TIDMBC39
RNS Number : 3708Z
Northern Powergrid (Yorkshire) plc
14 March 2012
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 2011.
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 2011 Annual Report and Accounts are also available on the
website
www.northernpowergrid.com
Enquiries:
John Elliott 0191 223 5103
REPORT OF THE DIRECTORS AND
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011
FOR
NORTHERN POWERGRID (YORKSHIRE) PLC
(FORMERLY YORKSHIRE ELECTRICITY DISTRIBUTION PLC)
REGISTERED NUMBER: 4112320
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
CONTENTS OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
Page
Company Information 1
Report of the Directors 2
Report of the Independent Auditors 25
Income Statement 26
Statement of Comprehensive Income 27
Statement of Financial Position 28
Statement of Changes in Equity 29
Statement of Cash Flows 30
Notes to the Financial Statements 31
NORTHERN POWERGRID (YORKSHIRE) PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2011
DIRECTORS: R Dixon
T E Fielden
J M France
N M Gill
P A Jones
SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle Upon Tyne
NE1 6AF
REGISTERED NUMBER: 4112320 (England and Wales)
AUDITORS: Deloitte LLP
Newcastle upon Tyne
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2011
The directors present the annual report and accounts of Northern
Powergrid (Yorkshire) plc (the "Company") for the year ended 31
December 2011, which includes the business review and audited
financial statements for that year. Pages 2 to 23 inclusive of this
annual report comprise a directors' report that has been drawn up
and presented in accordance with the Companies Act 2006.
Cautionary statement regarding forward-looking statements
This annual report has been prepared for the members of the
Company only. The Company, its directors, employees or agents do
not accept or assume responsibility to any other person in
connection with this document and any such responsibility or
liability is expressly disclaimed. This annual report contains
certain forward-looking statements, which can be identified by the
fact that they do not relate only to historical or current facts.
In particular, all statements that express forecasts, expectations
and projections with respect to future matters, including trends in
results of operations, business prospects, the availability of
financing to the Company and anticipated cost savings are
forward-looking statements.
By their nature, these statements and forecasts involve risk and
uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. There are a
number of factors that could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements and forecasts. The forward-looking
statements reflect the knowledge and information available at the
date of preparation of this annual report and will not be updated
during the year. Nothing in this annual report should be construed
as a profit forecast.
PRINCIPAL ACTIVITY
The Company is part of the Northern Powergrid Holdings Company
group of companies (the "Northern Powergrid Group") and its
principal activity during the year was to distribute electricity to
customers connected to its electricity distribution network.
The Company serves an area of approximately 10,700 sq. km
encompassing the counties of West Yorkshire, East Yorkshire and
almost all of South Yorkshire, together with parts of North
Yorkshire, Derbyshire, Nottinghamshire, Lincolnshire and Lancashire
and receives electricity from the National Grid's transmission
system and distributes it to approximately 2.3 million customers
connected to its electricity distribution network of transformers,
switchgear and overhead and underground cables, at voltages of up
to 132kV. The Company is an authorised distributor under the
Electricity Act 1989 and holds an electricity distribution licence
granted by the Secretary of State.
In common with the 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 of Profitability, cash
the Company's financial resources, flow and maintenance
investing in assets and focusing of investment grade
on long-term opportunities, credit ratings.
which contribute to the Company's
future strength.
Customer service Delivering reliability, fair Improving network resilience
prices and exceptional service. and performance, measured
by: customer minutes
lost; customer interruptions;
and customer satisfaction.
Operational Setting high standards for Effective asset management,
excellence the Company's operations managing commercial
and system investment, operation risk and improving
and maintenance. network resilience
and performance.
Employee commitment Equipping employees with Leading safety performance,
the resources and skills engaging employees
they need to operate successfully and effective leadership.
and in a safe and rewarding
environment.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Environmental Using natural resources wisely Reducing environmental
respect and protecting the environment, impact and promoting
where it is impacted by the and pursuing long-term
Company's operations. sustainability.
Regulatory Adhering to a policy of strict Strong internal controls,
integrity compliance with appropriate regulatory engagement
standards, policies and legislation. and industry influence.
REVIEW OF BUSINESS
The Company changed its name from Yorkshire Electricity
Distribution plc to Northern Powergrid (Yorkshire) plc with effect
from 31 October 2011.
Although there continued to be only limited evidence of any
improvement in the general economic environment, the Company
delivered a satisfactory financial performance for the year, which
was mainly attributable to a benefit from the change to the rate of
corporation tax and higher tariffs introduced during the year,
which resulted in an increase in revenue compared to the prior
year.
During the year, the Company completed a review of the
efficiency of its capital expenditure in order to maintain
consistent delivery of its unit costs under the Distribution Price
Control 5 ("DPCR5") arrangements and continued its drive to improve
customer service with action being taken to consolidate the
operations and extend the opening hours of the customer relations
centre, the creation of geographically-located customer response
teams and the introduction of certain internet-based services in
order to improve the efficiency of those services.
There were some disappointing aspects to the Company's health
and safety performance for the year, with the Company missing its
internal targets in respect of lost time accidents, operational
incidents and preventable vehicle accidents. However, environmental
performance improved with the amount of fluid loss to ground and
carbon emissions reducing in comparison to the prior year.
DIVIDENDS
During the year, an interim dividend of 14p per share was
paid.
RESEARCH AND DEVELOPMENT
In 2011 the Northern Powergrid Group began working, in
partnership with British Gas, Durham University and EA Technology,
on a three-year project, the Customer-Led Network Revolution under
Ofgem's Low Carbon Networks Fund. This was the largest project
supported by Ofgem in the first year of the fund and the Northern
Powergrid Group will incur expenditure of GBP31m over the
three-year life of the project. Of that expenditure, 90% is funded
by electricity customers in Great Britain and successful delivery
of the project over the three years agreed with Ofgem will enable
recovery of the additional 10% from customers and potentially
qualify for a further discretionary award. The project is assessing
the potential for new network technology and flexible customer
response to facilitate speedier and more economical take-up by
customers of low-carbon technologies and the connection to the
distribution network of increasing amounts of low-carbon or
renewable energy generation.
The first year of the project comprised the project initiation
and detailed specification phases. All key milestones for the year
were met and the project remains on track to deliver learning that
is relevant, timely and valuable.
The Company also supports a programme of research that is
expected to contribute to higher standards of performance and a
more cost-effective operation of its business. That programme
includes building on the previously successful field trials of
newly developed superconducting fault limiters to provide
alternatives to traditional engineering solutions for network
constraints, investigating demand side management impacts on
network risk to support the low carbon network activities and
developing a warning device to detect when vehicles and other
equipment are in contact with live conductors, so allowing
operators to take mitigating action safely and at decreased risk of
injury to themselves and others.
During the year, the Company invested GBP4,324,000 (Note 6 to
the accounts) in its research and development activities.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
FUTURE DEVELOPMENTS
The financial position of the Company, as at 31 December 2011,
is shown in the statement of financial position on page 28.
The directors intend to continue to develop the Company's
business in a manner that concentrates on its core skills of
electricity distribution by continuing to operate that business
with the goal of out-performing the allowances in the distribution
price control, while efficiently investing in the electricity
distribution network with the aim of improving the quality of
supply and service provided to its customers.
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2011 to the date of this report.
R Dixon Non-Executive Director
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
P A Jones President and Chief Executive Officer
COMPANY'S POLICY ON PAYMENT OF CREDITORS
The Company complies with the Better Payment Practice Code for
the prompt payment of suppliers in accordance with the normal terms
of trade. It is Company policy with respect to its suppliers to
settle the terms of payment with those suppliers when agreeing the
terms of each transaction, to ensure that those suppliers are aware
of the terms of payment and to pay in accordance with the Company's
contractual and other legal obligations. The number of days
purchases in trade creditors for the Company at 31 December 2011
was 11 (2010: 11).
POLITICAL AND CHARITABLE CONTRIBUTIONS
During the year, charitable donations of GBP32,458 were made
(2010: GBP31,385), principally to local charities serving the
communities in which the Company operates. No contributions were
made to political organisations (2010: nil).
STRATEGIC OBJECTIVES
The Company's strategic objectives remain based on the Core
Principles and are to build a business, which:
- continues to generate value over the long-term;
- invests in and manages its electricity distribution network in
an efficient and effective manner;
- provides its customers with an excellent standard of service;
- engages with its employees so that they feel rewarded and
recognised as part of a team that sets and achieves increasingly
high standards of performance; and
- is viewed as being a leader in terms of shaping the future
direction of the electricity distribution network sector in the
United Kingdom.
As part of its strategy, the Company continues to be committed
to putting safety first, respecting its customers, their time and
property, doing a quality job, responding effectively to major
incidents on the network in times of severe weather and caring for
its local environment.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
CORE PRINCIPLES
Financial strength
During the year, the Company continued to maintain good control
in respect of both its capital and non-operational expenditure and
the Northern Powergrid Group secured an acceptable settlement in
the triennial valuation of the defined benefit pension scheme. The
Company continued to closely monitor and manage the various
financial issues that may impact on its business as a result of the
effect of the general economic climate on its customers, including
lower activity in terms of new connections required to the network
and the potential for higher debt write-off.
Although it benefits from the stability provided by DPCR5 in
terms of its income until 31 March 2015, the Company recognises
that it needs to show that it is delivering reliable services at a
fair price to its customers, while operating in an efficient and
effective manner.
Key aspects of financial performance for the year were as
follows:
Revenue
The Company's revenue at GBP357,128,000 was GBP31,416,000 higher
than the prior year mainly due to additional allowances arising
from the DPCR 5 settlement.
Operating profit
The Company's operating profit at GBP186,946,000 was
GBP14,459,000 higher than the previous year reflecting the increase
in revenues in the year, partly offset by increased operating
costs, predominantly as a result of an increase in research and
development costs and depreciation in the year.
Finance costs and investments
Finance costs net of investment income at GBP40,992,000 were
GBP3,287,000 higher reflecting the full year impact of interest due
on the loan received from the European Investment Bank in 2010.
Taxation
The effective tax rate in the current year is 16%. Details are
provided in Note 7 to the accounts.
Results and dividends
The Company made a profit after tax for the year of
GBP122,654,000. An interim dividend of GBP40,000,000 was paid
during the year and the directors recommend that no final dividend
be paid in respect of the year.
Share capital and debt structure
There were no changes to the Company's share capital or debt
structure during the year.
Cashflow
The Company aims to collect from customers and pay suppliers
within contracted terms. Any surplus cash held is remitted to
Yorkshire Electricity Group plc ("YEG"), a company in the 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
GBP167,074,000 was GBP18,249,000 higher than the previous year
reflecting higher profitability in the year and a favourable
working capital movement, partly offset by higher tax payments.
Investing activities: Net cash used in investing activities at
GBP119,273,000 was GBP16,975,000 lower than the previous year
reflecting lower net capital expenditure compared to the prior
year.
Financing activities: The net cash used in financing activities
at GBP47,801,000 represents an adverse variance of GBP35,224,000
compared to the previous year, reflecting lower net debt
requirements.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Treasury
The Company's short-term financial objective is to ensure that
it has access to sufficient liquidity to enable it to meet its
obligations as they fall due and to provide adequately for
contingencies. The long-term objective is to provide a stable and
low cost of financing over time whilst observing approved risk
parameters.
