assumptions:
2010 2009
Projected Projected
Valuation method unit unit
Discount rate 5.50% 5.70%
Inflation rate 3.20% 3.20%
Increase to pensions 3.20% 3.20%
Increase to deferred benefits 3.20% 3.20%
Salary increase 3.20% 2.75%*
* 2.75% per annum for ten years then 3.0% thereafter
The mortality assumptions are based on the recent actual
mortality experience of members within the CE Group and the
assumptions also allow for future mortality improvements. The
assumption is that a member currently aged 60 will live for a
further 28 years, if he is male, and for a further 28 years, if she
is female. Life expectancy at age 60 for non-pensioners (currently
aged 45) is assumed to be 29 years, if they are male, and 30 years,
if they are female.
For closed schemes, such as the Northern Electric Group of the
ESPS, under the projected unit method the current service cost will
increase as the members of the scheme approach retirement.
Changes in present value of the defined benefit obligation are
as follows:
2010 2009
GBPm GBPm
Opening defined benefit obligation 1,021.9 855.3
Current service costs 10.0 7.5
Interest cost 57.4 53.7
Contributions from employees 3.0 3.0
Actuarial losses 12.5 145.7
Benefits paid (43.7) (43.3)
Closing defined benefit obligation 1,061.1 1,021.9
Changes in the fair value of the plan assets are as follows:
Opening fair value of plan assets 938.4 801.4
Expected returns 60.4 54.6
Actuarial gains 41.9 78.6
Contributions by employer 43.7 44.1
Contributions from employees 3.0 3.0
Benefit paid (43.7) (43.3)
Closing fair value of plan assets 1,043.7 938.4
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
The fair value of the plan assets at the balance sheet date is
analysed below:
Long term rates
of return expected
at Value
2010 2009 2010 2009
% % GBPm GBPm
Equities 8.50 8.50 346.9 340.5
Gilts 4.60 5.10 602.0 516.0
Cash 4.20 4.50 0.8 0.5
Property 8.40 8.50 94.0 81.4
Total fair value
of scheme assets 1,043.7 938.4
The CE Group employs a building block approach in determining
the long-term rate of return on pension plan assets. Historical
markets are studied and assets with higher volatility are assumed
to generate higher returns consistent with widely accepted capital
market principles. The assumed long-term rates of return on each
asset class are set out within these disclosures. The overall
expected rate of return on assets is then derived by aggregating
the expected return for each asset class over the actual asset
allocation for the Northern Electric Group of the ESPS.
The directors are currently in negotiation with the scheme
trustees in relation to the contributions to be made to the defined
benefit plan in 2011 as part of concluding the March 2010 triennial
valuation. Until those negotiations are concluded, it is not
possible to state the value of the contributions to be made during
2011.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
23. RELATED PARTY DISCLOSURES
The Company has received loans from other companies in the CE
Group. The total interest included in finance costs in the income
statement for the year ended 31 December 2010 was GBP4,826k (2009:
GBP4,060). Included within borrowings is GBP108,042k as at 31
December 2010 (2009:GBP184,325k) in respect of these loans.
Interest on loans from CE Group companies is charged at a
commercial rate.
The Company entered into transactions, in the ordinary course of
business, with companies under common control. Transactions entered
into and trading balances outstanding at the year end were as
follows:
Sales Purchases Amounts
to from owed to
related related related
parties parties parties
Related Party GBP'000 GBP'000 GBP'000
2010:
CE Insurance Services Limited - 819 -
Integrated Utility Services Limited 132 48 -
Northern Electric plc - 3,012 -
Northern Electric Distribution Limited 7,563 13,558 -
Vehicle Lease and Service Limited* - 3,807 398
2009:
CE Insurance Services Limited - 941 -
Integrated Utility Services Limited 160 17 -
Northern Electric plc - 4,051 -
Northern Electric Distribution Limited 7,943 12,674 -
Vehicle Lease and Service Limited* - 3,514 442
Sales and purchases from related parties were made at commercial
prices.
The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have
been made for doubtful debts in respect of amounts owed by related
parties and no impairment charges were recorded in relation to
amounts owed by related parties in the current or the prior
year.
* Vehicle Lease and Service Limited is a joint venture in which
Northern Electric plc, a company in the CE Group, has a 50%
non-controlling interest.
24. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Yorkshire Electricity
Distribution plc is Yorkshire Electricity Group plc. The ultimate
controlling party and ultimate parent undertaking of Yorkshire
Electricity Group plc is Berkshire Hathaway, Inc., a company
incorporated in the United States of America.
Copies of the group accounts of Berkshire Hathaway, Inc. (the
parent undertaking of the largest group preparing group accounts)
which include Yorkshire Electricity Distribution plc and the group
accounts of CE Electric UK Funding Company, the smallest parent
undertaking to prepare group accounts in the UK, can both be
obtained from the Company Secretary, CE Electric UK Funding
Company, Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1
6AF.
YORKSHIRE ELECTRICITY DISTRIBUTION PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2010
25. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED
FROM OPERATIONS
2010 2009
GBP'000 GBP'000
Profit before income tax 134,991 106,482
Depreciation charges 69,232 63,952
Amortisation of deferred revenue (17,097) (16,024)
Increase in provisions 261 37
Finance costs 37,705 33,854
225,092 188,301
(Increase)/Decrease in inventories (257) 1
Increase in trade and other receivables (11,660) (4,983)
Increase/(Decrease) in trade and other payables 1,771 (807)
Cash generated from operations 214,946 182,512
This information is provided by RNS
The company news service from the London Stock Exchange
END
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