TIDMNTEA
RNS Number : 5258L
Northern Electric PLC
28 April 2015
The following regulated information, disseminated pursuant to
DTR 6.3.5, comprises the Annual Report and Accounts of Northern
Electric plc for the year ended 31 December 2014.
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 2014 Annual Report and Accounts are also available on the
website
http://www.northernpowergrid.com/document-library/financial
Enquiries:
John Elliott 0191 223 5103
REGISTERED NUMBER: 02366942 (England and Wales)
GROUP STRATEGIC REPORT, REPORT OF THE DIRECTORS AND
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2014
FOR
NORTHERN ELECTRIC PLC
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
Page
Company Information 1
Group Strategic Report 2
Report of the Directors 21
Responsibility Statement of the Directors 31
Report of the Independent Auditor 34
Consolidated Statement of Profit or
Loss 35
Consolidated Statement of Profit or
Loss and Other Comprehensive Income 36
Consolidated Statement of Financial
Position 37
Company Statement of Financial Position 39
Consolidated Statement of Changes
in Equity 40
Company Statement of Changes in Equity 41
Consolidated Statement of Cash Flows 42
Company Statement of Cash Flows 43
Notes to the Consolidated Financial
Statements 44
Notice of Annual General Meeting 89
NORTHERN ELECTRIC PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2014
DIRECTORS: G E Abel
J A Andreasen
R Dixon
T E Fielden
J M France
P J Goodman
P A Jones
SECRETARY: J Elliott
REGISTERED OFFICE: Lloyds Court
78 Grey Street
Newcastle upon Tyne
NE1 6AF
REGISTERED NUMBER: 02366942 (England and Wales)
AUDITOR: Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
The directors present the annual reports and accounts of
Northern Electric plc (the "Company") and its subsidiary companies
(together the "Group") for the year ended 31 December 2014, which
includes the Strategic Report, the Report of the Directors and the
audited financial statements for that year. Pages 2 to 20 inclusive
of this annual report comprise the Strategic Report and pages 21 to
30 comprise the Report of the Directors, which have 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 Group 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.
BUSINESS MODEL
The Company is part of the Northern Powergrid Holdings Company
group of companies (the "Northern Powergrid Group") and acts as a
holding company of Northern Powergrid (Northeast) Limited
("Northern Powergrid"), Integrated Utility Services Limited ("IUS")
and Northern Powergrid Metering Limited. Northern Powergrid is a
distribution network operator ("DNO"), which distributes
electricity to approximately 1.6 million customers connected to its
electricity distribution network at voltages of up to 132kV, IUS
provides engineering contracting services and Northern Powergrid
Metering Limited rents meters to energy suppliers.
In common with the Northern Powergrid Group, the Group operates
a business model and strategy based on its six core principles (the
"Core Principles"), which are:
Principle Strategy Indicator
Financial strength Effective stewardship Profitability, cash flow
of the Group's financial and maintenance of investment
resources, investing grade credit ratings.
in assets and focusing
on long-term opportunities,
which contribute to
the Group's future
strength.
Customer service Delivering reliability, Improving network resilience
dependability, fair and performance, measured
prices and exceptional by: customer minutes
service. lost, customer interruptions
and customer satisfaction.
Operational excellence Setting high standards Effective asset management,
for the Group's operations, managing commercial risk
system investment and and improving network
maintenance. resilience and performance.
Employee commitment Equipping employees Leading safety performance,
with the resources engaging employees and
and support they need effective leadership.
to operate successfully
and in a safe and rewarding
work environment.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
BUSINESS MODEL - continued
Environmental respect Using natural resources Reducing environmental
wisely and protecting impact and promoting
the environment, where and pursuing long-term
it is impacted by the sustainability.
Group's operations.
Regulatory integrity Adhering to a policy Strong internal controls,
of strict compliance regulatory engagement
with applicable laws, and industry influence.
regulations, standards
and policies.
STRATEGIC OBJECTIVES
The Group's strategic objectives are based on the Core
Principles, remain consistent and are to build a business,
which:
- continues to generate value over the long-term;
- invests in and manages its electricity distribution network in
an efficient and effective manner;
- provides its customers with an excellent standard of service;
- engages with its employees so that they feel rewarded and
recognised as part of a team that sets and achieves increasingly
high standards of performance; and
- is viewed as being a leader in shaping the future direction of
the electricity distribution sector in the United Kingdom.