The main risks are liquidity and interest rate risk.
Liquidity risk
The Company has access to GBP75m under a three year committed
revolving credit facility provided by Lloyds TSB Bank plc, The
Royal Bank of Scotland plc and Abbey National Treasury Services
plc, which expires on 26 March 2013. The Company expects to raise
further facilities as required, at that time.
In addition, the Company has access to further short-term
borrowing facilities provided by YEG and a GBP4m overdraft facility
provided by Lloyds TSB Bank plc, which is renewable annually.
The directors do not consider there to be any doubt over the
Company's ability to raise appropriate levels of finance in the
future, given its investment grade issuer credit rating and the
fundamental financial strength and nature of its business.
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 2011, 93% of the Company's
borrowings were at fixed rates and the average maturity for these
borrowings was 13 years.
Currency risk
No material currency risks are faced by the Company.
Trading risk
Throughout the year under review, the Company's policy was that
no trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2011 and during the year it was the Company's
policy not to hold any derivative financial instruments.
Pensions
The Company is a participating employer in the Northern Electric
Group of the Electricity Supply Pension Scheme (the "Scheme"), a
defined benefit scheme. Full details of the Company's commitments
to the Scheme and the associated deficit repair payments are
provided in Note 21 to the accounts.
During the year, Northern Electric plc, an associated company in
the Northern Powergrid Group and the Principal Employer of the
Scheme, was engaged with the Group Trustees in the triennial
actuarial valuation process, as at 31 March 2010, in order to
determine the funding position of the Scheme and the associated
deficit repair arrangements. The actuarial valuation concluded that
there was a shortfall of assets in the Scheme compared to the value
of accrued benefits of GBP276m.
Agreement was reached during June 2011 with the Group Trustees
to repair this deficit over the 15 year period to 31 March 2025,
subject to the actuarial assumptions adopted for the triennial
valuation as at 31 March 2010 being borne out in practice. The
agreement includes cash payments of GBP29.9m per annum (of which
GBP7.6m is borne by the Company) , made on a monthly basis, for the
first five years of the recovery plan followed by an agreed profile
of payments to be made over the remaining ten years of the recovery
plan.
The Company also participates in the Northern Powergrid Pension
Scheme and the Yorkshire Electricity Pension Plan, which are
defined contribution schemes.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Insurance
As part of its insurance and risk strategy, the Northern
Powergrid Group has in place a range of insurance policies,
including policies which cover risks associated with damage to
property, employer's and third party motor liability and public
liability. The 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 is focused on
delivering a reliable and dependable supply of electricity and a
high standard of service to its customers. The Company made a major
commitment to improving customer service, with the introduction of
a programme focussed on the development of the customer experience
and actions being taken aimed at improving performance in its
contact centre services, web services, stakeholder engagement and
customer service competencies and complaints handling processes. A
significant number of improvements have already been identified and
delivered as part of the overall goal to improve customer
satisfaction with the service provided.
Those improvements included:
- the introduction of monthly connections surgeries to enable
new connections customers to discuss their specific projects with
representatives of the Company;
- building on the introduction of the interactive voice response
system in the customer relations centre in order to take advantage
of the latest developments in automatic messaging and to enable the
provision of an improved service to customers during power cuts
including text and voice-message updates;
- launching a new website offering so that customers can
self-serve on several service lines and obtain information on power
outages via a smart phone application;
- improving the accuracy of the times estimated for the
restoration of supply during power cuts that are provided to
customers;
- continuing to improve under-performing parts of the
distribution network by identifying "hot spots" and taking specific
action to address the issues in those areas;
- maintaining the priority services register so that the Company
is aware of people with disabilities or special needs, who may be
affected by power cuts and can take appropriate action to assist
those people in such circumstances;
- undertaking a programme to reduce the number of instances in
which the Company fails to meet an electricity guaranteed standard
of performance;
- undertaking a training programme to provide employees from
other parts of the Northern Powergrid Group with the tools and
skill sets to handle calls regarding power cuts during periods of
peak call demand and supporting that process with the
implementation of new voice-over-internet-protocol technology;
and
- undertaking a major customer service training programme for
employees in all areas of the business to provide a service
personal to each customer.
The Company achieved a customer satisfaction score of 87.4% for
the regulatory year to 31 March 2011 and, by building on the
telephony system and actions mentioned above, intends to more
effectively integrate its other customer facing processes in order
to improve the service provided. Continued development of the
Company's customer service improvement plan will include increasing
focus on excellence in customer service in order to achieve a
customer satisfaction score of greater than 90%.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
The Company's performance in respect of the new electricity
connections guaranteed standards of performance introduced in
October 2010 has continued to be positive, with the recorded
performance for the first calendar year of operation being
99.93%.
The performance of Distribution Network Operators ("DNOs")
against guaranteed standards, set for activities such as restoring
supplies after unplanned interruptions, provides a measure of the
level of customer service. Performance against these measures forms
part of the Company's regular reporting to Ofgem.
Ofgem has established an incentive scheme for quality of
service, by which the DNOs are provided with financial incentives
based upon targets set by Ofgem with regard to their performance in
the following areas:
- The number of interruptions to supply;
- The duration of interruptions to supply; and
- Customer satisfaction.
Customer minutes lost ("CML") and customer interruptions ("CI")
are the key performance indicators used by the Company to measure
the quality of supply and system performance. CML measure the
average number of supply minutes lost for every connected customer
due to faults and planned outages that last for three minutes or
longer. CI measure the average number of supply interruptions for
every 100 connected customers due to faults and planned outages
that last for three minutes or longer.
In respect of these key customer service performance indicators,
the goal is to achieve performance that is below the target number
in respect of CML and CI and more than the target number in respect
of customer satisfaction. The Company's reported performance for
the regulatory year to 31 March 2011, against the targets
determined by Ofgem, was as follows:
Actual Target
CML: 68.2 (2010: 63.5) 76.0 (2010: 65.1)
CI: 69.9 (2010: 71.4) 75.3 (2010: 68.5)
Customer Satisfaction 87.4% (2010: 89.8%) 90% (2010: 90%)
Performance in the regulatory year to 31 March 2011 was better
than Ofgem's target for both CML and CI. Customer satisfaction was
below target and was affected by the introduction into the target,
in April 2010, of an element relating to the unsuccessful call
rate. Measured without the unsuccessful call element and on a
like-for-like basis with the prior year, customer satisfaction
performance would have been 89.8%. In this respect, the Company is
continuing to develop its telephony system to address the
unsuccessful call rates and anticipates that the actions mentioned
above, together with the various improvement actions in respect of
the network's resilience, will continue to support improvements in
customer service performance.
Operational excellence
The Company's core service continues to be providing and
maintaining an efficient distribution network that delivers
electricity effectively. During the year, GBP164,830,000 was
invested in the improvement of the distribution network, including
the replacement of assets and continuing network improvements
intended to increase the quality of the electricity supply provided
to customers.
Operational activity
The Company's investment strategy is designed to deliver
improvements in an efficient and cost-effective manner in order to
improve the network's resilience by minimising the number of faults
that occur, reducing the average number of customers affected by a
fault and providing a quicker restoration service in the event of a
fault.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
The Company's Field Operations structure is designed to provide
the best possible foundation for optimum operational performance
and is based on six individual business units for the operation of
the network. Those business units are Network Operations, which
provides the day-to-day and reactive management of the network,
Service Delivery, which has responsibility for the control and
management of the direct labour force, Network Repairs, which
focuses on core repair activities, Connections Delivery, which
undertakes customer-driven work, Programme Delivery, which includes
primary engineering projects and technical services, and
Operational Services, which includes supply chain management,
training and health and safety services.
The Company's priorities during the year included a reduction in
the average level of fault repair work in progress, the
introduction of improvements in field response and supply
restoration times and in the management of intermittent faults, the
implementation of enhanced controls for outage risk management and
a more robust approach to the control of operations on the low
voltage network.
The major projects undertaken in support of those targets and as
part of the investment strategy included:
- Continuation of a major project to replace a 132kV open
terminal substation with indoor gas insulated switchgear in the
Hull area, the replacement of 66kV assets at Ferrybridge A
substation and the replacement of the 66kV and 11kV assets at a
substation in Frickley;
- Completion of work to replace the 66kV and 11kV assets at a
substation in the Rotherham area, the construction of a new 33/11kV
substation to provide increased capacity to the Snaith area, the
replacement of 4km of 33kV oil-filled cables in the Leeds area and
replacement of 15km of 33kV Woodhouse steel mast overhead line;
- Commencement of works on a number of projects across the
Company's distribution services area that will replace over 11km of
33kV oil filled cables in 2012 and almost 40km of 132kV oil-filled
cable in the next two years and of work to replace 10km of 33kV
Woodhouse steel mast overhead line;
- Refurbishment of 30km of 132kV overhead line in the Bradford
and Keighley area and refurbishment or rebuilding of 64km of high
voltage overhead line and 18km of low voltage overhead line;
- Replacement of 172 units of high voltage outdoor switchgear,
55 high voltage distribution substations and 163 units of high
voltage indoor switchgear;
- The upgrade and reinforcement of 16 sites to address the
quality of supply performance issues relating to those circuits;
and
- The installation and commissioning of 172 new remote control sites.
In order to deliver its investment strategy the Company used a
mix of its own staff and contractors, including Integrated Utility
Services Limited, an affiliated company registered in the Republic
of Ireland.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Employee commitment
Health and safety
During the year, the focus on health and safety continued to be
of paramount importance for the directors, as it is for all
employees. Providing and maintaining a safe working environment is
the first objective of the Company. There is a continuous drive for
improvement in safety performance through the setting of
challenging goals and the pursuit of a programme of on-site safety
audits, which reflect the Company's fundamental objectives that
none of its staff should go home injured and all employees should
commit to behaving safely all of the time. The Company makes no
compromise in respect of its health and safety obligations and
centres its safety plans and systems on the principles found in
companies with world class safety performance.
In 2011 the Company received a Gold Medal from the Royal Society
for the Prevention of Accidents for achieving seven successive Gold
Awards, which have been presented in recognition of achievements in
2010 and continued or improving standards of health and safety over
a sustained period. The Company continued to maintain its
occupational health and safety management system and retained its
Occupational Health and Safety Assessment Series ("OHSAS 18001")
certification and environmental management system ISO 14001
certification.
In respect of the main key performance indicators used by the
Company to monitor safety performance, the goal is to achieve
performance that is below the target number. Those key performance
indicators are as follows:
2011 2010
Target Actual Target Actual
Lost time accidents 1 3 1 4
Restricted duty accidents 2 1 2 2
Medical treatment
accidents 2 3 3 1
Operational incidents 4 8 4 6
Preventable vehicle
accidents 13 18 13 23
The Company measures its safety performance in calendar years
and, although performance continued to be better than the industry
average, it fell short of the Northern Powergrid Group's goals in
certain areas during 2011. The Company continues to implement a
health and safety improvement plan that targets delivery of
continuous improvement and, as part of that plan, the Company
carried out a cross-business operational assurance audit programme
by senior managers during the year in order to reinforce the
operational safety values. The Company has also delivered
operational seminars and stand down briefings to cascade
information on safety trends and to launch a new method of site
specific risk assessment.
