TIDMBC39
RNS Number : 3379V
Northern Powergrid (Yorkshire) plc
15 April 2016
The following regulated information, disseminated pursuant to
DTR 6.3.5, comprises the Annual Report and Accounts of Northern
Powergrid (Yorkshire) plc for the year ended 31 December 2015.
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 2015 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/document-library/financial
Enquiries:
John Elliott 0191 223 5103
REGISTERED NUMBER: 04112320 (England and Wales)
STRATEGIC REPORT, REPORT OF THE DIRECTORS AND
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
FOR
NORTHERN POWERGRID (YORKSHIRE) PLC
NORTHERN POWERGRID (YORKSHIRE) PLC
CONTENTS OF THE ANNUAL REPORTS AND ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2015
Page
Company Information 1
Strategic Report 2
Report of the Directors 23
Responsibility Statement of
the Directors 33
Report of the Independent
Auditor 34
Statement of Profit or Loss 35
Statement of Profit or Loss
and Other Comprehensive Income 36
Statement of Financial Position 37
Statement of Changes in Equity 38
Statement of Cash Flows 39
Notes to the Financial Statements 40
NORTHERN POWERGRID (YORKSHIRE) PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2015
DIRECTORS: R Dixon
T E Fielden
J M France
N M Gill
P A Jones
A J Maclennan
A R Marshall
P C Taylor
COMPANY SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 04112320 (England and Wales)
AUDITOR: Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
United Kingdom
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
The directors present the annual reports and accounts for the
year ended 31 December 2015 of Northern Powergrid (Yorkshire) plc
(the "Company"), which include the Strategic Report, the Report of
the Directors and the audited financial statements for that year.
Pages 2 to 22 inclusive comprise the Strategic Report and pages 23
to 32 comprise the Report of the Directors, which have been drawn
up and are presented in accordance with the Companies Act 2006.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
These annual reports and accounts have 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. These annual reports and
accounts contain 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 these annual reports and accounts and will
not be updated during the year. Nothing in these annual reports and
accounts should be construed as a profit forecast.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
BUSINESS MODEL
The Company is an authorised distributor under the Electricity
Act 1989, holds an electricity distribution licence granted by the
Secretary of State and is part of the Northern Powergrid Holdings
Company group of companies (the "Northern Powergrid Group"). As a
distribution network operator ("DNO"), the Company distributes
electricity to approximately 2.3 million customers connected to its
electricity distribution network within its distribution services
area, which encompasses the counties of West Yorkshire, East
Yorkshire and almost all of South Yorkshire, together with parts of
North Yorkshire, Derbyshire, Nottinghamshire, Lincolnshire and
Lancashire, and some 21,628 GWh of electricity was distributed to
those customers during the year. The Company's distribution network
includes over 53,000km of overhead and underground cables and over
35,000 substations of all types and receives electricity from
generators connected directly to it and from the National Grid's
transmission system and distributes that electricity at voltages of
up to 132kV.
In common with the Northern Powergrid 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 Profitability, cash
of the Company's financial flow and maintenance
resources, investing of investment grade
in assets and focusing credit ratings.
on long-term opportunities,
which contribute to
the Company's future
strength.
Customer service Delivering reliability, Improving network
dependability, fair resilience and performance,
prices and exceptional measured by: customer
service. minutes lost, customer
interruptions and
customer satisfaction.
Operational Setting high standards Effective asset management,
excellence for the Company's managing commercial
operations, system risk and improving
investment and maintenance. network resilience
and performance.
Employee commitment Equipping employees Leading safety performance,
with the resources engaging employees
and support they need and effective leadership.
to operate successfully
and in a safe and
rewarding work environment.
Environmental Using natural resources Reducing environmental
respect wisely and protecting impact and promoting
the environment, where and pursuing long-term
it is impacted by sustainability.
the Company's operations.
Regulatory Adhering to a policy Strong internal controls,
integrity of strict compliance regulatory engagement
with applicable laws, and industry influence.
regulations, standards
and policies.
STRATEGIC OBJECTIVES
The Company's strategic objectives are based on the Core
Principles, remain consistent and are to build a business,
which:
- continues to generate value over the long-term;
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- 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 shaping the future direction of
the electricity distribution sector in the United Kingdom.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
STRATEGIC OBJECTIVES - continued
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 to major
incidents on the network in times of severe weather and caring for
its local environment.
REVIEW OF THE YEAR
The Company delivered a satisfactory financial performance for
the year, which benefited from a further change to the rate of
taxation and continued effective cost control, with revenue at
GBP420.2 million being GBP14.6 million less than in 2014. The
decrease in revenue was mainly due to the five-year profile of
allowed revenues inherent in the price control formula under the
Distribution Price Control period to 31 March 2015 ("DPCR5") and
the and the reduction in tariffs introduced with effect from the
start of the current regulatory period, which runs from 1 April
2015 to 31 March 2023 and is known as ED1.
One of the main priorities for the Company in the year was
responding to Ofgem's final determination in respect of ED1, which
set the Company's income for that period. Having considered Ofgem's
final determination, the Company sought permission from the
Competition and Markets Authority (the "CMA") to appeal against the
licence modifications that gave effect to the ED1 price control.
The appeal related to three specific areas:
(i) Ofgem's decision to demand further cost savings in relation
to smart grid technology over and above the ones proposed by the
Company and captured in Ofgem's original cost benchmarking
exercise;
(ii) Ofgem's assessment of the variation in wage rates across the country; and
(iii) Ofgem's projections for labour cost increases.
On 30 March 2015, the CMA granted the Company permission to
appeal and the appeal progressed to its conclusion in accordance
with the timetable required of the CMA. British Gas Trading Limited
("British Gas") was also granted permission to appeal the price
control, with the same review timetable.
On 29 September 2015, the CMA published its final determination
in respect of the Company's appeal and upheld one ground of the
appeal in respect of the adjustments made by Ofgem to reflect
potential savings available from the introduction of smart grids
and other technological innovations, because Ofgem's decision was
not based on robust evidence. The CMA's determination will increase
the Company's cost allowances over ED1 by approximately GBP16
million, in 2012/2013 prices, which affects the Company's projected
regulatory asset value at the end of ED1 as well as its allowed
revenues within ED1. The CMA did not uphold the Company's other two
grounds of appeal, deciding that Ofgem's decision fell within the
margin of discretion that is available to it in respect of such
matters and the Company's case fell short of demonstrating that
Ofgem's decision was wrong.
British Gas appealed on six grounds. The CMA agreed with British
Gas in part on one of those grounds only, resulting in an
adjustment to part of the price control that adjusts the overall
level of revenue a DNO can earn by providing a reward in proportion
to the extent to which Ofgem agrees with the DNO's cost forecasts.
The outcome of British Gas' appeal was a reduction of approximately
GBP8 million in the Company's allowed additional income in ED1 in
2012/2013 prices. The net effect of the two appeals on the
Company's allowed revenues in ED1, excluding the uplift on the
Company's projected regulatory asset value at the end of ED1, is a
reduction of approximately GBP5 million in 2012/2013 prices.
Having delivered its largest ever capital expenditure programme
of GBP253.5 million in the year ended 31 December 2014, the Company
continued with its policy of investing efficiently in its
electricity distribution network during 2015. During the year, the
Company invested GBP281.5 million in its distribution network, such
that it exceeded its investment in the year ended 31 December 2014
and completed all outputs committed within the DPCR5 price control
period by the end of DPCR5 on 31 March 2015.
Improving customer satisfaction remained a management priority
for long-term improvement and, during the year, the Company
introduced the new Customer Relationship Management ("CRM") system,
which will provide quicker and more accurate information to
customers and improve the effectiveness of the customer complaints
process. The Company continues to be one of the industry leaders in
terms of social obligations and stakeholder engagement, and was
again ranked second among the DNOs in respect of its annual
stakeholder engagement submission to Ofgem.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
REVIEW OF THE YEAR - continued
The Company beat Ofgem's targets for the quality of the
electricity supply provided to its customers and continued to focus
on reducing the average times taken to restore supplies following a
power cut. In that respect, the Company's adoption of an Operations
model based on a number of locally-focussed industrial, rural and
urban zones has begun to deliver improvements in the Company's
response to unplanned power cuts following the introduction of a
new guaranteed standard for the restoration of supply within 12
hours of a power cut occurring from 1 April 2015 onwards.
Environmental performance continued to be strong with the
Company delivering its most successful year. Incidents reportable
to the Environment Agency, oil spills and leaks from the Company's
assets and SF(6) gas discharges from electrical plant were all
better than target. Given the impact on the environment of such
events, the Company remains committed to reducing losses from
fluid-filled cables and, during ED1, plans to replace a significant
number of those assets on a phased and prioritised basis, and to
increase the use of perfluorocarbon tracers to improve the
efficiency of oil leak identification.
The Company's safety performance continued to be strong, with an
Occupational Safety and Health Administration ("OSHA") rate of 0.27
being recorded (2014: 0.45), such that it made an effective
contribution to the Northern Powergrid Group equalling its best
ever safety performance, and the long-term overall trend continued
to compare well with that of the industry. The Company beat its
internal targets in respect of restricted duty and medical
treatment accidents but missed its targets in respect of lost time
accidents, operational incidents and preventable vehicle
accidents.
CORE PRINCIPLES
Financial strength
During the year, the Company continued to maintain good control
in respect of both its capital and operating costs by effectively
managing the various financial risks that could have had an adverse
impact on its business.
The Company continued to benefit from the stability provided by
the arrangements agreed in respect of DPCR5 in terms of its income
until 31 March 2015. The ED1 price control, as amended following
the outcomes of the appeals to the CMA, provides similar stability
and has been set for eight years with provision for a mid-period
review of the outputs that the Company is required to deliver. In
that respect, the Company recognises that it needs to continue 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 GBP420.2 million was GBP14.6 million
lower than the prior year mainly due to the five-year profile of
allowed revenues inherent in the DPCR5 price control formula and
the reduction in tariffs introduced with effect from the start of
ED1.
Operating profit and position at the year end
The Company's operating profit at GBP204.9 million was GBP27.0
million lower than the previous year, primarily reflecting
decreased revenues and higher depreciation charges. The statement
of financial position on page 37 shows that, as at 31 December
2015, the Company had total equity of GBP1,119.5 million. The
directors consider the Company to have a strong statement of
financial position which, when coupled with the preference of its
parent company, Berkshire Hathaway Energy Company ("Berkshire
Hathaway Energy"), for operating with lower levels of debt than
equivalent companies in the sector, creates a stable base for
continued strong performance during ED1.
Finance costs and investments
Finance costs net of investment income at GBP42.7 million were
higher than the prior year, due to the bond issuance on 1 April
2015 and a new credit facility with the European Investment Bank
(the "EIB") from 16 December 2015 (see page 6).
Taxation
The effective tax rate in the year was 9.8%. The effective tax
rate before adjusting for the impact of the changes in tax rates by
the Finance Act 2015 would be 18.3%. Details of the income tax
expense are provided in Note 7 to the accounts.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Financial strength
Results and dividends
The Company made a profit after tax for the year of GBP146.7
million (2014: GBP150.6 million). An interim dividend of GBP27.6
million was paid during the year (2014: GBP40.0 million) and the
directors recommend that no final dividend be paid in respect of
the year to 31 December 2015.
Share capital and debt structure
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There were no changes to the Company's share capital during the
year. On 1 April 2015, the Company issued GBP150 million 2.5% bonds
due 2025 and, on 2 December 2015, the Company entered into an
agreement with the EIB, which provided the Company with a credit
facility of GBP130 million. The financial obligations of the
Company under this agreement are guaranteed by Northern Powergrid
Holdings Company. On 16 December 2015, the Company drew on the
credit facility in its entirety at a fixed rate of 2.564% for a
period of 12 years.
On 1 March 2016, the Company entered into a Deed of Amendment
and Consent which increased the facility provided by the EIB under
the agreement entered into on 2 December 2015 from GBP130 million
to GBP180 million. The additional committed facility of GBP50
million is undrawn as at the date of this Strategic Report.
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.
Cash flow
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 Northern
Powergrid 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
GBP196.8 million was GBP4.8 million lower than the previous year
mainly due to lower operating profits partly offset by favourable
movements in working capital.
Investing activities: Net cash used in investing activities at
GBP208.2 million was GBP3.6 million higher than the previous year,
reflecting higher net capital expenditure.
Financing activities: The net cash from financing activities at
GBP157.1 million was GBP154.0 million higher than the previous
year, reflecting net movements in borrowings to fund business
operations and lower dividends paid.
Liquidity risk
As at 31 December 2015, the Company had access to GBP75 million
under a five-year committed revolving credit facility provided by
Lloyds Bank plc, The Royal Bank of Scotland plc and Abbey National
Treasury Services plc. The revolving credit facility was due to
expire on 20 August 2017 but, on 30 April 2015, the facility was
restated and amended and is now due to expire on 30 April 2020. 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 to a GBP19 million
overdraft facility provided by Lloyds Bank plc, which is reviewed
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.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES
Financial strength
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 2015, 100% of the Company's
long-term borrowings were at fixed rates and the average maturity
for these borrowings was 11 years.
Currency risk
No material currency risks are faced by the Company.
Pensions
The Company is a participating employer in the Northern
Powergrid 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. The Company also
participates in the Northern Powergrid Pension Scheme, which is a
defined contribution scheme.
Insurance
As part of its insurance and risk strategy, the Northern
Powergrid Group has in place insurance policies, which cover risks
associated with employers', third party motor and public liability.
The Northern Powergrid 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.
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 remains focused on
delivering a reliable and dependable supply of electricity together
with a high standard of service to its customers.
Customer service improvements are a priority for the Company,
which has been consistently ranked in the lower half of Ofgem's
customer service tables. The Company has a long-term goal to
improve this ranking and has a programme of actions in place to
support improvements to the customer experience.
Customer satisfaction with the Company's response to unplanned
power cuts showed some improvement in 2015 and the focus remains on
improving restoration times and proactively communicating more
timely and accurate information to customers. Enhancements were
made to the interactive voice response telephony system throughout
the year to make it easier for customers to talk to a customer
service advisor if they so wished. Customer satisfaction with
planned power cuts also showed some encouraging improvement with
the Company improving the design of written customer communications
and providing a text and email service to remind customers three
days ahead of the power cut taking place.
The Company has invested in improving the reliability of
under-performing parts of the distribution network by continuing to
identify "hot spots" of particularly poor network performance and
taking specific action to address the issues in those areas. In the
customer service support areas, further investment has been
directed towards information technology with the introduction of
the new CRM system to improve the self-service offering and provide
quicker and more accurate information to customers with workflows
automatically routed within both the Company and its contractors.
This technology will enable customers to communicate with the
Company in a range of accessible and easy ways across several
channels.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Customer service - continued
The Company has built on the industry-leading communications and
engagement approaches used to support its business plan and
maintains a number of engagement channels. Independently chaired
expert panels continue to play a key role in challenging the
Company's plans, monitoring its performance and helping to deliver
innovative initiatives and services. Guided by these panels, the
Company has been able to direct effort towards public meetings in
the operating zones, community energy workshops aimed at enhancing
the take-up of low-carbon technologies and wider collaborations
such as with other utilities via Infrastructure North. The feedback
received as part of the stakeholder engagement process helped the
Company to further develop its customer experience improvement
programme.
The Company recognised that the evolving nature of the
environment and the level of customer service provided in respect
of new connections to the network required additional focus and, as
such, initiated a review of this area of the business. Further
details regarding the connections activity in the year are provided
under "Connections to the network" below.
In common with other DNOs, the Company is actively engaged in
the national project, which has created a single national
three-digit emergency number for power cut calls, and is leading
three of the four sub-groups within the project. Following a
consultation, Ofcom agreed that there was a strong case for that
three-digit number to be introduced and announced in June 2015 that
the number was to be 105. The number is scheduled to go live in
2016.