As part of its strategy the Group continues to be committed to
putting safety first, respecting its customers, their time and
property, doing a quality job, responding effectively to major
incidents on the network in times of severe weather and caring for
its local environment.
REVIEW OF THE YEAR
The Group delivered a satisfactory financial performance for the
year, which benefited from a further change to the rate of taxation
and continued effective cost control, with revenue at GBP409.5
million being GBP58.6 million more than in 2013. Although units
distributed by Northern Powergrid were 1.9% lower than 2013, the
increase in revenue was mainly due to the five-year profile of
allowed revenues inherent in the price control formula under the
Distribution Price Control period to 31 March 2015 ("DPCR5"). In
addition, 2013 included the voluntary rebate made to the
electricity suppliers by Northern Powergrid in relation to domestic
customers following a request by the Department of Energy and
Climate Change.
One of the main priorities for Northern Powergrid in 2014 was
the preparation of its response to Ofgem's decision that its
well-justified business plan was not to proceed on the "fast track"
as part of the process for setting its income for the next
regulatory period, which runs from 1 April 2015 to 31 March 2023
and is known as ED1. Northern Powergrid revisited its plan and
provided Ofgem with further justification of the associated costs
on 17 March 2014. Ofgem published its final determination in
November 2014, which sets out allowed revenues and rules by which
Ofgem expects to adjust Northern Powergrid's revenues in certain
circumstances during ED1. Under Ofgem's proposals, excluding the
effects of incentive schemes and any deferred revenues from DPCR5,
Northern Powergrid's base allowed revenue will decrease by
approximately 18% in the regulatory year to 31 March 2016 before
the addition of inflation, as measured by the Retail Prices Index
("RPI"), in order to derive the final price change.
On 2 March 2015 Northern Powergrid sought permission from the
Competition and Markets Authority (the "CMA") to appeal against the
licence modifications that give effect to the ED1 price control.
The appeal relates to three specific areas:
(i) Ofgem's decision to demand further cost savings in relation
to smart grid technology over and above the ones captured by its
original benchmarking exercise;
(ii) Ofgem's assessment of the variation in wage rates across the country; and
(iii) Ofgem's projections for labour cost increases.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
REVIEW OF THE YEAR - continued
On 30 March 2015 the CMA granted Northern Powergrid permission
to appeal such that the appeal is expected to conclude in the
fourth quarter of 2015 in accordance with the timetable required of
the CMA. British Gas Trading Limited was also granted permission to
appeal the price control, with the same review timetable. The
outcome of these appeals may increase or reduce the revenue
available to Northern Powergrid, if the CMA amends the price
control determination.
Having again delivered its largest ever capital expenditure
programme of GBP200.0 million in 2013, Northern Powergrid continued
with its policy of investing efficiently in its electricity
distribution network during 2014. During the year, Northern
Powergrid invested GBP199.6 million in its distribution network, a
similar amount to 2013, and substantially completed the outputs
committed within the DPCR5 price control period so allowing final
completion of all outputs by the end of DPCR5 on 31 March 2015.
Northern Powergrid lags its industry peers in customer
satisfaction and so has made this area a management priority for
long-term improvement. During the year its customer satisfaction
scores showed steady improvement, its performance to reduce service
failures met target and its connections lead times shortened. It
continues to be an industry leader in terms of social obligations
and stakeholder engagement. As delivery of the capital expenditure
programme, the provision of excellent customer service and ensuring
a reliable electricity supply were some of the most significant
outputs Northern Powergrid was required to deliver during DPCR5,
Northern Powergrid's overall performance in that respect led to a
successful conclusion to DPCR5.
Northern Powergrid introduced a number of initiatives during the
year that are designed to improve its services to customers
including providing more information on the web site such as
self-service quotations for customers seeking low voltage
connections and a quick calculator to give site-specific guidance
on the potential price of a new connection. Northern Powergrid also
introduced new, higher specification customer support vehicles,
engaged more effectively with its stakeholders and promoted the
benefits of being on the priority service register.