Performance in respect of preventable vehicle accidents failed
to achieve the target for 2011 but was better than 2010. The
Company continued to implement a robust road risk management plan,
which involved a significant number of staff undertaking the
Institute of Advanced Motorists online driver assessment and
training module followed by an on-road refresher training session
if required. 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.
In terms of the health of employees, the sickness absence rate
across the Northern Powergrid Group was 2.82% and, in support of
the drive for continuous improvement, the Company introduced a new
health surveillance policy during 2011 and conducted a stress
survey, which led to action plans being implemented to address
those areas which were identified for development.
Management structure
The Company has a clearly defined leadership team, in which
specific roles are identified, so allowing effective management of
the Company's business and response to any control weaknesses that
may become apparent, with single units being in place for field
operations, customer operations, asset management, and health,
safety and environment. The business systems, human resources,
procurement and finance functions are centralised in order to
provide those services across the Northern Powergrid Group.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Employees
The challenging external economic environment continued
throughout the year and the Company continued to implement its
programme of cost mitigation, which included the control of
headcount.
The Company continues to place significant emphasis on the
importance and application of high standards of management and
performance in pursuit of the Core Principles and ensures that a
level of consistency is adopted in so doing. In respect of employee
relations, the Company and the trades unions continue to work
towards building constructive and partnered relationships.
Given the demographics of the Company's workforce, the
increasing investment in the distribution network and in order to
encourage investment in a sustainable workforce, Ofgem provided an
allowance in its DPCR5 final proposals in order to fund the plans
for workforce renewal across the DPCR5 period. Ofgem has stated
that the allowance is on a "use it or lose it" basis and the
Company will need to demonstrate that it has used that allowance
appropriately and efficiently to recruit and train new staff or for
other means of renewing its workforce and report annually on its
progress in that respect. The Northern Powergrid Group recruited 64
members of staff in 2011 and has a target to recruit an additional
75 in 2012 under its workforce renewal programme. Overall, plans
are in place to have recruited a total of 275 graduate trainees,
technical trainees and craft apprentices by the end of 2015.
The Northern Powergrid Group is committed to proper business
conduct and, in common with MidAmerican Energy Holdings Company
("MidAmerican"), a parent company of the Company, has adopted a
code of business ethics that emphasises the requirement for all
staff to manage their activities to achieve the highest level of
ethical conduct. A "speaking up" policy is in place so that 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.
Human resource policies focus on skills, motivation and
excellence and the promotion of high standards of probity among
staff. In addition, the appropriate organisational structure has
been developed to control business units and to delegate authority
and accountability, having regard to acceptable levels of risk.
The Company employed 1,122 staff at the end of December 2011
(2010: 1,106).
Disabled employees
The Northern Powergrid Group is committed to equality at work
and as such is committed to the criteria underpinning the
Employment Service disability symbol. It is the Northern Powergrid
Group's policy to provide all protected groups including disabled
people with equality at work in respect of employment, training,
career development and promotion, having regard to their aptitudes
and abilities. Should any member of staff become disabled during
their employment, the Company would work to retrain and/or redeploy
that member of staff, wherever possible.
Employee consultation
The Northern Powergrid Group has a constitutional framework in
place and has agreed that framework with trade union
representatives. In addition, the Northern Powergrid Group
communicates directly, and through the management structure, with
personal contract holders and keeps them informed of and involved
as appropriate in any developments that may impact on them now or
in the future.
The Northern Powergrid Group is committed to maintaining and
improving effective communication with employees, principally
through regular staff briefs on current issues, meetings with staff
and their representatives and the issue of an employee publication.
During the year, the President and Chief Executive Officer of the
Northern Powergrid Group delivered regular broadcast briefings
using telephone conference call facilities in order to provide
employees with updates such as on the performance of the Northern
Powergrid Group, financial, organisational and safety issues and
customer service performance.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Environmental respect
The Northern Powergrid Group'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
MidAmerican. 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. The
most recent visit was a six-monthly surveillance assessment carried
out by Lloyd's Register Quality Assurance in October 2011. The
assessment report drew management attention to some minor
non-conformances to be addressed by agreed proposed actions. The
report also noted good processes for identifying environmental
aspects and legal requirements and taking them into account in the
system. There were no major non-conformances noted and continued
certification was recommended and subsequently confirmed.
Having met its key improvement target in the reduction of cable
fluid leakages for the year, strong performance on all
environmental targets continued to provide a crucial contribution
to the control of the Northern Powergrid Group's environmental
impact to ground and the associated risk to the business. Future
improvements are supported by the Company's continued asset
investment plan.
Improvements in support of the Northern Powergrid Group's
environmental policy objectives during the year included replacing
selected fluid-filled cable sections with non-fluid polymeric
equivalents, replacing oil-filled circuit breakers with vacuum and
sulphur hexafluoride gas filled units at outdoor substations to
reduce the potential for oil leakage and installing underground
cables using trenchless technology as opposed to open-cut
excavations, in addition to providing environmental awareness
training for new personnel and contractors and periodic refresher
training for all staff.
Environmental impact on protected structures, features, areas,
wildlife and habitat is a central consideration when planning
improvements to the Company's electricity distribution network.
This includes protecting bird life by placing bird-diverters on
power lines in reserves or in locations where rare species of bird
are known to live or breed and in response to information from
incident trends and the proximity of wetlands and flight paths.
Sustainability
The Company takes its responsibilities in respect of its
contribution to reducing the impact of global warming seriously,
both in its capacity as a major participant in the UK energy
industry and in terms of its own carbon footprint. Through its
involvement in industry groups and its interactions with government
and regulators, the Company is contributing to the target of
reducing the carbon emissions of the UK economy and it also works
with customers to assist in solving issues raised by the
introduction of low-carbon generation and technologies and their
implications for the planning and operation of the electricity
network.
The Northern Powergrid Group measures and publishes details of
its own carbon footprint. It set and achieved a target of reducing
that footprint by 5% in 2011 and has set a target to reduce its
carbon footprint by a further 3.5% in 2012. Actions taken in 2011
to assist in meeting this target included fitting speed limiters to
the vehicle fleet, trialling the use of an electric car for six
months and extending the recycling of office waste to all major
office sites. The Company has, in line with Ofgem's requirements,
contributed to the sustainability agenda through public reporting
on the carbon footprint of its business and, during 2011, achieved
certification under CEMARS (the Certified Emissions Measurement and
Reduction Scheme) that its measurement of its greenhouse gas
emissions was in compliance with ISO 14064.
The significant increase in the number of installations by
customers of low-carbon technologies such as photovoltaic solar
panels and heat pumps continued during 2011 and the Company worked
with customers and installers to facilitate the process of
connecting this technology to the electricity network. In June
2011, the Company hosted a well attended and well received
micro-generation conference, in conjunction with CO2 Sense, to
provide information to and obtain feedback from installers and
social-housing providers about this process.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Regulatory integrity
The Company manages its business to the highest behavioural
standards and adheres to a policy of strict compliance with all
relevant standards, legislation and regulatory conditions. The
Governance and Risk Management Group ("GRMG") monitored and managed
performance in risk-related and compliance areas and met on four
occasions during the year.
As has been the case for some years, breaches by a DNO of its
licence conditions could lead to financial penalties, which Ofgem
has stated "will have a proportionate impact on shareholder
returns". In order to assure compliance with its licence and other
regulatory obligations, the Company operates a regulatory
compliance affirmation process, under which ownership of the
approximately 1,550 regulatory obligations contained within the
compliance database is currently assigned to 60 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 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.
A revenue-related issue arose during 2010 in that the adjustment
of settlements data by certain suppliers had the effect of
distorting the apparent performance of the Company under the losses
incentive scheme for the regulatory year ended 31 March 2010.
Throughout 2011 the Company was engaged with Ofgem, to resolve the
complex issues of the Distribution Price Control Review 4 losses
incentive arrangements and the impact of electricity supplier
data-management programmes. Ofgem's decision to approve the
Northern Powergrid Group's application to use a revised methodology
for the calculation of 2009/10 annual reported losses was sustained
throughout 2011 and the Company expects to reach a final conclusion
to this issue with Ofgem during 2012.
Under the new RIIO (revenue = incentives + innovation + outputs)
model for regulation that emerged in 2010 from Ofgem's review of
energy-network regulatory arrangements, price controls will be set
for eight years (rather than five as at present), with provision
for a mid-period review of the outputs that network companies are
required to deliver and there will be increased involvement for
stakeholders. As part of the move to RIIO, Ofgem determined in the
first quarter of 2011 that it intends to retain a 20-year
depreciation profile for existing assets while moving new assets to
a 45-year profile. The first price control review in electricity
distribution under the RIIO framework (known as RIIO-ED1) is
expected to be triggered by Ofgem in the first quarter of 2012 and,
on conclusion of the process, will set revenues for the 2015 to
2023 period.
Corporate social responsibility
The Company values its relationship with its customers and
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, 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 aims to enhance its relationship with various
stakeholders through direct engagement on the actions and
investment planned to improve the performance of the network and on
the environmental and social implications of its operations. The
Company seeks to engage disadvantaged groups in projects that bring
about benefits for participants and communities, which is supported
by a small donation programme focused on the Company's key
priorities of support for youth, education and the environment.
In order to improve its response to emergency situations, the
Company has developed key partnerships with the Environment Agency,
the local authorities and the local resilience forums, via a Civil
Contingency Co-ordinator, so that it can respond quickly to
significant faults on or threats to the network. In the event that
river levels rise and flood warnings are issued, staff can be
deployed immediately to erect perimeter flood defences at major
substation sites and portable defence barriers at lower-risk sites.
In addition, 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.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
As well as redeploying staff from planned works to help restore
power as quickly as possible when major incidents occur, the
Company dispatches customer service vehicles to the heart of areas
affected, which are able to distribute hot drinks and microwave
meals and generally assist with the welfare of customers in order
to alleviate the impact of the incident. The Company also utilises
'customer ambassadors' who are able to pay particular attention to
customers who have registered on the Priority Services Register.
Working in conjunction with the customer relations centre, the
ambassadors ensure that these high-priority customers are
comfortable and are kept informed of the situation both throughout
the event and after the power is restored.
As safety is the first priority and underpins every aspect of
its operations, the Northern Powergrid Group participates alongside
other key organisations in 'Crucial Crew', which is a schools-based
safety initiative that teaches children to recognise and avoid
situations that put them in danger, such as climbing electricity
pylons and fishing near power lines. This campaign and a
school-visits programme promoting safety messages are supported
through an interactive website and mobile-phone game. In addition,
the Company supports a sports programme in partnership with England
Athletics, which is delivered through local schools and combines
important safety messages with the promotion of healthy
lifestyles.
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 strength
As a holder of an electricity distribution licence, the Company
is subject to regulation by the Gas and Electricity Markets
Authority ("GEMA"), which acts through Ofgem. Most of the revenue
of the electricity distribution licence holders is controlled by
the distribution price control formula set out in the electricity
distribution licence. The price control formula does not constrain
profits from year to year but sets a maximum permitted revenue for
each regulatory year and is a control on revenue that operates
independently of most of the electricity distribution licence
holder's costs. Where the Company recovers more, or less, than this
maximum the difference is carried forward, with interest, into the
entitlement for the following year.