The performance of the DNOs against guaranteed standards, which
are set for activities such as restoring supplies after power cuts,
provides a measure of the level of customer service and Ofgem's
incentive scheme for quality of service, by which the DNOs are
provided with financial incentives, is based upon targets set by
Ofgem with regard to each DNO's performance.
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 measures the
average number of supply minutes lost for every connected customer
due to both planned and unplanned power cuts that last for three
minutes or longer. CI measures the average number of supply
interruptions for every 100 connected customers due to planned and
unplanned power cuts that last for three minutes or longer.
In respect of these key customer service performance indicators,
the goal is to achieve performance that is below Ofgem's target
number in respect of CML and CI. The Company's reported performance
for the regulatory year ended 31 March 2015 (the "Regulatory Year")
was as follows:
Year to 31 March Year to 31 March 2014
2015
Actual Target Actual Target
CML 50.4 76.0 58.9 76.0
CI 60.9 75.3 64.5 75.3
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Performance in the Regulatory Year was better than Ofgem's
target for both CML and CI and contributed to the Company's
improved customer service performance in that year. In June 2015,
Ofgem issued its view on the impact of certain events that occurred
in the regulatory year to 31 March 2014 on the Company's CML and CI
performance for that year, which is reflected in the above
table.
In May 2015, the Company put forward its stakeholder engagement
submission to Ofgem in respect of its work during the Regulatory
Year. This included initiatives such as expanding the role of
digital solutions in providing customer services and the
enhancement of the Company's relationship with some voluntary
sector organisations, with which it works closely in developing and
delivering certain services. The Company presented its submission
to Ofgem's panel on 8 July 2015 and maintained its position from
the previous year as the second placed DNO group. A reward of
GBP0.92 million was secured, which will be received during the
regulatory year ended 31 March 2017 and the Company intends to
reinvest its reward in initiatives that will continue to build on
this strong stakeholder engagement performance.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Customer service - continued
Under the Broad Measure of Customer Satisfaction, an independent
market research company carried out telephone surveys with the
Company's customers to find out how satisfied they were with the
services provided. During the year, surveys were carried out of a
number of customers who had contacted the Company regarding an
unplanned or a planned power cut, had requested a price quotation
and a subsequent connection, or had a general enquiry where a
service had been provided or a job completed. The Company recorded
an overall satisfaction score of 82.6% for the Regulatory Year and
expects that the customer service improvement plan, including the
range of initiatives noted on pages 7 and 8, will improve the
services provided to customers and so increase the satisfaction
ratings year-on-year.
While recognising that its customer service performance can be
improved, the Company continued to make steady progress during the
year with customer satisfaction scores continuing to improve,
performance to reduce service failures meeting target, the
connections customer service improvement project being delivered
and its social obligations and stakeholder engagement activity
continuing to be among the leading in the industry.
Connections to the network
During the year, the Company continued to deliver its action
plans to improve the connections services provided to its
customers, while also actively facilitating the development of
competition from independent connections providers ("ICPs"). The
Company continued to engage regularly with its connections
customers in groups and individually, holding monthly customer
surgeries, twice yearly customer stakeholder events and
contributing to national stakeholder forums and events.
There were three main areas of development in the Company's
connections business over the last year with the introduction of
the new Competition in Connections Code of Practice, compliance
with which became a licence condition with effect from the end of
October 2015, introduction of the full Incentive on Connections
Engagement ("ICE") regime in April 2015 and introduction of a
customer service improvement programme to deliver improvements in
customer satisfaction for small works customers in pursuit of the
Company's goal to be the leading provider of customer service
within the electricity distribution sector.
The Company participated with other DNOs in the development of
the new Competition in Connections Code of Practice, and
implemented the required new processes, including the provision of
dual quotations, enabling ICPs to self-determine and approve points
of connection to the network, and simplifying the authorisation
process for ICPs' operational staff.
The start of ED1 saw the introduction of ICE in respect of
customers requiring larger connections to the network, so that the
needs of those customers can be met more effectively. Under ICE,
the Company is required to submit a customer service improvement
work plan for the forthcoming regulatory year at the end of April,
followed by a comprehensive 'looking back and forward' report
commenting on the actions delivered in the previous year and future
actions proposed in the service improvement plan. The Company
proposed a comprehensive improvement plan based on direct customer
feedback, worked throughout the year to deliver those actions and
continued to engage actively with customers through both informal
and formal stakeholder events.
Corporate responsibility
The Company values its relationship with its customers and other
stakeholders and recognises the importance of maintaining a secure
and safe power supply for its customers and their local
communities. That commitment is underpinned by five customer
promises, which are to put safety first, to respect the Company's
customers, their time and property, to do a really good job, to be
there when needed and to care for the local environment.
The Company maintained its key partnerships with the Environment
Agency, the local authorities and the local resilience forums, via
its Civil Contingency Co-ordinator, so that it can respond quickly
to significant faults on, or threats to, the network. The Company
has well-established emergency procedures that are triggered in
times of weather-related incidents or long-duration power cuts when
people are without power for some time and, as such, the Company
responded well to the weather-related incidents, including Storms
Desmond and Eva, which impacted on its assets during the year.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Customer service - continued
Corporate responsibility - continued
The Company utilises its 'customer ambassadors' and customer
liaison officers, who are allocated to each of its operating zones,
to address customers' concerns and resolve their complaints, and
works with the British Red Cross in order to pay particular
attention to the welfare of customers on the priority services
register so that those customers are kept informed of the situation
throughout the event and after the power has been restored.
The Company continued to focus on some of its more vulnerable
customers and works closely with them and the organisations that
represent them to improve how it communicates and provides support.
The Northern Powergrid Group's social issues expert group focussed
on that area and also on how service improvements can be identified
and prioritised. As a result, the Company continued to improve the
quality of the information held on the priority services register,
promoted the benefits of being on that register more widely,
including via a radio advertising campaign, and enhanced the
support provided to priority services customers.
The Company has in place a small donation programme, which is
focused on its key priorities of support for youth, education and
the environment and from which grants were made during the year.
The Northern Powergrid Group also makes donations to charities
nominated by the top three teams in its "Safety Champions"
initiative, which is aimed at supporting improvements in safety
performance in the operational zones.
Safety remains the Company's first priority and underpins all
operations. During the year, the Company continued to participate,
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 Company's
safety programme includes Crucial Crew events, school visits,
participation in safety days, and the "prison me - no way"
campaign. The programme is delivered by two dedicated safety
presenters who promote the safety messages through an interactive
presentation, which includes focus on children being aware of their
surroundings and the dangers of electricity, and is also supported
through an interactive website and mobile phone game.
During the year, the Company introduced 'Make the Grade in
Energy'. This specially designed programme is delivered in
conjunction with the Ahead Partnership, a local organisation
focussed on creating links between schools and business, and
involves volunteers from across the Company working with schools on
employability and associated skills. The Company also embarked on a
programme of support for Community Energy groups in its
distribution services area, providing them with networking and
educational opportunities to help develop their activities.
Operational excellence
The Company's core service continues to be providing and
maintaining an efficient distribution network that delivers
electricity effectively. During the year, GBP281.5 million was
invested in the improvement of the distribution network, an
increase on the record amount of GBP253.5 million in the previous
year. The Company's continued and substantial investment in its
distribution network has seen reliability increase over a sustained
period and the Company has generally outperformed the targets set
by Ofgem in respect of CI and CML. The Company's inspection and
maintenance regimes have ensured that the underlying health of the
network assets has been sustained and none of the leading
indicators used by the Company suggest any diminishing performance
in this respect in the future.
Operational activity
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 04:38 ET (08:38 GMT)
The Company continued to implement its approved network
investment strategy, which is designed to deliver improvements in
an efficient and cost-effective manner in order to improve the
network's resilience. The Company is committed to enhancing the
reliability of the network such that fewer power cuts affect
customers and, when power cuts do happen, they are shorter in
duration.
The Company's Operations structure is designed to respond
effectively to the needs of customers and local communities by
delivering improved performance standards in the restoration of
power following power cuts and in new connection activities for
small works. That structure is organised into operating zones
around the main conurbations of West Yorkshire and South Yorkshire,
the industrialised area around the Humber and the rural areas of
the Yorkshire Dales, the east coast of Yorkshire and North
Lincolnshire.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Operational excellence - continued
Operational activity
The zonal structure is supported by several functional areas
within Operations, which are Network Operations, which provides the
day-to-day and real time management of the network, Programme
Delivery, which is responsible for primary engineering projects,
and bespoke connections and for the inspection, maintenance and
replacement of operational assets, and Operational Services, which
includes supply chain management and support services.
As a new guaranteed standard for the restoration of supply
within 12 hours of a power cut occurring came into effect from 1
April 2015, the Company's new operational structure will provide a
more localised focus and, therefore, improved response times in the
event of a power cut. During the year, the Company invested in
technology to support its drive to improve response times,
including the automated power restoration system ("APRS") which
operates within the existing network management system. In the
event of a high-voltage fault, APRS analyses the information
presented by intelligent assets installed on the network and, from
that information, determines where the fault is located and
executes switching to restore power to the 'healthy' network in a
safe manner in under three minutes. APRS was operated initially in
advisory mode, allowing intervention in the process to verify the
outcome, and was successfully transitioned to live mode in a
controlled manner, such that it is planned to enable APRS at some
306 primary substations across the Northern Powergrid Group by the
end of ED1. The Company expects, therefore, that APRS will
significantly improve the service to customers due to the speed
with which it can understand the information presented and then
complete the switching required to restore power.
The Company responded well to the major weather events that
impacted its network during the year, the most significant being
the flooding that occurred as a result of Storm Eva on 26 and 27
December, which resulted in the Company invoking its major incident
management plan.
The flooding caused by Storm Eva impacted properties in
Calderdale, the West Yorkshire Dales and Leeds City Centre, with
approximately 37,000 customers being affected by power cuts. The
power to over 90% of those customers was restored within 12 hours
and, although Kirkstall C grid supply point in Leeds was flooded,
power was restored to the 27,000 customers affected within three
hours as switching to interconnected sections of the network was
achieved. Following Storm Eva, the Company instigated a programme
of work to inspect flooded homes and businesses, to replace service
cables and equipment, where required, and to inspect equipment
located in the affected areas including substations, link boxes and
feeder pillars.
The Company's priorities during the year included delivering a
significant level of capital expenditure on the network as in the
previous year, a further reduction in the average level of fault
repair work in progress, a robust approach to the control of
operations on the low-voltage network and continued focus on the
restoration times associated with both high and low-voltage power
cuts, with high-voltage restoration performance averaging some 55.5
minutes (2014: 60.5 minutes), after allowing for severe weather
incidents and other exemptions. During the year, the Company
completed all outputs committed within the DPCR5 price control
period by the price control end date of 31 March 2015.
The Company undertook various major projects during the year in
support of those targets and as part of the investment strategy,
including:
- Completion of replacement of three EHV circuit breakers at
South Kirkby, replacement of primary switchgear at Harspwell, Park
Hill and Binbrook and commencement of replacement work at West End
Lane;
- Continuation of reinforcement of the primary network in the
Doncaster area with excavation and duct installation for the 132kV
cables to connect West Melton to the new 132/33kV substation at
Potteric Carr and commencement of civil works at Potteric Carr;
- Remediation of the fault-level issue at Station Road by
replacing both transformers with high impedance units and
commencement of work to replace the 6kV network in the King George
docks area of Hull;
- Replacement of 13km of 132kV oil filled cable with 9km from
Ferrybridge to Osbaldwick and 4km from Scunthorpe North to
Scunthorpe South and of almost 17km of 33kV underground cable,
including 1km of oil-filled cable, 10km of gas insulated cable and
5.5km of solid cable to improve performance;
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Operational excellence - continued
Operational activity- continued
- Extensive ongoing works in the Sheffield area including the
replacement of 18km of oil-filled cable and 2km of gas insulated
cable;
- 59 overhead line towers were refurbished and over 200 EHV poles were replaced;
- 172km of high voltage overhead line and 61km of low-voltage
overhead line were refurbished or rebuilt;
- 38 units of high voltage outdoor switchgear, 99 high-voltage
distribution substations and 280 units of high-voltage indoor
switchgear were replaced; and
- 217 new remote control points were installed and commissioned.
In order to deliver its investment strategy, the Company used a
mix of its own staff and contractors to undertake its activities,
including affiliated companies in the Northern Powergrid Group.
Employee commitment
Health and safety
The focus on health and safety continued to be of paramount
importance for the directors, as it is for all employees. There is
a continuous drive for improvement in safety performance through
the setting of challenging goals and the pursuit of a comprehensive
safety and health improvement plan, which reflects the Company's
fundamental objective that every employee and contractor should go
home at the end of each shift uninjured and in good health after a
productive day's work. 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.
The Company's safety record over a number of years suggests that
it is one of the safest in the sector in which it operates and it
will strive to improve performance still further and, in doing so,
maintain its position over the coming years. Having identified
issues that may pose an increased safety risk, such as metal theft
and the roll-out of smart meters, the Company is implementing
various measures through its safety and health improvement plan
that will build incrementally on the existing strong safety record
and ensure that safety considerations are always part of the
investment decision-making and appraisal process.
Operational incident performance was disappointing with the
number of switching issues experienced on the high voltage network
resulting in eight such incidents occurring in the year against a
target of six. As one of the key deliverables in the Company's
safety and health improvement plan is to raise awareness and
improve the concentration skills of its operational engineers and
other employees, the Company increased its operational audit rate
of senior authorised persons such that the operational practices of
all the senior authorised persons were verified during the year.
The Company also delivered operational seminars, stand down
briefings and regular safety newsflashes to staff in order to
cascade information on safety trends, issues and incidents.
The Company's safety and health improvement plan targets
continuous improvement and delivery of the various initiatives
contained in that plan contributed to the Company recording an OSHA
rate for the year of 0.27 (2014: 0.45) against a target of
0.36.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Employee commitment - continued
Health and safety - continued
The Company uses several key performance indicators to monitor
safety performance, with the goal of achieving performance that is
below the target number. The main key performance indicators are as
follows:
2015 2014
Target Actual Target Actual
Lost time accidents 1 2 1 4
Restricted duty
accidents 1 0 2 1
Medical treatment
accidents 2 1 2 0
Operational incidents 6 8 6 7
Preventable vehicle
accidents 13 15 13 16
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 04:38 ET (08:38 GMT)
The Company experienced two lost time accidents in the year as
opposed to four in 2014 and recorded one medical treatment case as
opposed to none in 2014. In addition, although performance in
respect of preventable vehicle accidents was two accidents above
the target for the year, performance improved by one accident
compared with 2014. Consequently, the Company made a strong
contribution to the Northern Powergrid Group delivering its best
ever safety performance and the long-term overall trend continued
to compare well with that of the industry. None of those incidents
gave rise to any significant safety-related risks.
In common with the Berkshire Hathaway Energy group, the Northern
Powergrid Group measures its safety performance in terms of the
OSHA rate, which is a measure used in the United States to capture
safety incidents down to minor levels of medical treatment, such as
a stitch or the use of prescription pain killers. As part of its
plan to reduce the OSHA rate across the group, Berkshire Hathaway
Energy issues daily e-mail updates in respect of performance
against its overall OSHA rate and preventable vehicle accident
targets, which include information on incidents that have occurred.
The Company's Director of Safety, Health and Environment also
delivered updates using conference call facilities, which were
available to the entire workforce, regarding performance and other
safety-related issues.
Delivery of the various initiatives in the safety and health
improvement plan also contributed to the Northern Powergrid Group
achieving an OSHA rate of 0.26 against a target of 0.35, which
equated to only six recordable incidents and equalled the best ever
performance recorded in 2014.