Northern Powergrid again beat Ofgem's targets for the quality of
the electricity supply provided to its customers and continued to
focus on reducing the average times taken to restore supplies
following a power cut. In that respect, Northern Powergrid changed
its Field Operations model to one based on a larger number of more
locally-focussed zones in preparation for the introduction of a new
guaranteed standard for the restoration of supply within 12 hours
of a power cut occurring from 1 April 2015.
Environmental performance continued to be strong with Northern
Powergrid delivering its most successful year. Incidents reportable
to the Environment Agency, oil spills and leaks from Northern
Powergrid's assets and SF(6) gas discharges from electrical plant
were all better than target. Given the impact on the environment of
such events, Northern Powergrid is committed to reducing losses
from fluid-filled cables and, during ED1, plans to replace a
significant number of those assets on a phased and prioritised
basis and to increase the use of perfluorocarbon tracers to improve
the efficiency of oil leak identification.
The Group's safety performance continued to be strong, with
Northern Powergrid recording an Occupational Safety and Health
Administration ("OSHA") rate of 0.1 (2013: 0.3) and IUS recording
an OSHA rate of zero (2013: 0.5), such that the Group made an
effective contribution to the Northern Powergrid Group delivering
its best ever safety performance and the long-term trend in the
Group's overall safety performance continued to compare well with
that of the industry. The Group either met or beat all of its main
internal targets in respect of lost time, restricted duty and
medical treatment accidents, operational incidents and preventable
vehicle accidents.
In 2014 IUS was successful in increasing its revenue by GBP8.8m
(26%) over the previous year due mainly to higher activity levels
on substation installation projects for Network Rail, increased
activity levels for the installation of Multi Utility projects due
to an improvement in the new housing market and the successful
completion of work on a major power supply upgrade project for the
Ministry of Defence.
Northern Powergrid Metering Limited commenced trading during the
year and delivered a satisfactory performance securing contracts
with energy suppliers for the provision of smart meters in the
United Kingdom and Ireland and pursued business development
opportunities with other energy suppliers in advance of the full
smart meter roll-out programme.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES
Financial strength
During the year, the Group continued to maintain good control in
respect of both its capital and operating costs by effectively
managing the various financial risks that could have had an adverse
impact on its business.
Northern Powergrid benefited from the stability provided by the
arrangements agreed in respect of DPCR5 in terms of its income
until 31 March 2015 and, notwithstanding Northern Powergrid's
appeal to the CMA, the ED1 price control has been set for eight
years with provision for a mid-period review of the outputs that
Northern Powergrid is required to deliver. In that respect,
Northern Powergrid 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 Group's revenue at GBP409.5 million was GBP58.6 million
higher than the prior year mainly due to the five-year profile of
allowed revenues inherent in the DPCR5 price control formula and
additional contracting volumes. In addition, 2013 included the
voluntary rebate made to the electricity suppliers.
Operating profit and position at the year end
The Group's operating profit at GBP210.7 million was GBP29.9
million higher than the previous year, reflecting increased
revenues partly offset by a higher level of exit charges included
in costs of sales, additional contracting volumes and increases in
some operating costs such as salaries and maintenance. The
consolidated statement of financial position on pages 37 and 38
shows that, as at 31 December 2014, the Group had total equity of
GBP886.9 million. The directors consider the Group to have a strong
statement of financial position which, when coupled with the
preference of its parent company, Berkshire Hathaway Energy Company
("Berkshire Hathaway Energy"), for operating with lower levels of
debt than equivalent companies in the sector, creates a stable base
for continued strong performance into ED1 by Northern
Powergrid.
Finance costs and investments
Finance costs net of investment income at GBP33.2 million were
broadly in line with the prior year.
Taxation
The effective tax rate in the current year is 21.3%. Details are
provided in Note 7 to the accounts.
Results and dividends
The Group made a profit after tax for the year of GBP140.2
million (2013: GBP132.4 million). An interim dividend of GBP30.0
million was paid during the year (2013: GBP30.0 million) 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.
Dividend policy
The Company's dividend policy is that dividends will be paid
only after having due regard to available distributable reserves,
available liquid funds and the financial resources and facilities
needed to enable the Company to carry on its business for at least
the next year. In addition, the level of dividends is set to
maintain sufficient equity in the Company so as not to jeopardise
its investment grade issuer credit rating.