It has been the practice of Ofgem to review and reset the
formula at five-year intervals, although the formula has been, and
may be, reviewed at other times at the discretion of Ofgem. A
resetting of the formula requires the consent of the electricity
distribution licence holder but licence modifications may be
unilaterally imposed by Ofgem without such consent following review
by the Competition Commission. The current five-year price control
period became effective on 1 April 2010 and has set the Company's
revenues through to 31 March 2015. However, it is expected that the
next price control will be set for eight years. During the term of
the price control, changes in costs incurred will have a direct
impact on the Company's financial results.
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, confirmed that DNOs would be allowed to recover the full
value of the deficits attributable to a licensee's distribution
business in existence as at 31 March 2010 (after an adjustment to
reflect the residual of unfunded early retirement deficiency costs
as at 31 March 2010), via its regulated revenues.
However, given the regulated nature of the DNOs' businesses,
Ofgem took the view that there is not the same risk or urgency as
in other sectors of the economy to ensure that those deficits are
repaired as soon as possible and therefore set a notional repair
period of 15 years for the purpose of assessing the DNOs' allowed
revenues in respect of pension costs over the DPCR5 period.
The other financial risks facing the Company are outlined in the
Treasury section on page 6 of this report.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
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, a robust major
incident management plan is implemented whenever severe weather
impacts on the distribution network's performance and a programme
of enhanced security measures has been put in place and awareness
raising activity pursued at a national and local level in respect
of the issues associated with metal theft from the Company's
sites.
Commercial risk
Managing commercial risk in the context of the difficult
economic and financial trading conditions, which continued
throughout the year, was, and will continue to be, of key
importance to the Company's operations. In that respect the Company
focused on ensuring that its policies for credit checking, payment
terms, payment performance tracking and debt management were
strictly adhered to.
The Company's relationship with its main customers is governed
by a distribution connection and use of system agreement ("DCUSA"),
which is in place with each of those customers. Those customers are
the electricity suppliers who, under the terms of the DCUSA, pay
charges for the use of the distribution network, in respect of
which it is necessary to ensure that the credit cover arrangements
in line with Ofgem's guidance remain in place. The principal
electricity suppliers that use the Company's network are RWE
Npower, British Gas, EdF Energy, E.on, Scottish and Southern Energy
and Scottish Power.
Risk management
The Northern Powergrid Group operates a structured and
disciplined approach to the management of risk, as part of the
overall risk management approach. Risks are assessed with due
regard to probability and impact and the risk environment is
reviewed continually in order that new or emerging potential risks
are identified. Those risks assessed to be significantly high are
logged within a risk register that the GRMG reviews regularly and
key indicators are used to track and monitor those risks considered
to be significant.
Risk mitigation and loss control plans are prepared in response
to strategic risks in order that the directors can be assured that
appropriate mitigating actions are in place and are being
implemented. These plans are monitored through to implementation
and reviewed to determine whether the level of residual, mitigated
risk is within an acceptable level of tolerance.
The Northern Powergrid Group identifies and assesses risks
associated with the achievement of its strategic objectives,
including those of an environmental and social nature. Any key
actions needed to further enhance the control environment are
identified, along with the person responsible for the management of
the specific risk. A regular review of the key risks, controls and
action plans is undertaken.
Risk management continues to be a central theme of senior
management priority setting as well as an explicit business process
that helps to stimulate the senior leadership's consciousness of
lower probability, high consequence threats to business success or
continuity. This approach is reinforced by that of the wider
MidAmerican group, whose activities have continued to include a
structured benchmarking of risk management activities across its
business units, including the sharing of significant lessons
learned associated with risk management.
The risk management programme includes regular review of crisis
management and disaster recovery plans, which are periodically
tested. During the year, activities included a review of the
Northern Powergrid Group's major incident plan for operational
systems, participation in a national exercise to review the planned
response to a major flood event, a seminar with other regional
utilities to share best practice on disaster preparedness and
response, a peer review of the Northern Powergrid Group's risk
management systems by MidAmerican, a review of business continuity
plans in the event of the loss of a key office building,
penetration tests against firewall systems and disaster recovery
tests of IT servers and priority processes.
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 senior managers are required to
confirm that the system of internal control in their area of the
business is operating effectively.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
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. MidAmerican requires a
quarterly control risk self-assessment to be undertaken by all
senior managers as part of its programme for compliance with the
requirements of the Sarbanes-Oxley Act. A review is undertaken of
the company-wide controls in place on a regular basis and, while no
significant areas of weakness have been identified, any recommended
improvements are implemented.
In addition, the Company 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 Company has risk management
procedures in place, including the standards required by the
Sarbanes-Oxley Act, operates under OHSAS 18001, which is subject to
external certification and regular assessment, 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 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. During 2011, the board of Northern Powergrid
Holdings Company addressed the risks introduced by the Bribery Act
2010 through a new 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 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.
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.
CORPORATE GOVERNANCE STATEMENT
The Financial Reporting Council issued a revised version of the
Combined Code on Corporate Governance (the "Code") in June 2010.
The Disclosure and Transparency Rules ("DTR") require an issuer, to
which section 7.2 of the DTR applies, to provide, in its annual
directors' report, a corporate governance statement. That statement
sets out how the issuer has applied the main principles in the Code
and, to the extent that it departs from the Code, the issuer is
required to explain from which parts of the Combined Code it
departs and the reasons for doing so.
The Company, therefore, provides the following statement by
reference to the principles incorporated in the Code.
Compliance statement
Set out below and in the review of the year in the directors'
report are the areas in which the Company adopts and complies with
the 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 MidAmerican and includes regular reporting
to and meetings with the Chairman and senior management of
MidAmerican, the presence of an independent non-executive director
at board meetings of the Company and a strong internal control
environment designed to meet the standards required by the
Sarbanes-Oxley Act.
The Code includes the "comply or explain" approach and the
directors are of the opinion that, in the instances where the
Company does not comply with certain provisions of the Code, this
approach is justifiable, given that the Company is a wholly-owned
subsidiary of MidAmerican and, as mentioned above, the governance
framework in place throughout the Northern Powergrid Group is
agreed with MidAmerican.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Section A Leadership
Principle A1: The Role of the Board
The board of directors is responsible for the overall management
of the Company and its system of internal controls. The directors
have agreed a quarterly schedule of board meetings at which they
review performance, strategy and operational and risk-related
issues. Regular items on the agenda for consideration at board
meetings include general business performance, internal control,
key business activities and projects and the regulatory compliance
process.
In addition, the President and Chief Executive Officer of the
Northern Powergrid Group participates in weekly performance review
meetings with the Chairman of MidAmerican and other senior managers
of the MidAmerican group, including the Senior Vice President and
Chief Financial Officer. At those weekly meetings, the views of the
Chairman of MidAmerican and the senior management team regarding
the key, current issues facing the Company are discussed.
The Chairman of MidAmerican also receives weekly, monthly and
quarterly reports on the Company's performance from the Northern
Powergrid Group's President and Chief Executive Officer.
MidAmerican's Senior Vice President and Chief Financial Officer and
General Counsel also hold similar weekly review meetings in respect
of MidAmerican's financial and legal functions, at which the
Company's Finance Director and General Counsel present their
respective weekly reports.
The board meets quarterly and as required to consider relevant
issues and met on eight occasions in total during the year, with
the attendance of those directors, who were directors as at 31
December 2011, being as follows:
R Dixon Non-Executive Director 5
T E Fielden Finance Director 5
J M France Regulation Director 5
N M Gill Field Operations Director 6
President and Chief Executive
P A Jones Officer 6
Operational management of the Company's business (and that of
its affiliate, Northern Powergrid (Northeast)) Limited 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 directors' 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, MidAmerican requires a quarterly
control risk self-assessment to be undertaken by all senior
managers as part of its programme for compliance with the
requirements of the Sarbanes-Oxley Act.
A review is undertaken of the company-wide controls in place on
an annual basis and the review carried out in 2011, while not
identifying any areas of significant weakness, resulted in the
implementation of various recommended improvements. The key
features of the Northern Powergrid Group's internal control system
and the issues addressed by the Company and the Northern Powergrid
Group during the year can be found in the review of business in the
report of the directors.
A schedule of key delegations of authority has been approved by
the board, which delegates authority for decision-making to senior
and other managers in respect of issues such as capital
expenditure, procurement, contractual, human resource, payment
matters and for the conduct of claims and litigation. That schedule
reserves decision-making to the directors above certain financial
limits.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
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 the
approved terms of reference, those committees report regularly to
the board on their activities and were as follows:
Health and Safety Management Committee
The board of 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 Operating Officer
A J Maclennan Managing Director, Integrated Utility Services Limited
G M Earl Head of Safety, Health 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,
establish goals and targets, review the effectiveness of the health
and safety policies and the health and safety management system and
consider recommendations for changes in Northern Powergrid Group
policy due to changes in appropriate legislation, codes of practice
or guidance or due to recommendations arising from significant
incidents.
Treasury Committee
The Treasury Committee oversees and implements the treasury
policies, which are outlined in the directors' report and
comprises:
G E Abel Chairman, MidAmerican
P Ainsley Financial Controller
D Brady Treasurer
T E Fielden Finance Director
P J Goodman Senior Vice President and Chief Financial Officer,
MidAmerican
P A Jones President and Chief Executive Officer
R D McHaddan Assistant Treasurer
O Sutherland Investor Reporting Manager
Pensions Committee
The Pensions Committee oversees the Northern Powergrid Group's
approach to the pension schemes to which it contributes and
comprises:
P Ainsley Financial Controller
T E Fielden Finance Director
J M France Regulation Director
K Mawson Head of Finance Development and Systems
A Patterson Director of Human Resources
N Dawson Pensions Manager
L Taylor Director of Business Systems
L Tweedie Head of Service Delivery
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Governance and Risk Management Group
The GRMG is the principal management forum in the Northern
Powergrid Group with regard to corporate governance. Its purpose is
to ensure that Northern Powergrid Group companies apply and
maintain appropriate arrangements to deliver sound corporate
governance and comply with the overall strategy, framework and
supporting policies. The GRMG monitors and reviews the strategic
risk environment, ensuring the continued suitability, adequacy and
effectiveness of risk management arrangements and reports to the
Northern Powergrid Group's Audit Committee. The GRMG comprises:
D Anderson Head of Internal Audit
J P Barnett Director of Customer Operations
R Dixon Non-Executive Director
M Drye Director of Asset Management
G M Earl Head of Safety, Health and Environment
J Elliott Company Secretary
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
A J Maclennan Managing Director, Integrated Utility Services
A Patterson Director of Human Resources
L Taylor Director of Business System
The risk management framework was monitored regularly during the
year to ensure that all strategic risks, including those relating
to environmental and social issues, were being addressed. Risk
management policies and procedures were reviewed and updated to
ensure a robust and clear approach was maintained. Mr Dixon
attended meetings of the GRMG to provide an independent view in
respect of the matters discussed.
Asset risk continued to be a strong focus through the Asset Risk
Management Executive Review Group and comprehensive plans continued
to be in place to manage risks affecting all critical property
assets and to strengthen the arrangements for crisis management and
business continuity planning.