As part of the safety and health improvement plan and in order
to reinforce the operational safety values, the Company continued
to implement its cross-business operational assurance audit
programme and its senior management field engagement programme in
order to improve two-way communication on safety and other key
business issues. The Company continued to implement a robust road
risk management plan, which involved electronic driving licence
checking, delivering road risk awareness workshops to new employees
and using risk reduction tools such as online driver assessment and
training followed by an on-road refresher training session if
required. The driver training programme provides practical driving
training to a targeted population of drivers and is the primary
route to improving driver skills in the longer term. Recognising
that driving is one of most hazardous activities undertaken on a
daily basis, the programme was expanded further throughout 2015 via
an interactive, web-based system designed to assess skills and then
provide individual training plans to improve hazard perception and
reinforce specific aspects of driving-related skills. The Company
also commenced a programme to install a telematics system in all of
its fleet vehicles in order to support driver and vehicle safety by
encouraging responsible and safe driving styles, assist with the
completion and management of vehicle safety checks, and expedite
investigation of vehicle accidents and incidents.
During the year, the Company was awarded a President's Award
from the Royal Society for the Prevention of Accidents for
achieving 11 consecutive Gold Awards in recognition of achievements
in 2014 and for continued or improving standards of health and
safety over a sustained period. The Company's health and safety
management systems were subject to the regular bi-annual external
surveillances and, on conclusion of those assessments, the auditor
recommended that the Company maintained its OHSAS 18001
accreditation.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Employee commitment - continued
Health and safety - continued
The sickness absence rate across the Northern Powergrid Group
for the year ended 31 December 2015 was 2.71% (2014: 2.32%), which
was an increase on that experienced in 2014 but does not give rise
to any particular cause for concern.
Management structure
Operational management of the Company and that of its affiliate,
Northern Powergrid (Northeast) Limited ("NPg Northeast"), is
undertaken by a single senior management team with specific
functional responsibilities. Those functional responsibilities are
in respect of operations, health, safety and environment, asset
management (including procurement), customer service, business
development (including new connections to the network), policy and
markets (including trading and innovation), regulation, human
resources, organisation development, legal and finance (including
property management, stakeholder engagement and information
technology). Some of those functions also provide services across
the Northern Powergrid Group.
Employees
The Company continued to apply appropriate control to its
headcount policy and to place significant emphasis on the
importance and application of high standards of management and
performance in support of the Core Principles. The Company ensures
that a level of consistency is adopted in so doing and, in respect
of employee relations, continued to build constructive and
partnered relationships with the trades unions. In that respect,
the Company has or is working towards securing multi-year pay
agreements with the various employment groups such that the
relevant terms and conditions are fair and appropriate across the
Northern Powergrid Group.
In addition, the Northern Powergrid Group expects to recruit
approximately 100 trainees a year under its workforce renewal
programme during ED1 and recruited a total of 174 members of staff
in 2015, of which 101 were part of the workforce renewal programme.
In addition, 70 trainees who were recruited under the workforce
renewal programme in previous years graduated from their training
programmes and commenced work as part of the Northern Powergrid
Group's operations.
As a member of the Berkshire Hathaway, Inc. group of companies,
Berkshire Hathaway Energy sets high expectations for honesty and
integrity in the conduct of all business activity. Consequently,
the Company is committed to proper business conduct and has adopted
the Berkshire Hathaway Energy code of business conduct, which
details the commitment to ethics and compliance with the law,
provides reporting mechanisms for known or suspected ethical or
legal violations, and establishes minimum standards of behaviour
expected of all employees. All employees must complete annual
training on the code of business conduct. A "speaking up" policy is
also in place so that members of staff are able 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.
In order to support the welfare of its employees, the Northern
Powergrid Group provides an employee assistance service to its
staff via an independent company that supports over 350
organisations in the UK. The programme is a confidential,
self-referral counselling and information service to assist with
personal or work-related problems that may be affecting health,
wellbeing or performance and is available 24 hours a day, 365 days
a year. The services available include health, wellbeing and
family-care information, financial information and debt
counselling, and legal guidance. Working in partnership with its
occupational health provider, the Northern Powergrid Group is
delivering a long-term strategic programme aimed at improving the
health of its staff and, in that respect, the Northern Powergrid
Group won the Chartered Institute of Personnel and Development's
North of England Award for Health and Wellbeing for its commitment
and delivery of an improved health and well-being programme.
Progress continued to be made during 2015 on the key priorities
in the human resources and organisation development functions,
including recruitment, employee engagement and performance
management and development in order to put in place the foundations
for a more agile and responsive workforce to meet customer
requirements. Throughout the year, the Company continued to set and
uphold the promotion of high standards of probity among all staff.
In addition, the Company's organisational structure has been
developed to control business units and to delegate authority and
accountability, having regard to acceptable levels of risk.
As at 31 December 2015, the Company employed 1,213 staff (2014:
1,198).
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Environmental respect
The Company's approach to environmental compliance is governed
by its environmental policy and the policy of Environmental RESPECT
(Responsibility, Efficiency, Stewardship, Performance, Evaluation,
Communication and Training) implemented by Berkshire Hathaway
Energy. 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 for environmental management since the late 1990s, certified
to the environmental management systems standard ISO 14001: 2004.
It is subject to regular six-monthly assessment visits and a
three-yearly certificate renewal assessment by an accredited
external certification body in order to retain that status.
(MORE TO FOLLOW) Dow Jones Newswires
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The most recent visit was a surveillance assessment carried out
by Lloyd's Register Quality Assurance in September 2015. The
assessment report drew management attention to two minor
non-conformances to be addressed by agreed proposed actions and
also noted that continued improvements had been made to the
environmental management system over the past three years. There
were no major non-conformances noted and, after a rigorous
three-day surveillance audit, continued certification was
recommended and subsequently confirmed.
Procedures and processes were reviewed and developed to improve
the effectiveness of the environmental management system during
2015. Operational controls at depots have also significantly
improved over the past three years which has supported the reduced
number of minor non-conformances raised at recent surveillance
visits. In the event that fluid leakages do occur, the Company has
in place an emergency incident response support contract with a
specialist service provider, under which 24-hour environmental
incident assistance is provided, including contamination
mitigation, remediation and incident-validation reporting.
Improvements in support of the Company's environmental policy
objectives continued to focus on 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 and using gas tracer technology to locate cable fluid
leaks quicker, where it was practicable to do so. The Company also
provided environmental awareness training for staff via an online
system to avoid the need for travelling to central training
locations. These improvements support the Company in delivering
sustained environmental performance and, in 2015, only five
incidents were reportable to the Environment Agency, which was
better than the target of 19. Oil spills and leaks from the
Company's assets were 53% better than the target of 39,745 litres
and SF(6) gas discharges from electrical plant were 1% better than
the target of 89 kilogrammes. In addition, the Company recycled
more of its waste than before and maintained its positive
performance with regard to street works. Work continued with many
of the Company's key stakeholders, including the Environment
Agency, to enhance the advanced environmental management processes
already in place and, in 2016, the Company plans to maintain this
progress so that the impact on the environment in which it works is
reduced and the most effective ways of doing so are utilised. The
Company's business plan contains a commitment to reduce its
business carbon footprint by 10% by the end of ED1 and performance
remains on course to achieve that target.
The Company's commitment to the Environmental RESPECT policy and
its improved overall performance contributes towards minimising its
impact on the environment. As part of its annual environmental
improvement plan, the Company has mobilised significant programmes
to replace fluid-filled cables and place overhead lines underground
in National Parks and Areas of Outstanding Natural Beauty, reduce
electrical losses and implement further improvements to the network
that take account of protected structures, features, areas,
wildlife and habitat. Bird life is being protected by placing
bird-diverters on power lines where they are in proximity to nature
reserves, wetlands, flight paths or in locations where rare species
of bird are known to live or breed and also in response to
information obtained from incident trends. In addition, during the
year general waste collected from the Company by a waste disposal
firm was used as feedstock for a multi-fuel power station in
Yorkshire, which generates low-carbon heat and electricity.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Environmental respect - continued
Sustainability
The Company's activities have an important part to play in the
United Kingdom's transition to a low-carbon economy, both in its
capacity as a major participant in the United Kingdom energy
industry and in terms of its own carbon footprint. As the country
takes action to make significant reductions in its carbon
emissions, the way electricity is produced and used is expected to
have a significant impact on the electricity network over time. The
Company is taking action to develop innovative solutions so that
its network will be ready to handle the energy flows its customers
need, when required. In addition, the Company is working with
customers to assist in solving issues raised by the installation of
low-carbon generation and load technologies. The Company is also
actively involved in working with industry and other interested
parties to develop national policies and strategies to assist the
low-carbon transition.
The Company measures and publishes details of its business
carbon footprint. Figures are reported per calendar year and relate
solely to the regulated electricity distribution business. A
monthly reporting process is in place to calculate the amount,
based on an inventory of the various carbon emissions sources,
identified with reference to the methodology described in the
Greenhouse Gas Protocol and quantification of emissions is achieved
through compilation of various operational data sources. In line
with Ofgem's requirements, the Company has contributed to the
sustainability agenda through public reporting on its carbon
footprint and its reporting framework is certified under CEMARS
(the Certified Emissions Measurement and Reduction Scheme) for
compliance with ISO 14064.
The number of installations by customers of low-carbon
technologies such as photovoltaic solar panels and heat pumps
continued to increase during the year and are reported via the
regulatory reporting process. The greater range of load and
generation technologies being placed on the network arising from
the decarbonisation of energy means that the Company needs to
develop smart solutions that reduce the need for expensive
reinforcement of the network. In that respect, the Northern
Powergrid Group disseminated the learning from its Customer-Led
Network Revolution project during 2015, which was aimed at
understanding how novel network technology and changes in
customers' energy usage habits may lead to the speedier and lower
cost connection of low-carbon technologies to the network.
The Company believes that the project delivered significant
learning and a comprehensive legacy, as it developed practical
guidance as well as policy recommendations and equipment
specifications, made recommendations to update the United Kingdom
electricity industry's technical network planning standards and
delivered insight into potential future commercial arrangements and
the practicalities of delivering end solutions that are compatible
with customers' needs.
The Company's plans for ED1 include further development of the
learning delivered by the project to support the evolution of a
sustainable network, which will include enabling technology,
reinforcement of the network to alleviate the constraints
associated with low carbon technologies and supporting the roll-out
of smart meters. The Company is investing, via its innovation
strategy, in order to facilitate knowledge transfer and absorption
of learning through the up-skilling of its workforce, the
redefinition of its technical standards and the improvement of its
processes. Consequently, the Company continues to believe that its
plans will not only create some immediate benefits for customers
during ED1, but also pave the way for much greater benefits after
2023.
In July 2015, the Company submitted its second Adaptation to
Climate Change report to the Department for Environment, Food and
Rural Affairs, which builds on the actions identified in the first
report and provides details of progress made against those actions.
It also brings the report up to date to reflect the Northern
Powergrid Group's structure and approach to risk management as well
as discussing emerging research and its influence on the Northern
Powergrid Group's approach to adaptation.
Updates from the first report include detail on the approach to
surface water flooding, a review of industry practice for
vegetation management and research carried out by Newcastle
University into the effects of wind on electricity networks. The
Company intends to continue to refine and adjust its plans and
processes in the future, as more accurate climate projection data
becomes available to take account of the potential impact that
future climate change predictions may bring and to ensure that it
continues to maintain the levels of network performance its
customers deserve.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Environmental respect - continued
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") is the principal risk
management forum in the Northern Powergrid Group, and monitors and
manages performance in risk-related and compliance areas. The GRMG
met on three occasions during the year in order to review the
mechanisms for meeting external obligations, to strengthen the
business-control-improvement environment, and to consider and
advise on key strategic risks facing the Company.
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 04:38 ET (08:38 GMT)
As has been the case for some years, breaches by a DNO of its
licence conditions and certain other statutory requirements could
lead to financial penalties, which Ofgem has stated "will have a
proportionate impact on shareholder returns". In order to assure
compliance with licence and other regulatory obligations, the
Company operates a regulatory compliance affirmation process, under
which ownership of approximately 1,748 regulatory obligations
contained within the compliance database is currently assigned to
around 75 responsible managers. Those responsible managers are
required, on a quarterly basis, to review compliance with the
relevant obligations that have been assigned to them for
certification and report on any identified non-compliances or
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.
Under the RIIO (revenue = incentives + innovation + outputs)
model for regulation, price controls are set for eight years
(rather than five as has previously been the case), with provision
for a mid-period review of the outputs that network companies are
required to deliver. The ED1 price control became effective on 1
April 2015, is due to end on 31 March 2023.
The final determination in respect of ED1, as amended by the
CMA, sets out the Company's allowed revenues and rules by which
Ofgem expects to adjust these revenues in certain circumstances
during ED1. Relative to Ofgem's original proposals, the CMA's
determination resulted in the Company's base allowed revenue
decreasing by approximately 0.2% in the regulatory year ended 31
March 2017 and in all subsequent years within ED1, before the
addition of inflation (as measured by the Retail Prices Index
("RPI")). Base allowed revenue in the regulatory year ended 31
March 2016 remains unchanged from Ofgem's original final
determination and nominal base allowed revenues will increase in
line with RPI.
The ED1 price control is the first to be set for electricity
distribution in Great Britain since Ofgem completed its review of
network regulation (known as the RPI-X @ 20 project). The key
changes to the price control calculations, compared to those used
in previous price controls are that:
- the period over which new regulatory assets are depreciated is
being gradually lengthened, from 20 years to 45 years, with the
change being phased over eight years;
- allowed revenues will be adjusted during the price control
period, rather than at the next price control review, to partially
reflect cost variances relative to cost allowances;
- the allowed cost of debt will be updated within the price
control period by reference to a long-run trailing average based on
external benchmarks of public debt costs;
- allowed revenues will be adjusted in relation to some new
service standard incentives, principally relating to speed and
service standards for new connections to the network; and
- there is scope for a mid-period review and adjustment to
revenues in the latter half of the period for any changes in the
outputs required of licensees for certain specified reasons.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
CORE PRINCIPLES - continued
Regulatory integrity - continued
Many other aspects of the previous price control remain in place
(either in their DPCR5 or similar form), including adjustments to
revenues in relation to the number and duration of service
interruptions and customer service standards.
In addition, network tariffs, from which actual revenues are
derived, are now set further in advance than was previously the
case.
Changes have also been made to the legislation that prescribes
the standards of service to be provided by the DNOs in specified
circumstances and payments to be made to end-customers for failure
to meet those standards. The most significant of these changes
reduced from 18 to 12 hours the time that is allowed for
restoration of supplies following an unplanned power cut in normal
weather conditions.
With effect from 1 April 2015, the more formalised arrangements
for assuring the accuracy of the information returns submitted to
Ofgem, that had been trialled by network operators in the latter
part of DPCR5, entered into formal operation under the terms of the
Company's licence. These arrangements involve the preparation and
submission to Ofgem of a risk-based data-assurance plan for the
regulatory year ahead, together with a report detailing the
assurance work actually carried out in the regulatory year just
ended and the findings of that work.
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 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 the maximum
permitted revenue for each regulatory year, taking into account
base allowed revenues and movements in RPI, as well as factors such
as performance against certain regulatory incentives. Where the
Company recovers more, or less, than this maximum the difference is
carried forward, with interest. For amounts relating to the
regulatory year ended 31 March 2016, the carry forward will be into
the entitlement for the regulatory year ended 31 March 2018.
Prior to and including DPCR5, it was 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 price control for ED1 has been set for the
eight-year period commencing on 1 April 2015 and it is Ofgem's
intention to use eight-year price control periods in the future. A
resetting of the formula is now made by GEMA without the consent of
the electricity distribution licence holder, but a licensee can
appeal to the CMA against a decision by GEMA to proceed with such a
modification. Certain other interested parties have the same right.