Cash flow
The Group 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 Group.
Movements in cash flows were as follows:
Operating activities: Cash flow from operating activities at
GBP155.5 million was GBP24.6 million higher than the previous year.
Higher profits were offset by adverse working capital
movements.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Financial strength - continued
Cash flow - continued
Investing activities: Net cash used in investing activities at
GBP186.4 million was GBP11.9 million higher than the previous year,
reflecting net capital expenditure.
Financing activities: The net cash from financing activities at
GBP10.7 million represents a GBP11.2 million favourable variance
compared to the previous year, reflecting net movements in
borrowings in the year.
Liquidity risk
Northern Powergrid has access to GBP75 million under a five year
committed revolving credit facility provided by Lloyds Bank plc,
The Royal Bank of Scotland plc and Abbey National Treasury Services
plc, which expires on 20 August 2017. Northern Powergrid expects to
raise further facilities, as required, at that time.
In addition, the Group has access to further short-term
borrowing facilities provided by YEG and to a GBP19 million
overdraft facility provided by Lloyds Bank plc, which is reviewed
annually.
The directors do not consider there to be any doubt over the
Group'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 Group 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 2014, 100% of the Group's long-term
borrowings were at fixed rates and the average maturity for these
borrowings was 14 years.
Currency risk
No material currency risks are faced by the Group.
Pensions
The Company is the principal employer of the Northern Powergrid
Group of the Electricity Supply Pension Scheme (the "Scheme"), a
defined benefit scheme. Full details of the Company's commitments
to the Scheme and the associated deficit repair payments are
provided in Note 24 to the accounts.
Companies in the Group also participate in the Northern
Powergrid Pension Scheme, which is a defined contribution
scheme.
Insurance
As part of its insurance and risk strategy, the Northern
Powergrid Group has in place 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, Northern Powergrid 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. Northern Powergrid remains
focused on delivering a reliable and dependable supply of
electricity and a high standard of service to its customers.
Customer service improvements are a priority for Northern
Powergrid, which is consistently ranked in the lower half of
Ofgem's customer service league tables. Northern Powergrid has a
long-term goal to improve this ranking and has a programme of
actions in place to support this improvement.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Customer service - continued
Investment is being channelled to improve the reliability of
under-performing parts of the distribution network by continuing to
identify "hot spots" of particularly poor network performance and
taking specific action to address the issues in those areas. In the
customer service support areas, further investment is being
directed toward information technology to improve contact with
customers, provide quicker and more accurate information to
customers and allow customers to communicate with Northern
Powergrid in a range of accessible and easy ways.
Northern Powergrid has built on the industry-leading
communications and engagement approaches used to support its
regulatory business plan and maintains a number of engagement
channels. Three independently chaired expert panels continue to
play a key role in challenging Northern Powergrid's plans,
monitoring its performance and helping to deliver innovative
initiatives and services. Guided by these panels, Northern
Powergrid has been able to direct effort towards public meetings in
the new operating zones, community energy workshops aimed at
enhancing the take-up of low-carbon technologies and wider
collaborations such as with other utilities via Infrastructure
North. The feedback received as part of the stakeholder engagement
process helped Northern Powergrid further to develop its customer
service improvement programme.
The evolving requirements to demonstrate a transparent and
market-reflective service in new connections mean that further
developments are planned in this area of Northern Powergird's
business, including using the web site to provide more information
such as self-service quotation facilities for customers seeking low
voltage connections. The regulatory arrangements that apply to the
connections activity are described in more detail under
"Connections to the network" below.
In common with other DNOs, Northern Powergrid is participating
in the national project looking at creating a single national
three-digit enquiry number for power cut calls and is leading
several sub-groups within this project.
The performance of the DNOs against guaranteed standards, which
are set for activities such as restoring supplies after power cuts,
provides a measure of the level of customer service. Performance
against these measures forms part of Northern Powergrid's regular
reporting to Ofgem.
Ofgem's incentive scheme for quality of service, by which the
DNOs are provided with financial incentives, is based upon targets
set by Ofgem with regard to each DNO's performance in terms of the
number of power cuts, the duration of those power cuts and customer
satisfaction.