Further details of the Northern Powergrid Group's approach to
corporate governance and the management of internal controls can be
found in the directors' 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 MidAmerican, was formally appointed
as Chairman of Northern Powergrid Holdings Company with effect from
1 August 2011 and Dr Jones was appointed as President and Chief
Executive Officer of the Company with effect from the same date. 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
Dr Jones chairs board meetings and is responsible for the
operation and management of both the Company and the Northern
Powergrid Group and reports directly to Mr Abel.
Main Principle A4: Non-Executive Directors
Mr Dixon was the Company's sole independent non-executive
director during the year and acts under agreed terms of
reference.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Section B Effectiveness
Main Principle The Composition of the Board
B1
The board comprises four executive directors and Mr Dixon, an
independent non-executive director, who, collectively, bring a
range of skills and experience to the board. Although Mr Dixon is
the sole non-executive director, so the board does not include a
balanced number of executive and non-executive directors, the board
believes that it possesses the skills and experience necessary to
provide effective leadership, stewardship and control of the
Company.
Main Principle Appointments to the Board
B2
The Company does not have a nomination committee. Appointments
to the board are made by MidAmerican, in conjunction with the
President and Chief Executive Officer.
Main Principle Commitment
B3
The Company's non-executive director commits sufficient time to
preparation for and attendance at board meetings, although his
terms of reference do not quantify the time commitment
required.
Main Principle Development
B4
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.
Main Principle Information and Support
B5
Directors receive monthly reports outlining progress against the
Company's goals and targets, enabling financial performance against
budget and operational performance against a number of indicators
to be reviewed, and are also able to participate in weekly
meetings, which consider the key issues of that week in some
detail. The directors are able to utilise the advice and services
of the Company Secretary, in respect of their duties and
responsibilities as directors and any new legislation that may
affect those duties and responsibilities. The directors also have
access to external legal advice should they feel it necessary.
Interim briefings are provided to the non-executive director, as
appropriate.
Main Principle Evaluation
B6
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. MidAmerican 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 MidAmerican's goals.
Main Principle Re-election
B7
The Company's articles of association do not require periodic
retirement and re-election of directors.
Section C Accountability
Main Principle Financial and Business Reporting
C1
The board believes that the directors' report and review of the
year provide a balanced and understandable assessment of the
Company's position and prospects. The directors explain, at pages 2
and 3, the Core Principles behind the Company's strategy and, at
page 22, their responsibility for preparing the report and
accounts, have reported, at page 23 in the directors' report, that
the Company is a going concern and included the independent
auditor's report to the Company at page 25 of the report and
accounts.
Main Principle Risk Management and Internal Control
C2
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 14 to 16 of the directors' report.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Other key features of the internal control system are:
- Comprehensive business planning and financial reporting
procedures, including the annual preparation of detailed
operational budgets for the year ahead and projections for
subsequent years;
- Regular review of key performance indicators to assess progress towards objectives;
- A range of policies, codes of practice and more detailed
instructions that define the processes to be followed;
- A strong internal audit function to provide independent
scrutiny of internal control systems and risk management
procedures, including the standards required by the Sarbanes-Oxley
Act;
- On-going health and safety performance reviews carried out by
in-house safety professionals in addition to the regime of routine
health and safety risk assessment and management processes carried
out within each of the operating units;
- Processes and procedures to operate under OHSAS 18001, which
is subject to external certification and regular assessment;
- An external obligations register, which assists with
compliance with financial, legal and regulatory obligations;
- Centralised treasury operations that operate within defined
limits and are subject to regular reporting requirements and audit
reviews; and
- Established procedures for planning, approving and monitoring
major capital expenditure, major projects and the development of
new business which includes short and long-term budgets, risk
evaluation, detailed appraisal and review procedures, defined
authority levels and post-investment performance reviews.
Main Principle Audit Committee and Auditors
C3
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, the independence of and the provision of
additional services by the auditor.
The Audit Committee 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
The directors confirm that no fees were payable by the Company
to Deloitte LLP in relation to non-audit services during the
year.
The employee section on page 11 of the directors' report
contains details of the Company's "speaking up" policy.
Section D Remuneration
Main Principle The Level and Components of Remuneration
D1
The Company does not have a remuneration committee. Annual
remuneration awards for senior management of the Northern Powergrid
Group are subject to the performance appraisal and development
scheme process and consideration by the Chairman of MidAmerican 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.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
Main Principle Procedure
D2
As mentioned under main principle D1, the annual remuneration
awards for senior management of the Northern Powergrid Group are
subject to the performance appraisal and development scheme process
and consideration by the Chairman of MidAmerican and the President
and Chief Executive Officer. Mr Fielden, Dr France, Mr Gill and Dr
Jones are subject to the performance appraisal and development
scheme process in their capacity as senior managers of the Northern
Powergrid Group and not, specifically, in their capacity as board
directors. No director is involved in deciding his own
remuneration.
Section E Relations with Shareholders
Main Principle Dialogue with Shareholders
E1
As a wholly-owned subsidiary of a privately held group of
companies, the board is in continuing dialogue with
MidAmerican.
Main Principle Constructive Use of the AGM
E2
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 institutional shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Report of the
Directors and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards ("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 these financial statements, International Accounting
Standard 1 requires the directors to:
-- Properly select and apply accounting policies;
-- Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the 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 and 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.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
REPORT OF THE DIRECTORS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2011
GOING CONCERN
The Company's business activities, together with details
regarding its future development, performance and position are set
out in the Report of the Directors. In addition, the Company's
objectives, policies and processes for managing its capital, its
financial risk management objectives and details of its exposures
to trading risk, credit risk and liquidity risk are included in the
Report of the Directors and the appropriate notes to the
accounts.
When considering continuing to adopt the going concern basis in
preparing the annual report and accounts, the directors have taken
into account a number of factors, including the following:
- The Company is a stable electricity distribution business
operating an essential public service and is regulated by GEMA. In
carrying out its functions, GEMA has a statutory duty under the
Electricity Act 1989 to have regard to the need to secure that
licence holders are able to finance the activities, which are the
subject of obligations under Part 1 of the Electricity Act 1989
(including the obligations imposed by the electricity distribution
licence) or by the Utilities Act 2000;
- The Company is profitable with strong underlying cash flows
and holds investment grade credit ratings; and
- The Company is financed by long-term borrowings with an
average maturity of 13 years and has access to borrowing facilities
provided by Lloyds TSB 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 report and accounts.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS
Each of the directors, who is a director of the Company as at
the date of this report, confirms that:
a) so far as he is aware, there is no relevant audit information
of which the Company's auditors are unaware; and
b) he has taken all the steps he ought to have taken as a
director in order to make himself aware of any relevant audit
information and to establish that the auditors are aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies Act
2006.
AUDITORS
A resolution to re-appoint Deloitte LLP as the Company's
auditors and authorise the directors to determine their
remuneration will be proposed at the Annual General Meeting.
ON BEHALF OF THE BOARD:
J Elliott
Secretary
2 March 2012
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
ANNUAL REPORTS AND ACCOUNTS
Each of the directors as at the date of the Annual Report, whose
names and functions are set out on page 4 of the Report of the
Directors confirms that, to the best of their knowledge:
a) the Company accounts, prepared in accordance with applicable
UK law and in conformity with IFRS, give a true and fair view of
the assets, liabilities, financial position and profit or loss of
the Company; and
b) the Management Report (which is comprised of the Report of
the Directors and the Business Review) 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.
The responsibility statement was approved by the Board of
Directors on 2 March 2012 and signed by:
P A Jones
President and Chief Executive Officer
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 2011
which comprises the Income Statement, the Statement of
Comprehensive Income, the Statement of Financial Position, the
Statement of Changes in Equity, the Statement of Cash Flows and
related notes 1 to 24. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
a Report of the Auditors and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page 22, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board's Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the Company's affairs
as at 31 December 2011 and of its profit for the year then ended;
- have been properly prepared in accordance with IFRSs as adopted
by the European Union; and
- have been prepared in accordance with the requirements of the Companies
Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Report of the
Directors for the financial year for which the financial statements
are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
- adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited by
us; or
- the financial statements are not in agreement with the accounting
records and returns; or
- certain disclosures of directors' remuneration specified by law
are not made; or
- we have not received all the information and explanations we require
for our audit.
Christopher Powell FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Newcastle upon Tyne
9 March 2012
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 357,128 325,712
Cost of sales (13,166) (12,035)
GROSS PROFIT 343,962 313,677
Operating expenses 9 (157,016) (141,190)
OPERATING PROFIT 186,946 172,487
Other gains 112 209
Finance costs 5 (40,992) (37,705)
PROFIT BEFORE INCOME TAX 6 146,066 134,991
Income tax 7 (23,412) (29,956)
PROFIT FOR THE YEAR 122,654 105,035
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2011
2011 2010
GBP'000 GBP'000
PROFIT FOR THE YEAR 122,654 105,035
OTHER COMPREHENSIVE INCOME - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 122,654 105,035
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2011
2011 2010
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 11 2,478 4,131
Property, plant and equipment 12 2,221,283 2,121,931
2,223,761 2,126,062
CURRENT ASSETS
Inventories 13 489 792
Trade and other receivables 14 58,603 63,864
59,092 64,656
TOTAL ASSETS 2,282,853 2,190,718
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 15 290,000 290,000
Retained earnings 16 390,766 308,112
TOTAL EQUITY 680,766 598,112
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 17 631,845 612,028
Borrowings 18 600,643 546,267
Deferred tax 20 193,090 209,706
Provisions 19 730 736
1,426,308 1,368,737
CURRENT LIABILITIES
Trade and other payables 17 80,836 66,914
Borrowings 18 74,161 135,193
Tax payable 19,283 20,310
Provisions 19 1,499 1,452
175,779 223,869
TOTAL LIABILITIES 1,602,087 1,592,606
TOTAL EQUITY AND LIABILITIES 2,282,853 2,190,718
The financial statements were approved by the Board of Directors
on 2 March 2012 and were signed on its behalf by:
P A Jones
Director
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2011
Called up
share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
Balance at 1 January 2010 290,000 243,077 533,077
Changes in equity
Dividends - (40,000) (40,000)
Total comprehensive income - 105,035 105,035
Balance at 31 December 2010 290,000 308,112 598,112
Changes in equity
Dividends - (40,000) (40,000)
Total comprehensive income - 122,654 122,654
Balance at 31 December 2011 290,000 390,766 680,766
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2011
Notes 2011 2010
GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 24 248,779 214,946
Finance costs paid (40,604) (34,484)
Group relief paid (1,513) (365)
Tax paid (39,588) (31,272)
Net cash from operating activities 167,074 148,825
Cash flows from investing activities
Purchase of property, plant & equipment (164,503)
(177,724)
Proceeds from disposal of property, plant & equipment 45
727
Receipt of customer contributions 45,185 40,749
Net cash used in investing activities (119,273) (136,248)
Cash flows from financing activities
Movement in borrowings in the year 22,015 27,423
Loans from group undertakings (29,816) -
Equity dividends paid (40,000) (40,000)
Net cash used in financing activities (47,801) (12,577)
Increase in cash and cash equivalents - -
Cash and cash equivalents
at beginning of year - -
Cash and cash equivalents at end of year - -
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
1. GENERAL INFORMATION
Northern Powergrid (Yorkshire) plc is a company originally
incorporated in England and Wales under the Companies Act 1985. The
address of the registered office is Lloyds Court, 78 Grey Street,
Newcastle-upon-Tyne, NE1 6AF.