Details of the Company's appeal to the CMA can be found on page 4
of this Strategic Report.
During the term of the price control, the rate of inflation as
measured by RPI is taken into account in setting the Company's
allowed income in respect of each regulatory year. Consequently,
one of the risks faced by the Company is that its costs may
increase by more than RPI. Any changes in costs incurred will have
a direct impact on the Company's financial results, as will changes
in performance under incentive schemes, such as in customer
service, which can lead to adjustments to allowed revenues.
Ofgem recognises that defined benefit pension schemes and,
particularly, the current deficit positions of various schemes,
represent a significant cost to the DNOs and, in its DPCR5 final
proposals, Ofgem confirmed that DNOs would be allowed to recover
the actuarial value of the deficits attributable to a licensee's
distribution business in existence as at 31 March 2010 via its
regulated revenues (after an adjustment to reflect the residual of
unfunded early retirement deficiency costs as at 31 March 2010).
Ofgem re-affirmed these principles in its ED1 final
determination.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Financial risk - continued
However, given the stable and regulated nature of the DNOs'
businesses, Ofgem took the view that a notional repair period of 15
years from 1 April 2010 was appropriate for the purpose of
assessing the DNOs' allowed revenues in respect of pension costs.
Moreover, Ofgem reviews the reasonableness of the triennial
actuarial valuations of DNOs' pension schemes and calculates new
deficit funding allowances, including any adjustments that may be
necessary to account for differences between allowances received
and payments actually made to the relevant pension scheme.
The other financial risks facing the Company are outlined on
pages 6 and 7 of this Strategic Report.
Operational risk
There are a number of risks to the Company's operational
performance in respect of which mitigating actions have been taken.
Appropriate credit cover arrangements are in place with the
electricity suppliers, which would allow recovery of defaulted
payments through the price control mechanism, and a robust major
incident management plan is implemented whenever severe weather
impacts on the distribution network's performance. Given the
regular instances of metal theft experienced in previous years, the
Company maintained its programme of risk-assessed and enhanced
security measures at its sites and pursued awareness raising
activity at a national and local level.
The Company recognises that there are uncertainties around the
future take-up of low-carbon technologies and the resulting
capacity requirements for the network, and from the fitting of
smart meters throughout the Company's distribution services area,
which is expected to result in a requirement to address a
proportionate number of reported defects. The Company believes that
it can effectively manage these issues through its usual risk
management practices.
Commercial risk
Managing commercial risk continued to be of key importance and
the Company remained focused on ensuring that its policies for
credit checking, payment terms, payment performance tracking and
debt management were strictly adhered to.
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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 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.
The Company operates utilising a mix of direct labour and
contracted resource and has a range of contracts in place with
various service providers for delivery of its work programmes,
which are subject to regular market testing and tendering
exercises. Those services include vegetation management, overhead
line inspection and construction, substation construction and
maintenance, underground cable laying services, vehicle leasing and
servicing, tower refurbishment and information technology services.
The Company also has an extensive suite of contracts in place for
the procurement of all of the goods and equipment it requires to
deliver its capital expenditure programme and to run its business,
including for varying types of transformers, switchgear and
cables.
Risk Management
The Northern Powergrid Group operates a structured and
disciplined approach to the management of risk as part of its
overall risk management policy and, in DPCR5 and previous price
control periods, accepted and successfully managed substantial cost
and delivery risks by developing a culture of cost and risk
management over that period of time. Risks are divided into a
number of risk sectors which, in turn, align to the Northern
Powergrid Group's Core Principles, as detailed on page 3 of this
Strategic Report. A report regarding the effectiveness of each risk
sector in terms of risk management, control activity, key success
factors, and supporting measures is presented at meetings of the
GRMG. The risk environment is reviewed continually in order that
new or emerging potential risks are identified.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Risk Management - continued
The Northern Powergrid Group identifies and assesses risks
associated with the achievement of its strategic objectives so that
any 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. The risk management programme includes
regular review of the crisis management, disaster recovery and
major incident plans, which are periodically tested, the sharing of
best practice on disaster preparedness and response, disaster
recovery tests of IT servers and priority processes, penetration
tests against firewall systems, and a peer review of the Northern
Powergrid Group's risk management systems by Berkshire Hathaway
Energy.
Risk management continues to be a central theme of senior
management priority setting, as well as an explicit business
process that helps to identify lower probability, high consequence
threats to business success or continuity. This approach is
reinforced by that of the Berkshire Hathaway Energy group, whose
activities have continued to include benchmarking of risk
management activities across its business units, including the
sharing of significant lessons learned associated with risk
management.
A key element and requirement of the risk management process is
that a written certificate is provided by the President and Chief
Executive Officer of the Northern Powergrid 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 certain senior managers are
required to confirm that the system of internal control in their
area of the business is operating effectively. Consequently, the
directors believe that a robust system of risk assessment and
management is in place.
Internal Control
A rigorous internal control environment exists within the
Northern Powergrid 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. Berkshire Hathaway
Energy requires a quarterly risk control assessment to be
undertaken by certain senior managers as part of its programme for
compliance with the requirements of the United States
Sarbanes-Oxley Act and, while no significant areas of weakness have
been identified, any recommended improvements are implemented.
In addition, the Northern Powergrid Group employs comprehensive
business planning and financial reporting procedures, regularly
reviews key performance indicators to assess progress towards its
goals and has a strong internal audit function to provide
independent scrutiny of its internal control systems. The Northern
Powergrid Group has risk management procedures in place, including
the standards required by the United States Sarbanes-Oxley Act, and
has centralised treasury operations and established procedures for
the planning, approving and monitoring of major capital
expenditure.
The Northern Powergrid Group is committed to maintaining the
highest ethical standards in the conduct of its business and, in
that respect, implements Berkshire Hathaway Energy's code of
business conduct for employees. The code of conduct sets out and
emphasises the required standards and commitment to ethical
behaviour, provides reporting mechanisms for known or suspected
ethical issues, helps prevent wrongdoing, and creates and sustains
an ethical work environment across the Northern Powergrid Group.
All employees are required to complete annual training on the code
of business conduct and then confirm that they understand the
requirements outlined in the code. The training is available online
and employees who do not have access to the online system attend a
briefing with their line manager.
The Company does not have a specific human rights policy but, as
noted in this Strategic Report, it bases its operations on the Core
Principles in order to deliver its long-term objectives.
Accordingly, the Company remains fully committed to operating
ethically and responsibly and with fairness and integrity through
the policies and procedures it has in place which set the approach
to its employees, their health, safety and welfare, its dealings
with customers, particularly those who are vulnerable and on the
priority services register, its impact on the environment and its
contribution to the sustainability agenda within the energy
industry. The Core Principles are a key factor in the responsible
way in which the Company operates its electricity distribution
business, examples of which are described throughout this Strategic
Report.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Internal Control - continued
The Northern Powergrid Group is also committed to preventing
corruption in all its forms and continues to have a zero-tolerance
approach to corruption in its business or by those with whom it
does business. The board of Northern Powergrid Holdings Company has
addressed the risks introduced by the Bribery Act 2010 through a
compliance policy, changes to contractual terms, training and other
staff awareness measures. The introduction of annual risk
assessments and enhanced due diligence in respect of new business
transactions has further assisted in ensuring compliance.
The Northern Powergrid Group requires staff, suppliers of
services and business partners to comply with the Bribery Act. Its
policies encourage an employee who has any suspicion of bribery or
other form of corruption within or related to the Northern
Powergrid Group to report the suspicion to a manager or via the
international, anonymous help line mentioned in the Employee
commitment section.
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.
In preparing these annual reports and accounts, the directors
have assessed the viability of the Company for the purposes of
making the statement below and do so on an ongoing basis as part of
the preparation and approval of the Company's ten-year business
plan.
The directors have chosen the eight-year period from 1 April
2015 for the purposes of making this statement because it equates
to the ED1 regulatory period, though longer periods may be
appropriate given the 45-year life ascribed to the Company's new
assets, the enduring nature of the Company's business and the fact
that the notice period for revocation of the Company's electricity
distribution licence is 25 years. The Company's income has been set
for the ED1 regulatory period, although there is scope for a
mid-period review and Ofgem may adjust revenues in the latter half
of the period for any changes in the outputs required of the
Company for certain specified reasons. Consequently and given the
general stability associated with the regulatory environment in
which the Company operates, the directors have been able to prepare
sufficiently robust forecasts as part of the Company's annual
business planning process, taking account of the principal risks
and uncertainties which might have an impact on those forecasts.
The Company's forecasts look forward for a 10-year period and
anticipate the Company's continued stable operations beyond the ED1
price control.
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Details of the principal risks and uncertainties, which could
have an impact on the Company, are provided on pages 18 and 19 of
the Strategic Report and details of how those principal risks are
assessed and managed are provided in the Risk Management section of
the Strategic Report.
The directors' ongoing assessment of the principal risks and
uncertainties facing the Company also includes meeting the
obligations in the Company's electricity distribution licence to
provide Ofgem with annual certificates, approved by the board,
confirming that the directors have a reasonable expectation that
the Company will have sufficient financial resources, financial
facilities and operational resources available to it so that the
Company is able to carry on its Distribution Business for a period
of 12 months from the dates of those certificates. Assumptions
taken into account when approving those certificates include (i)
the potential for significant adverse financial impact from the
various incentive schemes that can lead to variations in the
Company's allowed income under its price control arrangements; (ii)
the occurrence of catastrophic natural or other events, which could
have a significant impact on the operating performance of the
distribution network or involve significant expenditure; (iii)
whether significant customer payment defaults may be experienced;
and (iv) the continued availability to the Company of suitably
qualified and experienced staff. Given the regulatory environment
in which the Company operates, it is currently considered unlikely
that there will be material variances to the assumptions used in
providing those certificates during ED1.
NORTHERN POWERGRID (YORKSHIRE) PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Internal Control - continued
The stable nature of the Company's business is evidenced by the
fact that the commitments made by the Company in its well-justified
business plan, which was originally submitted to Ofgem as part of
the ED1 price control review process, have not changed
fundamentally. Consequently, assuming that the principal risks and
uncertainties facing the Company continue to be managed
effectively, the directors have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the ED1 period.
ON BEHALF OF THE BOARD:
T E Fielden
Director
5 April 2016
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
The directors present their report with the financial statements
of the Company for the year ended 31 December 2015.
DIVIDENDS
During the year, an interim dividend of GBP27.6 million (9.5p
per ordinary share) was paid (2014: GBP40.0 million, 13.79p per
ordinary share). The directors recommend that no final dividend be
paid in respect of the year.
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 Company worked with
NPg Northeast to complete the major project under Ofgem's Low
Carbon Networks Fund, known as the Customer-Led Network Revolution
and the draft project findings were issued to Ofgem for
consideration. Those findings were then disseminated more widely
during 2015 as part of a three-month consultation period with the
other DNOs in order to explore and refine the conclusions. The
Northern Powergrid Group incurred expenditure of GBP31.0 million
over the life of the project. Of that expenditure, 90% has been
funded by electricity customers in Great Britain and Ofgem agreed
that GBP2.7 million of the additional 10% could be recovered from
customers. There is also the opportunity to apply in the future for
a further discretionary award and Ofgem will consider additional
rewards for those projects providing the best outcomes for
customers. Further details of the Customer-Led Network Revolution
project are provided in the Sustainability section on page 16 of
the Strategic Report. New activities initiated in 2015 included
projects regarding enhanced load reduction opportunities from
customer participation, the accessing of disbursed domestic
demand-side response and, alongside other utilities, how to
determine optimum energy system technology approaches appropriate
to local socio-economic factors. Other new activities during the
year included alternative technology options for overhead line
support and the use of unmanned aerial vehicles for remote asset
inspection and management. Work completed during the year included
the development of an improved decision support tool for optimum
selection amongst complex asset investment options.
During the year, the Company invested GBP2.7 million (2014:
GBP3.3 million) (Note 6 to the accounts) in its research and
development activities.
FUTURE DEVELOPMENTS
The financial position of the Company, as at 31 December 2015,
is shown in the statement of financial position on page 37.
There have been no significant events since the year end and the
directors intend that the Company will continue to implement its
well-justified business plan that was revised as part of the ED1
price control review process and will develop its business by
operating with the goal of efficiently investing in the network and
improving the quality of supply and service provided to
customers.
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2015 to the date of this report, except
as noted.
R Dixon Non-executive Director
T E Fielden Finance Director
J M France Regulation Director
N M Gill Operations Director
P A Jones President and Chief Executive Officer
A J Maclennan Business Development Director (appointed
17 July 2015)
A R Marshall Non-executive Director
P C Taylor Non-executive Director
J P Barnett resigned as a director with effect from 13 August
2015.
During and as at the end of the year, none of the directors was
interested in any contract, which was significant in relation to
the business of the Company.
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
DIRECTORS - continued
During the financial year and up to the date of approval of the
Report of the Directors, an indemnity contained in the Company's
Articles of Association was in force for the benefit of the
directors of the Company and as directors of associated companies,
which was a qualifying indemnity provision for the purposes of the
Companies Act 2006
FINANCIAL RISK MANAGEMENT
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.
Trading risk
Throughout the year, the Company's policy was that no trading in
financial instruments should be undertaken.
Financial derivatives
As at 31 December 2015 and during the year, it was the Company's
policy not to hold any derivative financial instruments.
Further details of the financial risks facing the Company are
provided in the Financial strength and Principal Risks and
Uncertainties sections on pages 6 and 7 and 18 and 19 respectively
of the Strategic Report.
POLITICAL DONATIONS
During the year, no contributions were made to political
organisations (2014: GBPnil).
EMPLOYEES
Employee consultation
The Company has a constitutional framework in place for employee
consultation and has agreed that framework with trade union
representatives. In addition, the Company communicates directly and
through the management structure with non-collectively bargained
staff, who are primarily of management grade, and keeps them
informed of and involved as appropriate in developments that may
impact on them now or in the future.
The Company is committed to maintaining and improving effective
engagement and communication with employees. Following an employee
engagement survey undertaken in 2014, senior and local engagement
champions were identified during the year to work collaboratively
with their teams in order to deliver agreed improvement plans. This
approach is augmented by routine communication channels including
regular staff briefs on current issues, meetings with staff and
their representatives, and increased use of the Northern Powergrid
Group's intranet to improve communication and engagement with the
workforce.
During the year, the President and Chief Executive Officer of
the Northern Powergrid Group continued to provide employees with
updates on the Northern Powergrid Group's financial,
organisational, safety and customer service performance through
postings and weekly blogs on the Northern Powergrid Group's
intranet on key elements of performance during the preceding
week.
Disabled employees
The Company is committed to equality at work and, as such, its
policy is 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 make reasonable
adjustments, wherever possible.
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT
The Company provides the following statement setting out how it
has applied the main principles in the version of the UK Corporate
Governance Code made available on the Financial Reporting Council's
website in September 2014 (the "Code"). To the extent that it
departs from the Code, the Company explains from which parts of the
Code it departs and the reasons for so doing.
Compliance statement
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Set out below and in the Strategic Report are the areas in which
the Company adopts and complies with the main principles of the
Code. The Company has not complied with certain of the main
principles of the Code, including main principles A2, A3, B2, B6,
B7, D1, D2 and E2. 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 Berkshire Hathaway Energy and includes regular reporting to
and meetings with the Chairman and senior management of Berkshire
Hathaway Energy, the presence of independent, non-executive
directors at board meetings of the Company and a strong internal
control environment designed to meet the standards required by the
United States Sarbanes-Oxley Act.