The nature of the Company's operations and its principal
activities are set out in the Report of the Directors and in Note
3.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
The financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). The financial
statements have also been prepared in accordance with IFRSs adopted
by the European Union and therefore comply with Article 4 of the EU
IAS Regulation and with those parts of the Companies Act 2006 (the
"Act") that are applicable to companies reporting under IFRS.
The accounts have been prepared under the historical cost
convention. The Company has relied upon Section 400 of the Act and
has presented the accounts for the Company as an individual
undertaking only and not as a Group undertaking.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the financial statements. Further detail is contained
within the Report of the Directors.
Judgements in applying accounting policies and key sources of
estimation uncertainty
Many of the amounts included in the financial statements involve
the use of judgement and/or estimation. These judgements and
estimates are based on management's best knowledge of the relevant
facts and circumstances, having regard to previous experience, but
actual results may differ from the amounts included in the
financial statements. Information about such judgements and
estimates is contained in the accounting policies and/or the notes
to the financial statements and the key areas are summarised
below.
Areas of judgement and estimation which have the most
significant effect on the amounts recognised in the financial
statements are:
- The estimation of useful economic lives for property, plant
and equipment;
- The split of operating and capital expenditure and the
allocation of overheads to capital projects; and
- Impairment reviews carried out to evaluate the carrying value
of assets held at the balance sheet date.
Critical accounting policies
The critical accounting policies adopted by the directors relate
to property, plant and equipment, taxation, pensions and revenue
and are described below. The accounting policies have been applied
consistently throughout the year and the preceding year.
Adoption of new or revised standards
In the current year, the following new and revised Standards and
Interpretations have been adopted with these financial
statements.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
Standards affecting presentation and disclosure;
IFRS 7 Financial Instruments: Disclosure
The amendments to IFRS 7 clarify the required level of
disclosure around credit risk and encourage qualitative disclosures
to help users to form an overall picture of the nature and extent
of risks arising from financial instruments. This change has not
led to any change in the disclosures contained within these
financial statements.
IAS 1 Presentation of Financial Statements
The amendments to IAS 1 clarify that an entity may present the
analysis of other comprehensive income by item either in the
statement of changes in equity or in the notes to the financial
statements. This amendment has not impacted these financial
statements.
Revenue
Revenue is only recognised when the risks and rewards of
ownership have been transferred to a third party. No revenue is
recognised where there are significant uncertainties regarding the
consideration to be received or the costs associated with the
transaction.
Revenue represents charges for the use of the Company's
distribution network, amortisation of customer contributions,
recharge of costs incurred on behalf of related parties and the
invoiced value of other goods sold and services provided, exclusive
of value added tax.
Revenues from charges to end customers for the use of the
Company's distribution network include estimates of the units
distributed. The estimated usage is based on historic data,
judgement and assumptions. Revenues are gradually adjusted to
reflect actual usage in the period during which actual meter
readings are obtained.
Any under or over-recovery of allowed distribution network
revenues, as prescribed by Ofgem, is not provided for in the
financial statements and will be recovered/repaid through future
tariffs.
Customer contributions towards distribution system assets are
included in deferred revenue. The Company's policy is to credit the
customer contribution to revenue over 45 years on a straight-line
basis, in line with the useful life of the distribution system
assets.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable.
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established.
Operating profit
Operating profit is stated before investment income and finance
costs.
Software Development Costs
Costs in respect of major developments are capitalised and
amortised over the expected life of the software. Capitalised
software costs that are not an integral part of the related
hardware are included in intangible assets on the balance sheet and
amortised over the expected life of the software of up to 15
years.
Investments
Fixed asset investments are stated at cost less provision for
impairment in value.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost. Cost includes
the purchase price of the asset and any costs, including internal
employee and other costs, directly attributable to bringing the
asset to the location and condition necessary for it to be capable
of operating in the manner intended by management.
The charge for depreciation is calculated to write off assets to
their residual values over their estimated useful lives using the
straight-line basis:
Distribution system assets 45 years
Distributed generation 15 years
Metering equipment included in distribution system up to 5 years
assets
Information technology equipment included in distribution up to 10 years
system assets
Non-operational assets:
Buildings - freehold up to 60 years
Buildings - leasehold lower of lease
period or 60
years
Fixtures and equipment up to 10 years
Freehold land is not depreciated.
Assets in the course of construction are carried at cost.
Depreciation on these assets, on the same basis as other assets,
commences when the assets are commissioned.
The estimated useful economic lives of property, plant and
equipment are based on management's judgement and experience. When
management identifies that actual useful lives differ materially
from the estimates used to calculate depreciation, that charge is
adjusted prospectively. Due to the significance of the Company's
investment in property, plant and equipment, variations between
actual and estimated useful lives could impact operating results
both positively and negatively, although historically, few changes
to estimated useful lives have been required.
The Company is required to evaluate the carrying values of
property, plant and equipment for impairment whenever circumstances
indicate, in management's judgement, that the carrying value of
such assets may not be recoverable. An impairment review requires
management to make judgement concerning the cash flows, growth
rates and discount rates for the cash-generating units under
review.
Financial instruments
Financial assets and financial liabilities are recognised on the
balance sheet when the Company becomes a party to the contractual
provisions on the instrument.
Financial assets are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there
is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been
impacted.
For certain categories of financial assets, such as trade
receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a
collective basis. Objective evidence of impairment for a portfolio
of receivables could include the Company's past experience of
collecting payments, an increase in the number of delayed payments
in the portfolio past the average credit period of 30 days, as well
as observable changes in national or local economic conditions that
correlate with default on receivables.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectable, it is written off against
the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
income statement.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangement entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Company after deducting all
of its liabilities.
Inventories
Work in progress is valued at the cost of direct materials and
labour plus attributable overheads based on the normal level of
activity less progress payments.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Company's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the year when the liability is settled or asset realised,
based on tax rates and tax legislation enacted or substantively
enacted at the balance sheet date.
Research costs
Expenditure on research activities is written off to the income
statement in the year in which it is incurred.
Leases
Leases are classified as finance leases wherever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Operating lease rentals are charged to the income statement in
equal annual amounts over the lease term.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
2. ACCOUNTING POLICIES - continued
Pensions
The Company contributes to the Northern Electric Group of the
Electricity Supply Pension Scheme (the "Northern Electric Group of
the ESPS"). The Northern Electric Group of the ESPS is a defined
benefit plan that shares risk between various entities under common
control. There is no contractual agreement or stated policy for
charging the net defined benefit cost for the plan as a whole to
individual group entities and accordingly the Company accounts for
the Northern Electric Group of the ESPS as if it were a defined
contribution scheme. Contributions to the Northern Electric Group
of the ESPS are charged to the income statement or capitalised as
appropriate. The capital costs of ex-gratia and supplementary
pensions are normally charged to the income statement in the period
in which they are granted.
The Company also participates in two defined contribution
schemes. Contributions payable to the defined contribution schemes
are charged to the income statement in the year. Differences
between contributions payable in the year and contributions
actually paid are shown as either accruals or prepayments in the
balance sheet.
Provisions
Provisions are recognised when the Company has a present
obligation as a result of a past event and it is probable that the
Company will be required to settle that obligation. Provisions are
measured at the directors' best estimate of the expenditure
required to settle the obligation at the balance sheet date.
Reasonable estimates involve judgement made by management after
considering information including notifications, settlements,
estimates performed by independent parties and legal counsel,
available facts, identification of other potentially responsible
parties and their ability to contribute and prior experience.
Where the effect is significant, provisions in respect of
material future liabilities are stated at their net present value
and arrived at by discounting the anticipated future costs, at the
market rate at the balance sheet date.
Trade receivables
Trade receivables are measured at initial recognition at fair
value. Appropriate allowances for estimated irrecoverable amounts
are recognised in the income statement when there is objective
evidence that the asset is impaired.
Trade payables
Trade payables are not interest bearing and are stated at their
nominal value.
Borrowings
Borrowings are classified as other financial liabilities at
amortised cost. They are recorded at the proceeds received, net of
direct issue costs. Finance charges, including premiums payable on
settlement for redemption and direct issue costs, are accounted for
on an accruals basis in the income statement using the effective
interest rate method. They are added to the carrying amount of the
instruments to the extent that they are not settled in the period
in which they arise.
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 Holdings Company group of companies (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.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
3. SEGMENTAL REPORTING - continued
Revenue, profit before tax and net assets are attributable to
electricity distribution. Revenue is all in respect of sales to
United Kingdom customers.
Revenue represents charges made to customers for use of the
distribution system, the recharge of costs incurred on behalf of
related parties, amortisation of customer contributions and other
services and is included net of value added tax.
4. EMPLOYEES AND DIRECTORS
2011 2010
GBP'000 GBP'000
Salaries 46,725 45,282
Social security costs 4,388 4,043
Defined benefit pension costs 17,002 13,056
Defined contribution pension costs 575 244
68,690 62,625
Less charged to property, plant and equipment (43,050) (41,579)
25,640 21,046
The majority of the Company's employees are members of the
Northern Electric Group of the ESPS, details of which are given in
the pension note.
The average monthly number of employees during the year was:
2011 2010
No. No.
Technical 276 273
Industrial 613 618
Administration 120 121
Other 97 94
1,106 1,106
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
4. EMPLOYEES AND DIRECTORS - continued
DIRECTORS' REMUNERATION
2011 2010
Highest Paid: GBP'000 GBP'000
Short-term employee benefits 148 125
Post employment benefits 19 9
Other long-term benefits 176 146
343 280
Total:
Short-term employee benefits 369 336
Post employment benefits 82 73
Other long-term benefits 387 275
838 684
Directors who are members of the defined benefit
scheme 33
Accrued pension benefit relating to highest --
paid director
OTHER KEY PERSONNEL REMUNERATION
2011 2010
Total: GBP'000 GBP'000
Short-term employee benefits 260 311
Post employment benefits 69 72
Other long-term benefits 122 106
451 489
Other key personnel includes a number of senior functional
managers who, whilst not board directors, have authority and
responsibility for planning, directing and controlling the
activities of the Company.
The directors and key personnel are remunerated for their
services to the Northern Powergrid Group, of which the Company is a
subsidiary. The figures above represent the share of the costs
borne by the Company.
5. FINANCE COSTS
2011 2010
GBP'000 GBP'000
Finance costs:
Interest payable on other loans 36,412 32,957
Interest payable on loans
from Group undertakings 4,580 4,748
40,992 37,705
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after
charging/(crediting):
2011 2010
GBP'000 GBP'000
Depreciation - owned assets 71,138 67,245
Profit on disposal of fixed assets (112) (209)
Software development costs amortisation 1,653 1,987
Research costs 4,324 586
Amortisation of deferred revenue (17,816) (17,097)
Impairment of trade and other receivables (8) 327
Analysis of auditors' remuneration is as follows:
2011 2010
GBP'000 GBP'000
Fees payable to the Company's auditors for the
audit of the Company's annual accounts 95 105
There were no fees payable in relation to non-audit services in
2011 or 2010.
7. INCOME TAX
Analysis of the tax charge
2011 2010
GBP'000 GBP'000
Current tax:
Tax 40,028 38,793
Deferred tax (16,616) (8,837)
Total tax charge in income statement 23,412 29,956
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
7. INCOME TAX - continued
Factors affecting the tax charge
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2011 2010
GBP'000 GBP'000
Profit on ordinary activities before tax 146,066 134,991
Profit on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 26.5% (2010 - 28%) 38,707 37,797
Effects of:
receipt under service level agreement (15) (15)
Over/(under) provision for prior years 296 (90)
change in tax rates (15,536) (7,767)
Permanent disallowances (7) 31
Tax free income net of permanent disallowances (33) -
Total income tax 23,412 29,956
2011 2010
Tax expense comprises: GBP'000 GBP'000
Current tax expense:
Corporation tax charge for the year 38,515 38,703
Payment for use of group losses 1,513 -
Under provision for prior years - 90
Total current tax charge 40,028 38,793
Deferred tax:
Deferred tax expenses relating to the origination (1,080) (1,070)
and reversal of temporary differences
Effect of changes in tax rates (15,536) (7,767)
Total deferred tax charge (16,616) (8,837)
Tax on profit before tax 23,412 29,956
The Finance Act 2011 includes a provision that the standard rate
of corporation tax in the United Kingdom will reduce from 26% to
25% from April 2012. Accordingly, this rate has been applied when
calculating deferred tax assets and liabilities throughout the
Northern Powergrid Group as at 31 December 2011. The Government has
announced that the standard rate of corporation tax will reduce
further to 24% from April 2013 and 23% from April 2014.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
8. DIVIDENDS
2011 2010
GBP'000 GBP'000
Interim dividend at 14p per share 40,000 40,000
9. OPERATING EXPENSES
Operating expenses comprise:
2011 2010
GBP'000 GBP'000
Distribution costs 108,982 102,297
Administrative expenses 48,034 38,893
157,016 141,190
10. OPERATING LEASE COMMITMENTS
2011 2010
GBP'000 GBP'000
Minimum lease payments under operating
leases recognised in the year 4,146 2,867
At the balance sheet date, the Company had outstanding
commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
2011 2010
GBP'000 GBP'000
Within one year 2,905 2,800
In the second to fifth year 7,176 6,816
After five years 449 1,327
10,530 11,013
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
11. INTANGIBLE ASSETS
Software
development
costs
GBP'000
COST
At 1 January 2011
and 31 December 2011 29,497
AMORTISATION
At 1 January 2011 25,366
Amortisation for year 1,653
At 31 December 2011 27,019
NET BOOK VALUE
At 31 December 2011 2,478
Software
development
costs
GBP'000
COST
At 1 January 2010
and 31 December 2010 29,497
AMORTISATION
At 1 January 2010 23,379
Amortisation for year 1,987
At 31 December 2010 25,366
NET BOOK VALUE
At 31 December 2010 4,131
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
12. PROPERTY, PLANT AND EQUIPMENT
Non
operational Fixtures
land & Distribution and
buildings system fittings Total
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2011 3,904 2,533,646 14,656 2,552,206
Additions 601 164,830 5,059 170,490
Disposals - (6,495) (981) (7,476)
At 31 December 2011 4,505 2,691,981 18,734 2,715,220
DEPRECIATION
At 1 January 2011 1,363 416,464 12,448 430,275
Charge for year 163 69,110 1,865 71,138
Eliminated on disposal - (6,495) (981) (7,476)
At 31 December 2011 1,526 479,079 13,332 493,937
NET BOOK VALUE
At 31 December 2011 2,979 2,212,902 5,402 2,221,283
Non
operational Fixtures
land & Distribution and
buildings system fittings Total
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2010 3,588 2,357,710 14,552 2,375,850
Additions 368 181,021 842 182,231
Disposals (52) (5,085) (738) (5,875)
At 31 December 2010 3,904 2,533,646 14,656 2,552,206
DEPRECIATION
At 1 January 2010 1,153 355,926 11,826 368,905
Charge for year 262 65,623 1,360 67,245
Eliminated on disposal (52) (5,085) (738) (5,875)
At 31 December 2010 1,363 416,464 12,448 430,275
NET BOOK VALUE
At 31 December 2010 2,541 2,117,182 2,208 2,121,931
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
12. 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 2011 79,168 - 79,168
Additions 164,830 2,408 167,238
Available for use (143,621) (2,408) (146,029)
At 31 December 2011 100,377 - 100,377
The Company has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP24,284,000 ( 2010: GBP10,477,000).
Net book value of non-operational land and buildings
comprise:
2011 2010
GBP'000 GBP'000
Freehold 1,805 1,359
Long leasehold 901 934
Short leasehold 273 248
2,979 2,541
13. INVENTORIES
2011 2010
GBP'000 GBP'000
Work in progress 489 792
14. TRADE AND OTHER RECEIVABLES
2011 2010
GBP'000 GBP'000
Current:
Distribution use of system receivables 50,080 53,141
Amounts receivable from
sale of goods and services 2,552 3,894
Prepayments and accrued income 5,971 6,829
58,603 63,864
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
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 balance
sheet date. The maximum exposure to risk to the Company is the book
value of these receivables less any provisions for impairment.
Distribution use of system receivables
The customers served by the Company's distribution network are
supplied predominantly by a small number of electricity supply
businesses with RWE NPower plc accounting for approximately 29% of
distribution revenues in 2011 (2010: 31%). Ofgem has determined a
framework which sets credit limits for each supply business based
on its credit rating or payment history and requires them to
provide credit cover if their value at risk (measured as being
equivalent to 45 days usage) exceeds the credit limit. Acceptable
credit typically is provided in the form of a parent company
guarantee, letter of credit or an escrow account. Included within
other payables are customer deposits of GBP1,759,000 as at 31
December 2011 (2010: GBP1,755,000).
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 (2010: 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/disconnections and recovery of
amounts for damage caused by third parties to the distribution
system.
The average credit period on sales of goods and services is 30
days. Interest is not generally charged on the trade receivables
paid after the due date. An allowance for doubtful debts is made
for debts past their due date based on estimated irrecoverable
amounts from the sale of goods and services, determined by
reference to past default experience.
Included in the Company's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP903,000
(2010: GBP1,173,000) which are past due at the reporting date and
for which the Company has provided an irrecoverable amount of
GBP320,000 (2010: GBP291,000) based on past experience. The Company
does not hold any collateral over these balances. The average age
of these receivables is 327 days (2010: 261 days).
Included in the Company's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP447,000
(2010: GBP743,000). 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 53 days (2010: 61 days).
Ageing of past due but not impaired receivables
2011 2010
GBP'000 GBP'000
30-60 days 393 531
60-120 days 37 178
120-210 days 17 34
-------
Total 447 743
======= =======
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
14. TRADE AND OTHER RECEIVABLES - continued
Movement in the allowance for doubtful debts
2011 2010
GBP'000 GBP'000
At 1 January 291 232
Amounts utilised/written off in the year (75) (268)
Amounts recognised in income statement (8) 327
At 31 December 208 291
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 GBP94,000 (2010: GBP134,000) which
have been placed in administration. The impairment represents the
difference between the carrying amount of the specific trade
receivable and the present value of the expected liquidation
dividend.
Categories of financial assets
2011 2010
GBP'000 GBP'000
Loans and receivables at amortised cost 52,632 57,035
Total financial assets 52,632 57,035
Non-current assets 2,223,761 2,126,062
Inventories 489 792
Prepayments and accrued income 5,971 6,829
Total non-financial assets 2,230,221 2,133,683
Total assets 2,282,853 2,190,718
15. CALLED UP SHARE CAPITAL
2011 2010
No./GBP No./GBP
Ordinary shares of GBP1 each
Authorised 400,000,000 400,000,000
Allotted, called up and fully paid 290,000,000 290,000,000
The Company has one class of ordinary shares which carries no
right to fixed income.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
16. RETAINED EARNINGS
GBP'000
At 1 January 2011 308,112
Profit for the year 122,654
Dividends (40,000)
At 31 December 2011 390,766
17. TRADE AND OTHER PAYABLES
2011 2010
GBP'000 GBP'000
Current:
Payments on account 25,102 17,893
Trade creditors 3,642 4,648
Amounts owed to Group
undertakings 427 398
Social security and other taxes 9,847 6,872
Other creditors 1,480 2,030
Deferred revenue 18,890 18,104
Accrued expenses 21,448 16,969
80,836 66,914
Non-current:
Deferred revenue 631,845 612,028
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
17. TRADE AND OTHER PAYABLES - continued
The directors consider that the carrying amount of other
financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the balance sheet
date. Trade creditors and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. Invoices are
paid at the end of the month following the date of the invoice. The
Company has financial risk management policies in place to ensure
that all payables are paid within the credit timeframe.
The following tables detail the remaining contractual maturities
for the non-derivative financial liabilities. The tables have been
drawn up based on the discounted cash flows of financial
liabilities based on the earliest possible date on which the
Company can be required to pay. The tables include both interest
and principal cash flows.
Less than 3 months
3 months to 1 year 1 to 5 5+ years Total
years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2011:
Non-interest bearing 36,844 - - - 36,844
Variable interest
rate liability 52,273 - - - 52,273
Fixed interest
rate liability 20,255 18,246 154,003 911,195 1,103,699
109,372 18,246 154,003 911,195 1,192,816
2010:
Non-interest bearing 30,917 - - - 30,917
Variable interest
rate liability 52,983 - - - 52,983
Fixed interest
rate liability 18,500 20,001 154,003 949,696 1,142,200
102,400 20,001 154,003 949,696 1,226,100
Categories of financial liabilities
2011 2010
GBP'000 GBP'000
Loans and payables at amortised cost (680,353) (688,536)
Total financial liabilities (680,353) (688,536)
Payments received on account (25,102) (17,893)
Income tax liabilities (212,373) (230,016)
Other taxes and social security (9,847) (6,872)
Accruals (21,448) (16,969)
Deferred Revenue (650,735) (630,132)
Provisions (2,229) (2,188)
Total non-financial liabilities (921,734) (904,070)
Total liabilities (1,602,087) (1,592,606)
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
17. TRADE AND OTHER PAYABLES - continued
Deferred Revenue
2011 2010
GBP'000 GBP'000
At 1 January (630,132) (611,953)
Additions (38,420) (35,276)
Amortisation 17,816 17,097
At 31 December (650,735) (630,132)
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the income statement over 15 - 45 years on a straight line
basis, in line with the useful economic life of the distribution
system assets.
18. BORROWINGS
The Directors' consideration of liquidity, interest rate and
foreign currency risk is described in detail in the Directors'
Report.
Fair
Book Value Value
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed to Group
undertakings 79,167 108,042 88,918 116,675
Loans 595,637 573,418 698,056 628,320
674,804 681,460 786,974 744,995
The borrowings are repayable as follows:
On demand or within one
year 74,161 135,193 74,161 135,193
After five years 600,643 546,267 712,813 609,802
674,804 681,460 786,974 744,995
Analysis of borrowings:
Short-term loan 22,123 - 22,123 -
Inter-company short term
loan 24,100 52,983 24,100 52,979
Yorkshire Electricity
Group plc 2016 6.5% 55,067 55,059 64,818 63,696
Eurobond 2020 9.25% 216,487 216,287 293,238 282,417
Bond 2035 5.125% 203,425 203,536 214,808 195,728
European Investment Bank
2022 4.133% 153,602 153,595 167,887 150,175
674,804 681,460 786,974 744,995
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
18. BORROWINGS - continued
The fair value of the 2020 and 2035 bonds is determined with
reference to quoted market prices. The directors' estimates of the
fair value of the European Investment Bank and internal borrowings
are determined in accordance with generally accepted pricing models
based on discounted cash flow analysis using prices from observable
current market transactions or dealer quotes for similar
instruments. The fair value of short-term borrowings is equal to
their book value. All loans are non-secured and are denominated in
sterling.