The Code is based on the "comply or explain" approach and the
directors are of the opinion that, in the instances noted above
where the Company does not comply with the Code, this approach is
justifiable, given that the Company is a wholly-owned subsidiary of
Berkshire Hathaway Energy and the governance framework in place
throughout the Northern Powergrid Group is agreed with Berkshire
Hathaway Energy.
Section A: Leadership
Main Principle A1: The Role of the Board
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 include general business performance, regulatory
compliance, operational issues and key business activities.
In addition, the President and Chief Executive Officer
participates in weekly performance review meetings with the
Chairman of Berkshire Hathaway Energy and other senior managers of
the Berkshire Hathaway Energy group, including the Executive Vice
President and Chief Financial Officer. At those weekly meetings,
the views of the Chairman of Berkshire Hathaway Energy and the
senior management team regarding the key, current issues facing the
Northern Powergrid Group are discussed.
The Chairman of Berkshire Hathaway Energy also receives weekly,
monthly, quarterly and ad-hoc reports on the Northern Powergrid
Group's performance from the President and Chief Executive Officer.
Berkshire Hathaway Energy's Executive Vice President and Chief
Financial Officer and Senior Vice President and General Counsel
also hold similar weekly review meetings in respect of Berkshire
Hathaway Energy's financial and legal functions, at which the
Northern Powergrid Group'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 nine occasions during the year, with the
attendance of the directors being as follows:
R Dixon Non-Executive Director 8
T E Fielden Finance Director 9
J M France Regulation Director 8
N M Gill Operations Director 8
President and Chief
P A Jones Executive Officer 7
A J Maclennan Business Development 4(of 4 following
Director appointment)
A R Marshall Non-Executive Director 9
P C Taylor Non-Executive Director 7
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle A1: The Role of the Board - continued
Operational management of the Company's business (and that of
its affiliate, NPg Northeast) is delegated to a single senior
management team, with specific functional responsibilities. That
senior management team meets monthly with the senior management of
the Northern Powergrid 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 Northern Powergrid Group are provided in the Strategic
Report.
The directors have overall responsibility for the internal
control environment, which, within the Northern Powergrid 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, Berkshire Hathaway Energy requires a
quarterly risk control assessment to be undertaken by certain
senior managers as part of its programme for compliance with the
requirements of the United States Sarbanes-Oxley Act. The
assessments undertaken during the year did not identify any
significant weaknesses in the process but resulted in the
implementation of recommended improvements. The key features of the
Company's internal control system and the issues addressed by the
Company during the year can be found in the Strategic Report.
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 Northern
Powergrid Group and, therefore, Company policy. As part of their
approved terms of reference, certain of those committees report
regularly to the board on their activities. The committees are as
follows:
Health and Safety Management Committee
The board of Northern Powergrid Holdings Company has established
the Northern Powergrid Group Health and Safety Management Committee
with delegated powers to manage the health and safety policy and
performance of the Northern Powergrid 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 Executive Officer
A J Maclennan Managing Director, Integrated Utility
Services Limited (an affiliated company)
G M Earl Director of Health, Safety and Environment
The committee meets on a regular basis in order to oversee
implementation of the health and safety policy, review and agree
strategy for the management of health and safety issues, monitor
health and safety performance across the Northern Powergrid Group,
review the effectiveness of the health and safety policies and the
health and safety management system, and consider recommendations
for changes in policy due to changes in appropriate legislation,
codes of practice or guidance or due to recommendations arising
from investigations into significant incidents
Treasury Committee
The Treasury Committee oversees and implements the treasury
policies, which are outlined in the Strategic Report and the Report
of the Directors, and comprises:
G E Abel Chairman, Berkshire Hathaway Energy
D Brady Treasurer
T E Fielden Finance Director
P J Goodman Executive Vice President and Chief
Financial Officer, Berkshire Hathaway
Energy
P A Jones President and Chief Executive Officer
S J Lockwood Group Financial Controller
S Gormally Accounting Assistant and Secretary
to the Committee
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle A1: The Role of the Board - continued
Pensions Committee
The Pensions Committee oversees the Northern Powergrid Group's
approach to the pension schemes to which it contributes and
comprises:
N Dawson Senior Pensions Advisor
T E Fielden Finance Director
J M France Regulation Director
S J Lockwood Group Financial Controller
K Mawson Head of Regulatory Finance and Systems
L Tweedie Head of Field Change
K Weatherburn Director of Human Resources
Governance and Risk Management Group
The GRMG is the principal risk management forum in the Northern
Powergrid Group and monitors and manages performance in
risk-related and compliance areas. The GRMG monitors and reviews
the strategic risk environment, ensuring the continued suitability,
adequacy and effectiveness of risk management arrangements and
reports to the Northern Powergrid Group's Audit Committee. The GRMG
comprises:
The GRMG comprises:
D Anderson Head of Internal Audit
N Applebee Head of Shared Services
J Cardwell Head of Trading and Innovation
R Dixon Non-Executive Director
M Drye Director of Asset Management
G Earl Director of Safety, Health and Environment
J Elliott Company Secretary
T E Fielden Finance Director
J M France Regulation Director
T France General Counsel
N M Gill Operations Director
A Jones Head of Strategic Planning and Delivery
A J Maclennan Business Development Director
K Weatherburn Director of Human Resources
The GRMG implemented a new process during Quarter 1 of 2015,
which is designed to improve the effectiveness of the risk
management and control activities, better define the risk
environment within the Northern Powergrid Group, rationalise the
reporting procedures to focus attention on key risk movements and
identify accountabilities for each risk sector.
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The risk management framework was monitored regularly during the
year to ensure that all strategic risks 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. In that respect, the Emergency
Planning and Co-ordination Group (the "EPCG") has a remit to
develop and maintain the Northern Powergrid Group's approach to
emergency planning and to provide strategic leadership and guidance
in respect of such matters.
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle A1: The Role of the Board - continued
The EPCG also ensures appropriate coordination between the
various emergency planning disciplines, which include operational
management of network incidents, property and the physical
environment, non-operational management and resources and the
support areas of human resources, information technology, health
and safety, communications and legal services.
Further details of the Northern Powergrid Group's approach to
corporate governance and the management of internal controls can be
found in the Strategic Report.
As explained in respect of main principles B2 and D1, the
Company does not have either a remuneration committee or a
nomination committee.
Main Principle A2: Division of Responsibility
Mr G E Abel, the Chairman of Berkshire Hathaway Energy, is also
Chairman of Northern Powergrid Holdings Company. As President and
Chief Executive Officer, Dr Jones is responsible for the operation
and management of both the Company and the Northern Powergrid Group
and reports directly to Mr Abel.
Main Principle A3: The Chairman
The board does not have a formally appointed Chairman. Dr Jones
chairs board meetings, is responsible for the operation and
management of both the Company and the Northern Powergrid Group and
divides his time accordingly between his various commitments within
the Northern Powergrid Group. Dr Jones reports directly to Mr
Abel.
Main Principle A4: Non-Executive Directors
Three non-executive directors served on the board during the
year, each of whom acts under the terms of their individual service
contracts or terms of reference. Mrs A R Marshall and Professor P C
Taylor were appointed to the board as non-executive directors in
accordance with the requirement in condition 43A of the Company's
electricity distribution licence for the board to include two
sufficiently independent directors, as defined in the Company's
licence.
Section B: Effectiveness
Main Principle B1: The composition of the board
The board comprises five executive directors and three
non-executive directors, who, collectively, bring a range of skills
and experience to the board. Although 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, a position supported by the presence of the sufficiently
independent directors required by the Company's licence.
Main Principle B2: Appointments to the board
The Company does not have a nomination committee. Appointments
to the board are made by Berkshire Hathaway Energy, in conjunction
with the President and Chief Executive Officer.
Main Principle B3: Commitment
The Company's non-executive directors commit sufficient time to
preparation for and attendance at board meetings, although their
service contracts or terms of reference do not quantify the time
commitment required.
Main Principle B4: Development
The directors continually update their knowledge of and
familiarity with the operations of the Company due to the robust
reporting arrangements in place and have ongoing access to the
Company's operations and its staff.
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT - continued
Section B: Effectiveness - continued
Main Principle B5: Information and support
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 also 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 directors, as appropriate.
Main Principle B6: Evaluation
As part of their approved terms of reference, certain 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. Berkshire Hathaway Energy has a performance appraisal
and development scheme in place, under which each senior manager of
the Northern Powergrid Group is subject to a formal annual
appraisal of performance against his individual and Berkshire
Hathaway Energy's goals.
Main Principle B7: Re-election
The Company's articles of association do not require periodic
retirement and re-election of directors.
Section C: Accountability
Main Principle C1: Financial and business reporting
The board considers that the annual reports and accounts, which
include the Strategic Report and the Report of the Directors, taken
as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, position, business model and strategy.
The directors explain, at page 3, the Core Principles behind the
Company's strategy and, at page 31, their responsibility for
preparing the Strategic Report, the Report of the Directors and the
annual accounts, have reported, at pages 31 and 32 in the Report of
the Directors that the Company is a going concern and have included
the Report of the Independent Auditor to the Company at page 34 of
these annual reports and accounts.
Main Principle C2: Risk management and internal control
Details of the principal risks and uncertainties facing the
Company and its internal control system, together with details of
the issues addressed by the Company during the year, can be found
at pages 18 to 22 of the Strategic Report. Also included at pages
21 and 22 of the Strategic Report is an explanation of how the
prospects of the Company have been assessed, the period to which
that assessment relates and the reasons as to why that period is
considered to be appropriate.
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, which provides independent
scrutiny of internal control systems and risk management
procedures, including the standards required by the United States
Sarbanes-Oxley Act;
- Ongoing 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;
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT - continued
Section C: Accountability - continued
Main Principle C2: Risk management and internal control -
continued
- Processes and procedures to operate under OHSAS 18001, which
is subject to external certification and regular assessment;
- An external obligations register, which assists with complying
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.
Main Principle C3: Audit committee and auditor
The board of Northern Powergrid Holdings Company has established
an audit committee for the Northern Powergrid 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, and the independence of and the provision of
additional services by the auditor.
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The Audit Committee comprises one member who is independent and
one member who has competence in accounting, and receives annual
reports from the GRMG and from the Northern Powergrid 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. The Audit
Committee comprises:
R Dixon Non-Executive Director
T E Fielden Finance Director
Details of the fees paid by the Company to Deloitte LLP in
relation to non-audit services during the year are provided in Note
6 to the accounts.
The Employee commitment section on page 14 of the Strategic
Report contains details of the Company's "speaking up" policy.
Section D: Remuneration
Main Principle D1: The level and components of remuneration
The Company does not have a remuneration committee. Annual
remuneration awards for the senior management of the Northern
Powergrid Group are subject to the performance appraisal and
development scheme process and consideration by the Chairman of
Berkshire Hathaway Energy and the President and Chief Executive
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.
Main Principle D2: Procedure
As noted under main principle D1, the Company does not have a
remuneration committee. Annual remuneration awards for the senior
management of the Northern Powergrid Group are subject to the
performance appraisal and development scheme process and
consideration by the Chairman of Berkshire Hathaway Energy and the
President and Chief Executive Officer. No director is involved in
deciding his own remuneration.
Section E: Relations with shareholders
Main Principle E1: Dialogue with Shareholders
As a wholly-owned subsidiary of a privately held group of
companies, the board is in continuing dialogue with Berkshire
Hathaway Energy.
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
CORPORATE GOVERNANCE STATEMENT - continued
Section E: Relations with shareholders - continued
Main Principle E2: Constructive use of General Meetings
This section of the 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 individual or institutional
shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Strategic
Report, 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 ("IFRS") as adopted by
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 of the profit or loss of the Company for that
period.
In preparing the 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 IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company'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
transactions, disclose with reasonable accuracy at any time the
financial position of the Company 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
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The directors are responsible
for the maintenance and integrity of any corporate and financial
information relating to the Company, which is included on the
Northern Powergrid Group's website. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
GOING CONCERN
A review of the Company's business activities during the year,
together with details regarding its future development, performance
and position, its 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 set out in the Strategic Report, the Report of the Directors
and the appropriate notes to the accounts.
When considering continuing to adopt the going concern basis in
preparing the annual reports 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;
NORTHERN POWERGRID (YORKSHIRE) PLC
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2015
GOING CONCERN - continued
- 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 11 years and has access to borrowing facilities
provided by Lloyds Bank plc, Royal Bank of Scotland plc and Abbey
National Treasury Services plc.
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 reports and accounts.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITOR
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 or she is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
b) he or she has taken all the steps he or she ought to have
taken as a director in order to make himself or herself aware of
any relevant audit information and to establish that the auditor is
aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the Companies Act
2006.
AUDITOR
A resolution to re-appoint Deloitte LLP as the Company's auditor
and authorise the directors to determine their remuneration will be
proposed at the Annual General Meeting.
ON BEHALF OF THE BOARD:
T E Fielden
Director
5 April 2016
NORTHERN POWERGRID (YORKSHIRE) PLC
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORTS AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2015
Each of the directors as at the date of the Annual Reports and
Accounts, whose names and functions are set out on page 23 in the
Report of the Directors confirms that, to the best of their
knowledge:
a) the Company's 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 Management Report (which is comprised of the Strategic
Report and 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
Directors on 5 April 2016 and signed on its behalf by:
T E Fielden
Director
5 April 2016
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF
NORTHERN POWERGRID (YORKSHIRE) PLC
We have audited the financial statements of Northern Powergrid
(Yorkshire) plc ("the Company") for the year ended 31 December
2015, which comprise the Statement of Profit or Loss, the Statement
of Profit or Loss and Other Comprehensive Income, the Statement of
Financial Position, the Statement of Changes in Equity, the
Statement of Cash Flows and related notes 1 to 25. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards
("IFRS") 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 Auditor 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
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As explained more fully in the Statement of Directors'
Responsibilities set out on page 31, 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. In addition, we
read all the financial and non-financial information in the
Strategic Report and the Report of the Directors to identify
material inconsistencies with the audited financial statements and
to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
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 2015 and of its profit for the year then
ended;
- have been properly prepared in accordance with IFRS 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 Strategic Report and
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.
David Johnson FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
United Kingdom
Date: 14 April 2016
NORTHERN POWERGRID (YORKSHIRE) PLC
STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 420,220 434,772
Cost of sales (16,834) (17,109)
GROSS PROFIT 403,386 417,663
Operating expenses 9 (198,455) (185,758)
OPERATING PROFIT 204,931 231,905
Other gains 264 185
Finance costs 5 (43,574) (40,783)
Finance income 5 890 280
PROFIT BEFORE INCOME
TAX 6162,511 191,587
Income tax 7 (15,852) (40,958)
PROFIT FOR THE YEAR 146,659 150,629
NORTHERN POWERGRID (YORKSHIRE) PLC
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
GBP'000 GBP'000
PROFIT FOR THE YEAR 146,659 150,629
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE 146,659 150,629
INCOME FOR THE YEAR
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
04112320)
STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2015
2015 2014
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible Assets 10 - -
Property, plant and equipment 11 2,921,050 2,723,286
CURRENT ASSETS
Inventories 12 465 281
Trade and other receivables 14 63,820 71,191
Cash and cash equivalents 13 145,668 -
209,953 71,472
TOTAL ASSETS 3,131,003 2,794,758
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 15 290,000 290,000
Retained earnings 16 829,467 710,408
TOTAL EQUITY 1,119,467 1,000,408
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 17 728,901 698,817
Interest bearing loans
and borrowings 18 972,174 694,343
Deferred tax 21 134,193 147,560
Provisions 20 886 912
1,836,154 1,541,632
CURRENT LIABILITIES
Trade and other payables 17 129,760 110,767
Interest bearing loans
and borrowings 18 33,294 122,721
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Tax payable 11,215 17,943
Provisions 20 1,113 1,287
175,382 252,718
TOTAL LIABILITIES 2,011,536 1,794,350
TOTAL EQUITY AND LIABILITIES 3,131,003 2,794,758
The financial statements were approved and authorised for issue
by the Board of Directors on 5 April 2016 and were signed on its
behalf by:
T E Fielden
Director
NORTHERN POWERGRID (YORKSHIRE) PLC
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Called up
share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
Balance at 1 January 2014 290,000 599,779 889,779
Changes in equity
Dividends - (40,000) (40,000)
Total comprehensive income - 150,629 150,629
Balance at 31 December 2014 290,000 710,408 1,000,408
Changes in equity
Dividends - (27,600) (27,600)
Total comprehensive income - 146,659 146,659
Balance at 31 December 2015 290,000 829,467 1,119,467
NORTHERN POWERGRID (YORKSHIRE) PLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 24 275,312 283,769
Finance costs paid (43,453) (42,967)
Dividends received 41 39
Interest received 849 240
Tax paid (35,947) (39,507)
Net cash from operating activities 196,802 201,574
Cash flows used in investing activities
Purchase of tangible fixed assets (279,004) (253,897)
Sale of tangible fixed assets 336 190
Receipt of customer contributions 70,419 49,019
Net cash used in investing activities (208,249) (204,688)
Cash flows from financing activities
Movements in borrowings in the year 208,114 38,049
Movement in loans from group undertaking (23,399) 5,065
Equity dividends paid (27,600) (40,000)
Net cash from financing activities 157,115 3,114
Increase in cash and cash equivalents 145,668 -
Cash and cash equivalents - -
at beginning of year
Cash and cash equivalents at
end of year 145,668 -
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
1. GENERAL INFORMATION
Northern Powergrid (Yorkshire) plc (the "Company") is a company
incorporated in England and Wales and is part of the Northern
Powergrid Holdings Company group of companies (the "Northern
Powergrid Group"). The address of the registered office is Lloyds
Court, 78 Grey Street, Newcastle upon Tyne, NE1 6AF.
The nature of the Company's business model, strategic
objectives, operations and activities are set out in the Strategic
Report.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
financial statements have also been prepared in accordance with
IFRS as adopted by the European Union and with those parts of the
Companies Act 2006 (the "Act") that are applicable to companies
reporting under IFRS.
The financial statements have been prepared under the historical
cost convention. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and
services.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another
valuation technique. In estimating the fair value of an asset or a
liability, the Company takes into account the characteristics of
the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date. Fair value for measurement and/or disclosure
purposes in these financial statements is determined on such a
basis, except for leasing transactions which are within the scope
of IAS 17, and measurements that have some similarities to fair
value but are not fair value, such as net realisable value in IAS 2
or value in use in IAS 36.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company can
access at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below.
Application of new and revised IFRS
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In the current year, the Company has applied a number of
amendments to IFRS issued by the International Accounting Standards
Board ("IASB") that are mandatorily effective for an accounting
period that begins on or after 1 January 2015:
- Amendments to IAS The amendments to IAS 19, Defined
19 - Defined Benefit Benefit Plans: Employee Contributions,
Plans: Employee clarify how an entity should
Contributions. account for contributions made
by employees or third parties
to defined benefit plans, based
on whether those contributions
are dependent on the number
of years of service provided
by the employee. The application
of these amendments to IAS
19 has not had an impact on
the Company's financial statements.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES- continued
Application of new and revised IFRS - continued
- Annual Improvements The Annual Improvements to
to IFRS 2010-2012 IFRS 2010-2012 Cycle and IFRS
Cycle and Annual 2011-2013 Cycle include a number
Improvements to of amendments to various IFRS.
IFRSs 2011-2013 The application of these amendments
Cycle. has not had a significant impact
on the Company's financial
statements.
New and revised standards in issue but not yet effective
The Company has not applied the following new and revised IFRS
that have been issued but are not yet effective for the year ended
31 December 2015:
- IFRS 9 - Financial A revised version of IFRS 9,
Instruments (1 January Financial Instruments, was
2018). issued in July 2014 mainly
to include: a) impairment requirements
for financial assets; and b)
limited amendments to the classification
and measurement requirements
by introducing a 'fair value
through other comprehensive
income' ("FVTOCI") measurement
category for certain simple
debt instruments. The directors
anticipate that the application
of IFRS 9 in the future is
unlikely to have an impact
on amounts reported in respect
of the Company's financial
assets and financial liabilities.
- IFRS 15 - Revenue In May 2014, IFRS 15, Revenue
from Contracts with from Contracts with Customers,
Customers (1 January was issued which establishes
2018). a single comprehensive model
for entities to use in accounting
for revenue arising from contracts
with customers. IFRS 15 will
supersede the current revenue
recognition guidance including
IAS 11 Construction Contracts,
IAS 18 Revenue and the related
Interpretations. The core principle
of IFRS 15 is that an entity
should recognise revenue to
depict the transfer of promised
goods or services to customers
in an amount that reflects
the consideration to which
the entity expects to be entitled
in exchange for those goods
or services. Under IFRS 15,
an entity recognises revenue
when (or as) a performance
obligation is satisfied. Far
more prescriptive guidance
has been added in IFRS 15 to
deal with specific scenarios.
Furthermore, extensive disclosures
are required by IFRS 15. The
directors anticipate that the
application of IFRS 15 in the
future may have a material
impact on the amounts reported
and disclosures made in the
Company's financial statements.
However, it is not practicable
to provide a reasonable estimate
of the effect until the Company
undertakes a detailed review.
- IAS 1 - Disclosure The amendments to IAS 1 give
Initiative (1 January some guidance on how to apply
2016). the concept of materiality
in practice. The directors
do not anticipate that the
application of these changes
will have a material impact
on the Company's financial
statements.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES- continued
New and revised standards in issue but not yet effective -
continued
- Amendments to IAS The amendments to IAS 16 and
16 and IAS 38 - IAS 38, Clarification of Acceptable
Clarification of Methods of Depreciation and
Acceptable Methods Amortisation, prohibit entities
of Depreciation from using a revenue-based
and Amortisation depreciation method for items
(1 January 2016). of property, plant and equipment.
The amendments to IAS 38 introduce
a rebuttable presumption that
revenue is not an appropriate
basis for the amortisation
of an intangible asset. Currently
the Company uses the straight-line
method for depreciation and
amortisation of property, plant
and equipment, and intangible
assets. The directors believe
that the straight-line method
is the most appropriate method
to reflect the consumption
of economic benefits inherent
in the respective assets and,
accordingly, the directors
do not anticipate that the
application of these amendments
will have a material impact
on the Company's financial
statements.
- Annual Improvements The Annual Improvements to
to IFRS 2012-2014 IFRS 2012-2014 include a number
Cycle. of amendments to various IFRS.
The directors do not anticipate
that the application of these
amendments will have a significant
impact on the Company's financial
statements.
Note: IFRS 14, Regulatory Deferral Accounts, is not applicable
to the Company as the Company is not a first-time adopter of
IFRS.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those
involving estimations, that the directors have made in the process
of applying the Company's accounting policies and that have the
most significant effect on amounts recognised in the consolidated
financial statements:
- Revenue recognition.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future and
other key sources of estimation uncertainty at the end of the
reporting period that may have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year:
- Useful economic lives for property, plant and equipment;
- The split of operating and capital expenditure and the
allocation of overheads to property, plant and equipment;
- Impairment reviews carried out to evaluate the carrying value
of assets held at the end of the reporting period; and
- Fair valuation measurements and valuation processes.
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 is measured at the fair value of consideration received
or receivable.
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April 15, 2016 04:38 ET (08:38 GMT)
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.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES - continued
Revenue - continued
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 on a straight-line basis, in line
with the useful life of the distribution system assets.
Interest income from a financial asset is recognised when it is
probable that the economic benefits will flow to the Company and
the amount of income can be measured reliably. Interest income is
accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying
amount on initial recognition.
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established.
Software development costs
Costs in respect of major developments are carried at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over the
estimated useful life of the software of up to 15 years. The
estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and accumulated impairment losses. 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.
Depreciation is recognised so as to write off the cost of assets
less their residual values over their useful lives, using the
straight-line method:
Distribution system assets 45 years
Distributed generation assets included up to 15
in distribution system assets years
Metering equipment included in distribution up to 5
system assets years
Information technology equipment included up to 10
in distribution system assets years
Non-operational assets:
Buildings - freehold up to 60
years
lower of
Buildings - leasehold lease period
or 60 years
Fixtures and equipment up to 10
years
Software development costs up to 15
years
Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting period, with the
effect of any material changes in those estimates accounted for on
a prospective basis. Due to the significance of the Company's
investment in property, plant and equipment, variations in
estimates could impact operating results both positively and
negatively although, historically, few changes have been
required.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES - continued
Property, plant and equipment - continued
Assets in the course of construction are carried at cost, less
any recognised impairment loss. Costs include professional fees,
and, for qualifying assets, borrowing costs capitalised in
accordance with the Company's accounting policy. Such assets are
classified to the appropriate categories of property, plant and
equipment when completed and ready for intended use. Depreciation
on these assets, on the same basis as other assets, commences when
the assets are commissioned.
Financial instruments
Financial assets and financial liabilities are recognised in the
statement of financial position when the Company becomes a party to
the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate,
on initial recognition.
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
The 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 before tax' as reported
in the statement of profit or loss because of items of income or
expense that are taxable or deductible in other years and items
that are never taxable or deductible. The Company's current tax is
calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the
current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively.
Deferred tax is recognised on temporary 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. Deferred tax liabilities are generally
recognised for all taxable temporary differences. Deferred tax
assets are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable profits
will be available against which those deductible temporary
differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit. In addition, deferred tax liabilities are not
recognised if the temporary difference arises from the initial
recognition of goodwill.
Deferred tax liabilities recognised for taxable temporary
differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the
Company is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse
in the foreseeable future. Deferred tax assets arising from
deductible temporary differences associated with such investments
and interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting period 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.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES - continued
Research costs
Expenditure on research activities is written off to the
statement of profit or loss in the year in which it is
incurred.
Other than software development, the Company does not carry out
any other development activity that would give rise to an
intangible asset.
Foreign currencies
Transactions in foreign currencies are recognised at the rate of
exchange prevailing at the date of the transaction. At the end of
each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date.
Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing at that
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
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 recognised in the statement of
profit or loss or in property, plant and equipment on a
straight-line basis over the lease term.
Provisions
Provisions are recognised when the Company has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Company will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
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The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Pensions
The Company contributes to the Northern Powergrid Group of the
Electricity Supply Pension Scheme (the "Northern Powergrid Group of
the ESPS"), a defined benefit scheme.
The cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at
the end of each annual reporting period. Re-measurement, comprising
actuarial gains and losses, the effect of the changes to the asset
ceiling and the return on plan assets (excluding interest) are
reflected immediately in the statement of financial position with a
charge or credit recognised in other comprehensive income in the
period in which they occur. Re-measurement recognised in other
comprehensive income is reflected immediately in retained earnings
and will not be reclassified to profit or loss. Past service cost
is recognised in profit or loss in the period of a plan amendment.
Net interest is calculated by applying a discount rate at the
beginning of the period to the net defined liability or asset.
Defined benefit costs are categorised as service cost, net interest
expense or income and re-measurement.
The retirement benefit obligation recognised in the statement of
financial position represents the actual deficit or surplus in the
Company's defined benefit plan. Any surplus resulting from this
calculation is limited to the present value of any economic
benefits available in the form of refunds from the plan or
reductions in future contributions to the plan.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
2. ACCOUNTING POLICIES - continued
Pensions - continued
The Company also participates in a defined contribution scheme.
Contributions payable to the defined contribution scheme are
charged to the statement of profit or loss in the year or
capitalised as appropriate when employees have rendered service
entitling them to the contributions.
A liability is recognised for benefits accruing to employees in
respect of wages and salaries, annual leave and sick leave in the
period in which the related service is rendered at the undiscounted
amount of the benefits expected to be paid in exchange for that
service. Liabilities recognised in respect of short-term employee
benefits are measured at the undiscounted amount of the benefits
expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee
benefits are measured at the present value of the estimated future
cash outflows expected to be made by the Company in respect of
services provided by employees up to the reporting date.
Financial assets
Financial assets, including trade and other receivables and cash
and cash equivalents, are classified as loans and receivables.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment.
The effective interest method is a method of calculating the
amortised cost of an instrument and of allocating income over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts through the
expected life of the instrument to the net carrying amount on
initial recognition.
Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the effect of
discounting is immaterial.
Cash and cash equivalents (which are presented as a single class
of assets on the face of the statement of financial position)
comprise cash at bank and other short-term highly liquid
investments with a maturity of three months or less, which are
subject to an insignificant risk of changes in value.
Financial assets are assessed for indicators of impairment at
the end of each reporting period. Financial assets are considered
to be 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 affected.
For certain categories of financial assets, such as trade
receivables, assets are assessed for impairment on a collective
basis even if they were assessed not to be impaired individually.
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 uncollectible, 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
statement of profit or loss.
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 Going Concern Statement in the Report of the
Directors.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
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 Executive Officer of
the Northern Powergrid Group in order to allocate resources to
these segments and to assess their performance.
In practice, the President and Chief Executive Officer allocates
resources and assesses performance based upon the aggregate results
of the Company and Northern Powergrid (Northeast) Limited, another
distribution network operator in the Northern Powergrid 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, amortisation of customer contributions,
recharge of costs incurred on behalf of related parties and other
services and is included net of value added tax.
4. EMPLOYEES AND DIRECTORS
2015 2014
GBP'000 GBP'000
Salaries 57,233 56,441
Social security costs 5,860 5,601
Defined benefit pension costs 17,866 17,577
Defined contribution pension
costs 2,039 1,949
82,998 81,568
Less charged to property, plant
and equipment (49,562) (48,386)
33,436 33,181
The majority of the Company's employees are members of the
Northern Powergrid Group of the ESPS and most of the remaining
employees are members of the Northern Powergrid Pension Scheme,
details of both of which are given in the employee benefits note
(note 22).
The average monthly number of employees during the year was:
2015 2014
No. No.
Technical 370 362
Industrial 591 611
Administration 99 101
Other 120 120
1,180 1,194
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
4. EMPLOYEES AND DIRECTORS - continued
DIRECTORS' REMUNERATION
2015 2014
GBP'000 GBP'000
Highest Paid:
Short-term employee benefits 255 192
Post-employment benefits 20 24
Other long-term benefits 322 301
597 517
2015 2014
GBP'000 GBP'000
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Total:
Short-term employee benefits 627 544
Post-employment benefits 82 85
Other long-term benefits 496 567
1,205 1,196
Directors who are a member of the
defined benefit scheme 34
OTHER KEY PERSONNEL REMUNERATION
2015 2014
GBP'000 GBP'000
Total:
Short-term employee benefits 306 206
Post-employment benefits 74 49
Other long-term benefits 227 106
607 361
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. During the year ending 31 December 2015,
the senior management team was reorganised which resulted in
additional senior functional managers being classified as key
personnel.