Interest on the inter-company short-term loans is charged at
base rate and interest on short-term loans is charged at a floating
rate of LIBOR plus 1.5%, thus exposing the Company to cash flow
interest rate risk. A 1% movement in interest rates would subject
the Company to an approximate change in interest costs of GBP0.2m
per year. This is considered to be an acceptable level of risk. All
other loans are at fixed interest rates and expose the Company to
fair value interest rate risk.
The covenants associated with the 2035 bonds issued by the
Company, include restrictions on the issuance of new indebtedness
and the making of distributions dependent on the scale of the ratio
of Senior Total Net Debt to Regulatory Asset Value ("RAV"). The
definition of Senior Total Net Debt excludes any subordinated debt
and any debt incurred on a non-recourse basis. In addition, it
excludes interest payable, any fair value adjustments and
unamortised issue costs.
The Company's Senior Total Net Debt as at 31 December 2011 was
GBP651.3m. Using the RAV as at March 2012, as outlined by Ofgem in
its Final Proposals for Distribution Prices published in December
2009, and up rating for the effects of movements in the value of
the Retail Price Index gives an approximation for the RAV as at
December 2011 of GBP1,332.5m. The Senior Total Net Debt to RAV
ratio for the Company is therefore estimated at 48.9%.
At 31 December 2011, the Company had available GBP57.0m (2010:
GBP78.0m) of undrawn committed borrowing facilities in respect of
which all conditions precedent had been met.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
19. PROVISIONS
2011 2010
GBP'000 GBP'000
Provisions 2,229 2,188
Analysed as follows:
Current 1,499 1,452
Non-current 730 736
2,229 2,188
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2011 1,090 1,098 2,188
Utilised/paid in the year (1,066) (762) (1,828)
Charged to income statement 1,076 793 1,869
At 31 December 2011 1,100 1,129 2,229
Claims: Provision has been made to cover costs arising from
actual claims, which are not externally insured. Settlement is
expected substantially within 12 months.
Other: Primarily consists of a provision for future safe
disposal of transformers which contain oil contaminated with
Polychlorinated Biphenyls (PCBs) and for an amount to cover claims
made under section 74 of the New Road and Street Works Act 1991.
Costs are expected to be incurred over the next 20 years.
20. DEFERRED TAX
Accelerated
Tax Depreciation
Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2011 209,887 (181) 209,706
Charge to income statement (16,614) (2) (16,616)
At 31 December 2011 193,273 (183) 193,090
GBP'000 GBP'000 GBP'000
At 1 January 2010 218,712 (168) 218,544
Charge to income statement (8,825) (13) (8,837)
At 31 December 2010 209,887 (181) 209,706
Other comprises provisions and employee expenses deductible for
tax on a paid basis and claims for hold over relief.
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
21. EMPLOYEE BENEFIT OBLIGATIONS
The Company has three retirement benefit schemes.
The Northern Electric Group of the ESPS is a defined benefit
scheme for directors and employees, which provides pension and
other related benefits based on final pensionable pay. The assets
of the Northern Electric Group of the ESPS, which was closed to
staff commencing employment on or after 23 July 1997, are held in a
separate trustee-administered fund. The Northern Powergrid Pension
Scheme and the Yorkshire Electricity Pension Plan were made
available to new employees from that date.
The Northern Electric Group of the ESPS and the Northern
Powergrid Pension Scheme are operated by Northern Electric plc on
behalf of the participating companies within the Northern Powergrid
Group.
The last triennial actuarial valuation of the Northern Electric
Group of the ESPS was carried out by the Group Trustees' actuarial
advisors, Aon Hewitt, as at 31 March 2010. The projected unit
method was used for the 2010 valuation. The principal actuarial
assumptions were that pre-retirement investment returns would
exceed salary increases by 1.8% per annum (inclusive of merit
awards) and post-retirement returns would exceed future pension
increases by 2.8% per annum.
The total market value of the assets of the Northern Electric
Group of the ESPS, at the date of the actuarial valuation, was
GBP983m.
For the Northern Electric Group of the ESPS, the actuarial
valuation showed that the value of the assets represented 78% of
the actuarial value of the accrued benefits. This represents a
shortfall of assets compared to the value of accrued benefits of
GBP276m. The accrued benefits include all benefits for pensioners
and other members, as well as benefits based on service completed
to date for active members, and allows for an estimate of future
salary increases.
Agreement was reached during June 2011 with the Group Trustees
to repair this deficit over the 15 year period to 31 March 2025,
subject to the actuarial assumptions adopted for the triennial
valuation as at 31 March 2010 being borne out in practice. The
agreement includes cash payments of GBP29.9m per annum (of which
GBP7.6m is borne by the Company), made on a monthly basis, for the
first five years of the recovery plan followed by an agreed profile
of payments to be made over the remaining ten years of the recovery
plan.
The Northern Electric Group of the ESPS is a defined benefit
plan that shares the risk between various entities under common
control. There is no contractual agreement or stated policy for
charging the net defined benefit cost for the plan as a whole to
individual group entities and accordingly the Company accounts for
the scheme as if it were a defined contribution scheme, as
permitted by IAS 19, Employee Benefits.
The contribution rates to the Northern Electric Group of the
ESPS, in addition to the deficit repair contributions mentioned
above, for 2011 were 41.9% for certain senior management and 23.5%
for other employees up to 30 June 2011 and 47.0% and 29.4%
respectively from 1 July 2011. These rates will remain in place
until a time as a new schedule of contributions is agreed between
the trustees of the Northern Electric Group of the ESPS and
Northern Electric plc as part of the triennial valuation
process.
The money purchase pension schemes are accounted for as defined
contribution schemes.
The Company's pension cost for the year ended 31 December 2011
was GBP17.6m (2010: GBP13.3m).
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
21. EMPLOYEE BENEFIT OBLIGATIONS - continued
Disclosures in relation to the Northern Electric Group of the
ESPS are:
Principal assumptions:
2011 2010
Projected Projected
Valuation method unit unit
Discount rate 4.80% 5.50%
Inflation rate 2.80% 3.20%
Increase to pensions 2.80% 3.20%
Increase to deferred benefits 2.80% 3.20%
Salary increase 2.80% 3.20%
The mortality assumptions are based on the recent actual
mortality experience of members within the Northern Powergrid Group
and the assumptions also allow for future mortality improvements.
The assumption is that a member currently aged 60 will live for a
further 30 years, if he is male, and for a further 30 years, if she
is female. Life expectancy at age 60 for non-pensioners (currently
aged 45) is assumed to be 30 years, if they are male, and 31 years,
if they are female.
For closed schemes, such as the Northern Electric Group of the
ESPS, under the projected unit method the current service cost will
increase as the members of the scheme approach retirement.
Changes in present value of the defined benefit obligation are
as follows:
2011 2010
GBPm GBPm
Opening defined benefit obligation 1,061.1 1,021.9
Current service costs 11.0 10.0
Interest cost 57.5 57.4
Contributions from employees 2.4 3.0
Actuarial losses 63.0 12.5
Benefits paid (53.2) (43.7)
Closing defined benefit obligation 1,141.8 1,061.1
Changes in the fair value of the plan assets are as follows:
Opening fair value of plan assets 1,043.7 938.4
Expected returns 69.6 60.4
Actuarial gains 16.7 41.9
Contributions by employer 49.0 43.7
Contributions from employees 2.4 3.0
Benefit paid (53.2) (43.7)
Closing fair value of plan assets 1,128.2 1,043.7
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
21. EMPLOYEE BENEFIT OBLIGATIONS - continued
The fair value of the plan assets at the balance sheet date is
analysed below:
Long-term rates of
return expected at Value
2011 2010 2011 2010
% % GBPm GBPm
Equities 8.50 8.50 303.6 346.9
Bonds 3.70 4.60 714.6 602.0
Other 3.00 4.20 9.8 0.8
Property 7.50 8.40 100.2 94.0
Total fair value
of scheme assets 1,128.2 1,043.7
The Northern Powergrid Group employs a building block approach
in determining the long-term rate of return on pension plan assets.
Historical markets are studied and assets with higher volatility
are assumed to generate higher returns consistent with widely
accepted capital market principles. The assumed long-term rates of
return on each asset class are set out within these disclosures.
The overall expected rate of return on assets is then derived by
aggregating the expected return for each asset class over the
actual asset allocation for the Northern Electric Group of the
ESPS.
22. RELATED PARTY DISCLOSURES
The Company has received loans from other companies in the
Northern Powergrid Group. The total interest included in finance
costs in the income statement for the year ended 31 December 2011
was GBP4,580,000 (2010: GBP4,748,000). Included within borrowings
is GBP79,167,000 as at 31 December 2011 (2010: GBP108,042,000) in
respect of these loans.
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
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:
Amounts
Sales Purchases owed
to related from related to related
parties parties parties
Related Party GBP'000 GBP'000 GBP'000
2011:
CE Insurance Services Limited - 837 -
Integrated Utility Services Limited 49 22 -
Northern Electric plc - 3,193 -
Northern Powergrid (Northeast) Limited 8,775 15,339 -
Vehicle Lease and Service Limited - 3,709 427
8,824 23,100 427
NORTHERN POWERGRID (YORKSHIRE) PLC (REGISTERED NUMBER:
4112320)
NOTES TO THE FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2011
22. RELATED PARTY DISCLOSURES - continued
Amounts
Sales Purchases owed
to related from related to related
parties parties parties
Related Party GBP'000 GBP'000 GBP'000
2010:
CE Insurance Services Limited - 819 -
Integrated Utility Services Limited 132 48 -
Northern Electric plc - 3,012 -
Northern Powergrid (Northeast) Limited 7,563 13,558 -
Vehicle Lease and Service Limited - 3,807 398
7,695 21,244 398
Sales and purchases from related parties were made at commercial
prices.
The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have
been made for doubtful debts in respect of amounts owed by related
parties
23. 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 of Yorkshire
Electricity Group plc is Berkshire Hathaway, Inc., a company
incorporated in the United States of America.
Copies of the group accounts of Berkshire Hathaway, Inc. (the
parent undertaking of the largest group preparing group accounts)
which include 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.
24. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM
OPERATIONS
2011 2010
GBP'000 GBP'000
Profit before income tax 146,066 134,991
Depreciation charges 72,791 69,232
Amortisation of deferred revenue (17,816) (17,097)
Increase in provisions 41 261
Finance costs 40,992 37,705
242,074 225,092
Decrease/(Increase) in inventories 303 (257)
Increase in trade and other receivables 3,007 (11,660)
Increase in trade and other payables 3,395 1,771
Cash generated from operations 248,779 214,946
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR USVNRUAAOAAR
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