The directors and key personnel are remunerated for their
services to the Northern Powergrid Group, of which the Company is a
subsidiary. The figures above represent the share of the costs
borne by the Company.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
5. NET FINANCE COSTS
2015 2014
GBP'000 GBP'000
Finance income:
Dividends received 41 39
Deposit account interest 2 1
Interest receivable 847 240
on loans to Group undertakings
890 280
Finance costs:
Bank interest 1,000 1,024
Interest payable on other loans 45,900 42,619
Borrowing costs capitalised (3,326) (2,860)
43,574 40,783
Net finance costs 42,684 40,503
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after charging:
2015 2014
GBP'000 GBP'000
Depreciation - owned assets 89,262 80,897
Profit on disposal of fixed assets (264) (185)
Software development costs amortisation - 417
Research and development costs 2,727 3,269
Amortisation of deferred revenue (23,044) (21,653)
Impairment of trade and other receivables 390 515
Analysis of auditor's remuneration is as follows:
2015 2014
GBP'000 GBP'000
Fees payable to the Company's auditor
for the audit of the Company's 122 96
annual accounts
Other assurance services 48 14
Total fees payable to the Company's
auditor 170 110
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
7. INCOME TAX
Analysis of tax expense
2015 2014
GBP'000 GBP'000
Current tax 29,219 39,218
Deferred tax (13,367) 1,740
Total tax expense in statement of
profit or loss 15,852 40,958
Factors affecting the tax expense
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2015 2014
GBP'000 GBP'000
Profit on ordinary activities before
income tax 162,511 191,587
Profit on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 20.25% (2014: 21.50%) 32,908 41,191
Effects of:
Changes in legislation (13,871) -
Over provision for prior years'
corporation tax (3,329) (1,780)
Permanent disallowances 39 29
Tax free capital receipts (194) -
Under provision for prior years'
deferred tax 124 1,539
Other 175 (21)
Tax expense 15,852 40,958
2015 2014
GBP'000 GBP'000
Tax expense comprises:
Current tax expense:
Corporation tax charge for the year 32,548 40,998
Over provision for prior years (3,329) (1,780)
Total current tax charge 29,219 39,218
Deferred tax:
Deferred tax expenses relating to
the origination and reversal of 1,740
temporary differences 504
Effect of changes in legislation (13,871) -
Total deferred tax charge (13,367) 1,740
Tax on profit before tax 15,852 40,958
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
7. INCOME TAX - continued
The Finance Act 2015 included a provision that the standard rate
of corporation tax in the United Kingdom was to reduce from 20% to
19% from April 2017 and to 18% from April 2020. Accordingly, 18%
has been applied when calculating deferred tax assets and
liabilities throughout the Northern Powergrid Group as at 31
December 2015.
8. DIVIDENDS
2015 2014
GBP'000 GBP'000
Interim dividend at 9.5p (2014;
14p) per share 27,600 40,000
9. OPERATING EXPENSES
2015 2014
GBP'000 GBP'000
Operating expenses comprise
Distribution costs 137,482 128,164
Administrative expenses 60,973 57,594
198,455 185,758
10. INTANGIBLE ASSETS
Software
development
Costs
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April 15, 2016 04:38 ET (08:38 GMT)
GBP'000
COST
At 1 January 2015 and 31 December 2015 29,497
AMORTISATION
At 1 January 2015 and 31 December 2015 29,497
NET BOOK VALUE
At 31 December 2015 -
Software
development
Costs
GBP'000
COST
At 1 January 2014 and 31 December 2014 29,497
AMORTISATION
At 1 January 2014 29,080
Amortisation of year 417
At AA31
December
2014
At 31 December 2014 29,497
At AA31
December
2014
NET BOOK VALUE
At 31 December 2015 -
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
11. 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 2015 4,505 3,395,089 25,531 3,425,125
Additions - 281,523 5,583 287,106
Disposals - (10,739) (413) (11,152)
At 31 December 2015 4,505 3,665,873 30,701 3,701,079
DEPRECIATION
At 1 January 2015 2,059 680,827 18,953 701,839
Charge for year 178 86,430 2,654 89,262
Eliminated on disposal - (10,659) (413) (11,072)
At 31 December 2015 2,237 756,598 21,194 780,029
NET BOOK VALUE
At 31 December 2015 2,268 2,909,275 9,507 2,921,050
Non
operational Fixtures
land & Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2014 4,505 3,150,099 22,851 3,177,455
Additions - 253,474 2,890 256,364
Disposals - (8,484) (210) (8,694)
At 31 December 2014 4,505 3,395,089 25,531 3,425,125
DEPRECIATION
At 1 January 2014 1,882 610,597 17,152 629,631
Charge for year 177 78,709 2,011 80,897
Eliminated on disposal - (8,479) (210) (8,689)
At 31 December 2014 2,059 680,827 18,953 701,839
NET BOOK VALUE
At 31 December 2014 2,446 2,714,262 6,578 2,723,286
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
11. PROPERTY, PLANT AND EQUIPMENT - continued
Assets in the course of construction included above:
Distribution Fixtures
system and fittings Totals
GBP'000 GBP'000 GBP'000
At 1 January 2015 191,219 - 191,219
Additions 281,523 5,583 287,106
Available for use (280,175) (5,583) (285,758)
At 31 December 2015 192,567 - 192,567
The Company has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP32.6m (2014: GBP54.2m).
The net book value of non-operating land and buildings
comprise:
2015 2014
GBP'000 GBP'000
Freehold 1,346 1,467
Long leasehold 772 804
Short leasehold 150 175
2,268 2,446
12. INVENTORIES
2015 2014
GBP'000 GBP'000
Work-in-progress 465 281
13. CASH AND CASH EQUIVALENTS
2015 2014
GBP'000 GBP'000
Due from group undertaking 145,668 -
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Cash and cash equivalents represent net amounts owed by
companies within the Northern Powergrid Group (see related party
disclosures note), which have a maturity date of less than three
months and which are subject to an insignificant risk of changes in
value. The fair value of cash and cash equivalents is equal to
their book value.
14. TRADE AND OTHER RECEIVABLES
2015 2014
GBP'000 GBP'000
Current:
Distribution use of system receivables 57,282 67,006
Other receivables 4,166 1,780
Prepayments and accrued income 2,372 2,405
63,820 71,191
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
14. 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 end of
the reporting period. 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 24% of
distribution revenues in 2015 (2014: 26%). 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 GBP414,000 as at 31
December 2015 (2014: GBP141,000).
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 (2014: GBPnil)
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 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 (2014: 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 GBP2.2
million (2014: GBP1.5 million) which are past due at the reporting
date and for which the Company has provided an irrecoverable amount
of GBP0.7 million (2014: GBP0.6 million) based on past experience.
The Company does not hold any collateral over these balances. The
average age of these receivables is 297 days (2014: 307 days).
Included in the Company's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP0.4
million (2014: GBP0.5 million). These amounts are past due at the
reporting date and 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 96 days (2014: 76
days).
Ageing of past due but not impaired receivables
2015 2014
GBP'000 GBP'000
30-60 days 167 276
60-120 days 82 94
120-210 days 129 81
Total 378 451
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
14. TRADE AND OTHER RECEIVABLES - continued
Movement in the allowance for doubtful debts
2015 2014
GBP'000 GBP'000
At 1 January 618 240
Amounts utilised/written off in
the year (287) (137)
Amounts recognised in statement
of profit or loss 390 515
At 31 December 721 618
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 GBP0.4 million (2014: GBP0.4
million) 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
2015 2014
GBP'000 GBP'000
Cash and bank balances 145,668 -
Loans and receivables at amortised
cost 61,448 68,786
Total financial assets 207,116 68,786
Non-current assets 2,921,050 2,723,286
Inventories 465 281
Prepayments and accrued income 2,372 2,405
Total non-financial assets 2,923,887 2,725,972
Total assets 3,131,003 2,794,758
15. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid:
Number: Class: Nominal 2015 2014
value: GBP'000 GBP'000
290,000,000 Ordinary share capital GBP1 290,000 290,000
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
16. RESERVES
Retained
earnings
GBP'000
At 1 January 2015 710,408
Profit for the
year 146,659
Dividends paid (27,600)
At 31 December 2015 829,467
Retained
earnings
GBP'000
At 1 January 2014 599,779
Profit for the
year 150,629
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 04:38 ET (08:38 GMT)
Dividends paid (40,000)
At 31 December 2014 710,408
17. TRADE AND OTHER PAYABLES
2015 2014
GBP'000 GBP'000
Current:
Payments on account 49,465 33,792
Trade creditors 6,023 4,633
Amounts owed to Group undertakings 440 456
Social security and other taxes 11,085 12,447
Other creditors 5,944 6,200
Deferred revenue 24,836 23,043
Accrued expenses 31,967 30,196
129,760 110,767
Non-current:
Deferred revenue 728,901 698,817
Aggregate amounts 858,661 809,584
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 end of the
reporting period. The valuation of liabilities set out above is
based on Level 1 inputs. 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.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
17. TRADE AND OTHER PAYABLES - continued
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
3 months to 1 year 1 to 5+ years Total
5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2015:
Non-interest
bearing 55,459 - - - 55,459
Variable interest -
rate liability 53 - - 53
Fixed interest 18,500 30,137 394,546
rate liability 1,068,064 1,511,247
74,012 30,137 394,546 1,068,064 1,566,759
2014:
Non-interest
bearing 53,932 - - - 53,932
Variable interest 92,400
rate liability - - - 92,400
Fixed interest
rate liability 18,500 23,053 166,213 987,535 1,195,301
164,832 23,053 166,213 987,535 1,341,633
Categories of financial liabilities
2015 2014
GBP'000 GBP'000
Loans and payables at amortised
cost 1,017,875 828,353
Total financial liabilities 1,017,875 828,353
Payments received on account 49,465 33,792
Income tax liabilities 145,408 165,503
Other taxes and social security 11,085 12,447
Accruals 31,967 30,196
Deferred Revenue 753,737 721,860
Provisions 1,999 2,199
Total non-financial liabilities 993,661 965,997
Total liabilities 2,011,536 1,794,350
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
17. TRADE AND OTHER PAYABLES - continued
Deferred Revenue
2015 2014
GBP'000 GBP'000
At 1 January 721,860 698,048
Additions 54,921 45,465
Amortisation (23,044) (21,653)
At 31 December 753,737 721,860
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the statement of profit or loss over 45 years on a straight-line
basis (except for distribution generation assets which is released
over 15 years), in line with the useful economic life of the
distribution system assets.
18. BORROWINGS
The directors' consideration of liquidity, interest rate and
foreign currency risk are described in the Strategic Report.
Book Value Fair Value
2015 2014 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000
Loans 1,005,468 793,664 1,121,056 938,828
Amounts owed to Group
undertakings - 23,400 - 23,400
1,005,468 817,064 1,121,056 962,228
The borrowings are repayable as follows:
On demand or within
one year 33,294 122,721 33,294 122,721
After one year 972,174 694,343 1,087,762 839,507
1,005,468 817,064 1,121,056 962,228
Analysis of borrowings:
Short-term loan 53 69,058 53 69,058
Inter-company short-term
loan - 23,400 - 23,400
2020 - 9.25% bonds 217,079 216,931 269,764 280,130
2035 - 5.125% bonds 203,834 203,724 240,312 246,345
2032 - 4.375% bonds 150,409 153,656 164,512 174,591
2022 - European Investment
Bank 4.133% 153,674 150,295 172,953 168,704
2025 - 2.5% bonds 150,280 - 146,585 -
2027 - European Investment
Bank 2.564% 130,139 - 126,877 -
1,005,468 817,064 1,121,056 962,228
The directors' estimates of the fair value of bank loans 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. The valuation of liabilities set
out above is based on Level 1 inputs.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
18. BORROWINGS -continued
Interest on short-term loans and on inter-company short-term
loans is charged at a floating rate of interest at LIBOR plus
0.35%, 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 GBP0.3m 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.
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The Company's Senior Total Net Debt as at 31 December 2015
totalled GBP835.2 million. Using the RAV value as at March 2016, as
outlined by Ofgem in its electricity distribution price control
financial model published in November 2015, and adjusting for the
effects of movements in the value of the Retail Prices Index
("RPI") gives an approximation for the RAV value as at December
2015 of GBP1,640.0 million. The Senior Total Net Debt to RAV ratio
for the Company is therefore estimated at 50.9% (2014: 50.4%).
At 31 December 2015, the Company had available GBP94.0 million
(2014: GBP63.0 million) of undrawn committed borrowing facilities
in respect of which all conditions precedent had been met.
19. LEASING AGREEMENTS
Minimum lease payments under non-cancellable operating leases
fall due as follows:
2015 2014
GBP'000 GBP'000
Within one year 2,590 3,124
Between one and five years 5,098 5,737
In more than five years 545 284
8,233 9,145
2015 2014
GBP'000 GBP'000
Minimum lease payments under operating leases recognised in the
year
4,514 4,658
20. PROVISIONS
2015 2014
GBP'000 GBP'000
Provisions 1,999 2,199
Analysed as follows:
Current 1,113 1,287
Non-current 886 912
1,999 2,199
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
20. PROVISIONS - continued
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2015 857 1,342 2,199
Utilised/paid in the year (895) (733) (1,628)
Charged to statement of profit
or loss 776 652 1,428
At 31 December 2015 738 1,261 1,999
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 15 years.
21. DEFERRED TAX
Accelerated
Tax Depreciation
Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2015 147,820 (260) 147,560
(Credit)/charge to statement
of profit or loss (13,397) 30 (13,367)
At 31 December 2015 134,423 (230) 134,193
Accelerated
Tax Depreciation
Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2014 146,000 (180) 145,820
Charge/(credit) to statement
of profit or loss 1,820 (80) 1,740
At 31 December 2014 147,820 (260) 147,560
Other comprises provisions and employee expenses deductible for
tax on a paid basis and claims for hold over relief.
22. EMPLOYEE BENEFIT OBLIGATIONS
Introduction
The Company contributes to two pension schemes, which are
operated by Northern Electric plc on behalf of the participating
companies within the Northern Powergrid Group. Those pension
schemes are:
- The Northern Powergrid Group of the ESPS (the "DB Scheme"); and
- The Northern Powergrid Pension Scheme.
The Northern Powergrid Pension Scheme was introduced for new
employees of the Northern Powergrid Group from July 1997 and is a
money purchase arrangement accounted for as a defined contribution
scheme.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
22. EMPLOYEE BENEFIT OBLIGATIONS - continued
Introduction - continued
The DB Scheme is a defined benefit scheme for directors and
employees, which provides pension and other related retirement
benefits based on final pensionable pay. The DB Scheme closed to
staff commencing employment with the Northern Powergrid Group on or
after 23 July 1997. Members who joined before this date, including
some Protected Persons under The Electricity (Protected Persons)
(England and Wales) Pension Regulations 1990, continue to build up
future pension benefits.
Under the DB Scheme, employees are typically entitled to annual
pensions on retirement at age 63 of one-eightieth of final
pensionable salary for each year of service plus an additional
tax-free cash lump sum at retirement of three times pension.
Benefits are also payable on death and following other events such
as withdrawing from active service.
No other post-retirement benefits are provided to members of the
DB Scheme.
The DB Scheme 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 defined
benefit cost for the plan as a whole to individual companies within
the Northern Powergrid Group and accordingly the Company accounts
for the DB Scheme as if it were a defined contribution scheme. The
Company does not provide any other post-retirement benefits to
members of the DB Scheme.
Unless otherwise stated, disclosures within this note are
representative of the Northern Powergrid Group as a whole and not
the Company on an individual basis as the Company accounts for the
DB Scheme as if it were a defined contribution scheme.
Role of Trustees
The DB Scheme is administered by a board of Trustees which is
legally separate from the Company. The assets of the DB Scheme are
held in a separate trustee-administered fund. The board of Trustees
is made up of Trustees appointed by Northern Electric plc, as the
Principal Employer of the DB Scheme, Trustees elected by the
membership and an independent trustee. The Trustees are required by
law to act in the interests of all relevant beneficiaries and are
responsible in particular for the asset investment strategy plus
the day-to-day administration of the benefits payable. They also
are responsible for jointly agreeing with the Principal Employer
the level of contributions due to the DB Scheme.
Funding requirements
UK legislation requires that pension schemes are funded
prudently (i.e. to a level in excess of the current expected cost
of providing benefits). The last actuarial valuation of the DB
scheme was carried out by the Trustees' actuarial advisors, Aon
Hewitt, as at 31 March 2013. Such valuations are required by law to
take place at intervals of no more than three years. Following each
valuation, the Trustees and the Northern Powergrid Group must agree
the contributions required (if any) to ensure the DB Scheme is
fully funded over time on the basis of suitable, prudent
assumptions. Contributions agreed in this manner constitute a
minimum funding requirement. The current funding valuation is
taking place as at 31 March 2016, as part of which the funding
position will be reviewed.
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Agreement was reached during October 2014 with the Trustees to
repair the funding deficit of GBP286.4m as at 31 March 2013 over
the 12 year period to 31 March 2025, subject to the actuarial
assumptions adopted for the triennial valuation as at 31 March 2013
being borne out in practice. The agreement includes cash payments
of GBP34.9m per annum (of which GBP8.0m is borne by the Company)
over the period to 31 March 2015, made on a monthly basis, followed
by an agreed profile of payments to be made over the remaining ten
years of the recovery plan, as set out below:
1 April 2015 to GBP28.6m
31 March 2016 p.a.
1 April 2016 to GBP18.4m
31 March 2025 p.a.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
22. EMPLOYEE BENEFIT OBLIGATIONS - continued
All contributions set out above are in 2014/15 prices and will
be increased each year in line with increases in RPI over the
period until they fall due.
The contributions payable by the Northern Powergrid Group to the
DB Scheme in respect of future benefits, which are accruing, are
34.2% of pensionable pay. These contributions were determined as
part of the 31 March 2013 actuarial valuation and are payable in
addition to the deficit repair contributions mentioned above. These
rates will remain in place until such a time as a new schedule of
contributions is agreed between the Trustees and Northern Electric
plc as part of the 31 March 2016 valuation. In addition, the
Company pays 3.0% of pensionable pay to the DB Scheme in respect of
the expenses of running the DB Scheme.
Under the rules of the DB Scheme, any future surplus in the DB
Scheme may, following consultation with the Group Trustees, be
allocated for the benefit of the members of the DB Scheme and/or
the Principal and Participating Employers.
Pensions' Regulation
The UK pensions market is regulated by the Pensions Regulator
whose key statutory objectives in relation to UK defined benefit
plans are to:
- protect the benefits of members;
- promote and to improve understanding of good administration;
- reduce the risk of situations arising which may lead to
compensation being payable from the Pension Protection Fund
("PPF"); and
- minimise any adverse impact on the sustainable growth of an employer.
The Pensions Regulator has various powers including the power
to:
- wind up a scheme where winding up is necessary to protect members' interests;
- appoint or remove a trustee;
- impose a schedule of company contributions or the calculation
of the technical provisions where trustees and company fail to
agree on appropriate contributions; and
- impose contributions where there has been a detrimental action against the scheme.
Profile of the DB Scheme
The Defined Benefit Obligation ("DBO") includes benefits for
current employees, former employees and current pensioners. The
overall duration of the DB Scheme's obligation was assessed to be
about 17 years based on the results of the 31 March 2013 funding
valuation. This is the weighted-average time over which benefit
payments are expected to be made.
Broadly, about 40% of the liabilities are attributable to
current employees (duration about 23 years), 10% to former
employees (duration about 24 years) and 50% to current pensioners
(duration about 12 years).
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
22. EMPLOYEE BENEFIT OBLIGATIONS - continued
Risks associated with the DB Scheme
The DB Scheme exposes the Northern Powergrid Group to a number
of risks, the most significant of which are:
Risk Description Mitigation
Volatile The DBO is calculated The allocation to growth
asset using a discount rate assets is monitored
returns set with reference to ensure it remains
to corporate bond yields. appropriate given the
If assets underperform DB Scheme's long-term
this discount rate, objectives. The Trustees
this will create an regularly review the
element of deficit. strategy from growth
The DB Scheme aims seeking assets and
to hold a significant have diversified some
proportion (48%) of return-seeking assets
its assets in growth from equities into
assets (such as equities) Reinsurance and Listed
which, although expected Infrastructure to reduce
to outperform corporate overall risk. To avoid
bonds in the long-term, concentration risk,
create volatility and the allocation to UK
risk in the short-term. equity is restricted
to 35% of the total
equity allocation.
Changes A decrease in corporate The DB Scheme also
in bond bond yields will increase holds a substantial
yields the value placed on proportion of its assets
the DBO for accounting (52%) as bonds, which
purposes, although provide a hedge against
this will be partially falling bond yields
offset by an increase (falling yields which
in the value of the increase the DBO will
DB Scheme's bond holdings. also increase the value
of the bond assets).
There are some differences
in the credit quality
of bonds held by the
DB Scheme and the bonds
analysed to decide
the DBO discount rate,
such that there remains
some risk should yields
on different quality
bond/swap assets diverge.
Inflation A significant proportion The DB Scheme holds
risk of the DBO is indexed around 30% in UK government
in line with price index-linked bonds
inflation (specifically which provide a hedge
in line with RPI) and against higher than
higher inflation will expected inflation
lead to higher liabilities. increases of the DBO
(rising inflation will
increase both the DBO
and the value of the
index-linked bond portfolio).
Currency To increase diversification, The DB Scheme hedges
risk the DB Scheme invests a proportion of the
in overseas assets. overseas investments
This leads to a risk currency risk for those
that foreign currency overseas currencies
movements negatively that can be hedged
impact the value of efficiently. The DB
assets in Sterling Scheme's currency hedging
terms. ratio is currently
50% in respect of overseas
developed market currencies.
Life The majority of the The DB Scheme regularly
expectancy DB Scheme's obligations reviews actual experience
are to provide benefits of its membership against
for the pensionable the actuarial assumptions
lifetime of the member, underlying the future
so increases in life benefit projections
expectancy will result and carries out detailed
in an increase in the analysis when setting
liabilities. an appropriate scheme
specific mortality
assumption.
The Northern Powergrid Group and Trustees have agreed a
long-term strategy for reducing investment risk as and when
appropriate. This includes an element of asset-liability matching,
which aims to reduce the volatility of the funding level of the DB
Scheme by investing in certain assets, which perform in line with
the liabilities of the DB Scheme.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
22. EMPLOYEE BENEFIT OBLIGATIONS - continued
Other risks
There are a number of other risks associated with the DB Scheme
including operational risks (such as paying out the wrong
benefits), legislative risks (such as the government increasing the
burden on pension schemes through new legislation) and other
demographic risks (such as a higher proportion members dying than
assumed with a dependant eligible to receive a survivor's pension
from the DB Scheme).
(MORE TO FOLLOW) Dow Jones Newswires
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A particular legislative risk exists in relation to the
equalisation of the Guaranteed Minimum Pension ("GMP"), a
quasi-state benefit accrued by many UK plans over the period 1978
to 1997 as a result of a UK government programme allowing pension
plans to "contract out" of the State Second Pension. The UK
Government has announced its intention to ensure that these
benefits, which currently pay out at different levels for men and
women, are gender-equalised in accordance with sex-discrimination
legislation. This would increase the DBO but it is not possible to
fully quantify the impact of this change at this stage. However, it
could lead to an increase in the order of 2% to the DBO for a
typical scheme.
Reporting at 31 December 2015
For the purposes of this disclosure, the current and future
pension costs of the Northern Powergrid Group have been assessed by
Aon Hewitt, a qualified independent actuary, using the assumptions
set out below, which the actuary has confirmed represent a
reasonable best estimate of those costs. This review has been based
on the same membership and other data as at 31 March 2013. The
board of Northern Powergrid Holdings Company has accepted the
advice of the actuary and formally approved the use of these
assumptions for the purpose of calculating the pension cost of the
Northern Powergrid Group.
The results of the latest funding valuation at 31 March 2013
have been adjusted to 31 December 2015. Those adjustments take
account of experience over the period since 31 March 2013, changes
in market conditions, and differences in the financial and
demographic assumptions. The present value of the DBO and the
related current service cost were measured using the Projected Unit
Credit Method.
For schemes closed to new members, such as the DB Scheme, the
current service cost calculated under the Projected Unit Credit
Method is expected to increase as the members of the scheme
approach retirement.
The Company's total pension cost for the year ended 31 December
2015 was GBP19.9m (2014: GBP19.5m).
The principal assumptions used to calculate the liabilities
under IAS 19 are set out below:
Main financial assumptions 2015 2014
% p.a. % p.a.
RPI Inflation 2.90 2.80
Rate of long-term increase in
salaries 2.90 2.80
Pension increases 2.80 2.70
Discount rate for scheme liabilities 3.70 3.60
The financial assumptions reflect the nature and term of the DB
Scheme's liabilities.
Main demographic assumptions 2015 2014
Life expectancy for a male currently
aged 60 27.0 27.1
Life expectancy for a female
currently aged 60 28.7 28.9
Life expectancy at 60 for a male
currently aged 45 28.5 28.7
Life expectancy at 60 for a female
currently aged 45 30.4 30.6
Proportion of pension exchanged
for additional cash at retirement 10% 10%
The mortality assumptions are based on recent actual mortality
experience of DB Scheme members and allow for expected future
improvements in mortality rates.
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
22. EMPLOYEE BENEFIT OBLIGATIONS - continued
The DB Scheme's funds are invested in the following assets:
Asset allocation 2015 2014
GBPm GBPm
Developed market equity 311.0 306.2
Emerging market equity 11.2 12.6
Property 146.0 130.3
Reinsurance 68.2 64.5
Listed infrastructure 90.1 84.7
Investment grade corporate bonds 375.5 343.1
Other debt 38.7 57.4
Fixed interest gilts 24.9 28.5
Index-linked gilts 453.7 452.7
Cash 22.0 36.0
Total 1,541.3 1,516.1
======= =======
The fair values of the above equity and debt instruments are
determined based on quoted market prices in active markets whereas
the fair values of properties are not based on quoted prices in
active markets.
As at 31 December 2015, the fair value of the DB Scheme's
assets, which related to self-investment, amounted to Nil% (2014:
Nil%).
Changes to the present value of 2015 2014
the DBO during the year GBPm GBPm
Opening DBO 1,463.2 1,321.3
Current service cost 15.9 14.5
Interest expense on defined benefit
obligation 52.0 57.3
Contributions by DB Scheme participants 1.5 1.5
Actuarial gains on DB Scheme liabilities
arising from changes in demographic
assumptions (12.4) (19.2)
Actuarial losses on DB Scheme liabilities
arising from changes in financial
assumptions (1.9) 110.4
Actuarial losses on DB Scheme liabilities
arising from experience (5.6) 33.3
Net benefits paid out (59.5) (55.9)
Closing DBO 1,453.2 1,463.2
======= =======
Changes in the fair value of DB 2015 2014
Scheme assets of the Northern Powergrid GBPm GBPm
Group during the year
Opening fair value of DB Scheme
assets 1,516.1 1,310.7
Interest income on DB Scheme assets 54.5 57.6
Re-measurement gains on DB Scheme
assets (20.3) 149.6
Contributions by the employer 50.2 54.1
Contributions by DB Scheme participants 1.5 1.5
Net benefits paid out (59.5) (55.9)
Administration costs incurred (1.2) (1.5)
Closing fair value of DB Scheme
assets 1,541.3 1,516.1
======= =======
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
22. EMPLOYEE BENEFIT OBLIGATIONS - continued
Actual return on DB Scheme assets 2015 2014
GBPm GBPm
Interest income on DB Scheme assets 54.5 57.6
Re-measurement gain on DB Scheme
assets (20.3) 149.6
Actual return on DB Scheme assets 34.2 207.2
====== =====
Sensitivity to key assumptions
The key assumptions used for IAS 19 are discount rate, inflation
and mortality. If different assumptions were used, it could have a
material effect on the results of the Northern Powergrid Group. The
sensitivity of the results to these assumptions is as follows.
Changes Revised
in DBO DBO
GBP'000 GBP'000
Current figures 1,453.2
Following a 10 bps decrease in
the discount rate 25.9 1,479.1
Following a 10 bps increase in
the discount rate (25.6) 1,427.6
Following a 10 bps increase in
the inflation assumption 23.1 1,476.3
Following a 10 bps decrease in
the inflation assumption (21.3) 1,431.9
Following a 1 year increase in
life expectancy 49.5 1,502.7
Following a 1 year decrease in
life expectancy (50.1) 1,403.1
The sensitivity information shown above has been prepared using
the same method as adopted when adjusting the results of the latest
funding valuation to the statement of financial position date. This
is the same approach as has been adopted in previous periods.
23. RELATED PARTY DISCLOSURES
The Company entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
trading balances outstanding at the year-end were as follows:
Purchases Amounts Finance Borrowings
Sales from owed income to/(from)
to related related to related to related related
parties parties parties parties parties
(Note (Note (Notes
17) 5) 13 &
18)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2015
Integrated Utility
Services Limited 112 1,370 - - -
Integrated Utility
Services Limited
(registered
in Eire) - 212 25 - -
Northern Electric
plc - 3,962 - - -
Northern Powergrid
Insurance Services - 633 - - -
Limited
Northern Powergrid
Metering Limited 305 - - - -
Northern Powergrid
(Northeast) 9,294 17,887
Limited - - -
Vehicle Lease
and Service 415
Limited 62 3,929 - -
Yorkshire Electricity
Group plc - - - 847 145,668
9,773 27,993 440 847 145,668
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
(MORE TO FOLLOW) Dow Jones Newswires
April 15, 2016 04:38 ET (08:38 GMT)
FOR THE YEAR ENDED 31 DECEMBER 2015
23. RELATED PARTY DISCLOSURES - continued
Purchases Amounts Finance Borrowings
Sales from owed income to/(from)
to related related to related to related related
parties parties parties parties parties
Note Note Notes
17 5 13/18
Related Party
2014
Integrated Utility
Services Limited 400 1,663 - - -
Integrated Utility
Services Limited
(registered
in Eire) - 197 15 - -
Northern Electric
plc - 4,663 - -
Northern Powergrid
Insurance Services - 846 - - -
Limited
Northern Powergrid
Metering Limited 117 - - - -
Northern Powergrid
(Northeast) 9,354 15,466
Limited - - -
Vehicle Lease
and Service 441
Limited 62 4,019 - -
Yorkshire Electricity
Group plc - - - 240 (23,400)
9,933 26,854 456 240 (23,400)
Sales and purchases from related parties were made at commercial
prices.
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
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
24. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO
CASH GENERATED FROM OPERATIONS
2015 2014
GBP'000 GBP'000
Profit before income tax 162,511 191,587
Depreciation charges 89,262 81,314
Profit on disposal of fixed assets (264) (185)
Amortisation of deferred revenue (23,044) (21,653)
(Decrease)/increase in provisions (199) 218
Finance costs 43,574 40,783
Finance income (890) (280)
270,950 291,784
Increase in inventories (184) (32)
Decrease/(increase) in trade and other receivables 7,566
(16,387)
(Decrease)/increase in trade and other payables (3,020)
8,404
Cash generated from operations 275,312 283,769
NORTHERN POWERGRID (YORKSHIRE) PLC
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2015
25. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Northern Powergrid
(Yorkshire) plc is Yorkshire Electricity Group plc. The ultimate
controlling party and ultimate parent undertaking 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 Northern Powergrid (Yorkshire) plc and the group
accounts of Northern Powergrid Holdings Company, the smallest
parent undertaking to prepare group accounts in the UK, can both be
obtained from the Company Secretary, Northern Powergrid Holdings
Company, Lloyds Court, 78 Grey Street, Newcastle upon Tyne, NE1
6AF.
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSUVUWRNKASARR
(END) Dow Jones Newswires
April 15, 2016 04:38 ET (08:38 GMT)
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