Customer minutes lost ("CML") and customer interruptions ("CI")
are the key performance indicators used by Northern Powergrid to
measure the quality of supply and system performance. CML measures
the average number of supply minutes lost for every connected
customer due to both planned and unplanned power cuts that last for
three minutes or longer. CI measures the average number of supply
interruptions for every 100 connected customers due to planned and
unplanned power cuts that last for three minutes or longer.
In respect of these key customer service performance indicators,
the goal is to achieve performance that is below Ofgem's target
number in respect of CML and CI. Northern Powergrid's reported
performance for the regulatory year to 31 March 2014 (the
"Regulatory Year") was as follows:
Year to 31 March 2014 Year to 31 March 2013
Actual Target Actual Target
CML: 64.7 70.7 70.2 70.9
CI: 63.2 68.1 65.0 68.2
Performance in the Regulatory Year was better than Ofgem's
target for both CML and CI, showed improvement in both categories
in comparison with the previous regulatory year and contributed to
Northern Powergrid's efforts to improve its customer service
performance.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Customer service - continued
The Regulatory Year was the fourth year in which the Ofgem
discretionary reward for stakeholder engagement had been in
operation and the second year that a financial incentive had been
available. In May 2014, Northern Powergrid put forward a submission
to Ofgem in respect of its stakeholder engagement during the
Regulatory Year, which included initiatives with increased focus on
Northern Powergrid's social obligations, such as its partnership
with the Trussell Trust food banks, and improved on-line services
for its customers.
Northern Powergrid presented its submission to Ofgem's panel on
9 July 2014 and improved its position from the previous year, being
ranked as the second placed DNO group and securing a reward of
GBP0.9 million for the Northern Powergrid Group, which will be
received during the regulatory year ended 31 March 2016. Northern
Powergrid intends to reinvest its reward in its key initiatives and
to continue to build on this strong stakeholder engagement
performance.
Under the Broad Measure of Customer Satisfaction, an independent
market research company, Accent, carries out telephone surveys with
Northern Powergrid's customers to find out how satisfied they are
with the services provided. During the Regulatory Year, Accent
surveyed a number of customers who had contacted Northern Powergrid
regarding an unplanned or a planned power cut, had requested a
price quotation and a subsequent connection or had a general
enquiry where a service had been provided or a job completed.
Northern Powergrid recorded an overall satisfaction score of 81.8%
for the Regulatory Year and expects that its customer service
improvement plan, including the range of initiatives noted on page
7, will improve the services provided to customers and so increase
the satisfaction rating year-on-year.
While recognising that its customer service performance can be
improved, Northern Powergrid made steady progress during the year
with its customer satisfaction scores continuing to improve, its
performance to reduce service failures meeting target, its
connections lead times steadily shortening and it continuing to be
an industry leader in terms of social obligations and stakeholder
engagement.
Connections to the network
During 2014, Northern Powergrid continued to improve the
connections services provided to its customers, while also actively
facilitating the development of competition from independent
connections providers ("ICPs"), so providing increased choice to
customers in the region. Northern Powergrid continued to engage
regularly with its connections customers in groups and
individually, holding monthly customer surgeries, twice yearly
customer events and contributing to national stakeholder forums and
events.
An online application process allows customers to apply for
certain types of new connection quickly, easily and conveniently
and work continued on developing an online self-quotation service
for high volume connections customers which, when launched, will
deliver a significant reduction in the overall time to serve those
customers. Other enhancements to Northern Powergrid's online
connections services included:
- Simplifying the solar panel installation form;
- Improving the accessibility of information and designing new
reports for connections customers;
- Providing the ability to upload site plans and other
attachments to online connections applications; and
- Upgrading the online shrouding service so allowing customers
to see all their jobs in one place.
As part of the DPCR5 final proposals, Ofgem put in place a
competition test to encourage all of the DNOs to make it easier for
ICPs to provide competing offers to customers and, in line with
Ofgem's deadline for submission, Northern Powergrid put forward a
case to Ofgem, in the form of the requisite Competition Notices, to
prove that competition exists in eight market segments. This was in
addition to the high voltage segment, in respect of which Northern
Powergrid passed Ofgem's test in October 2012. Having considered
and consulted on Northern Powergrid's Competition Notices, Ofgem
announced, on 17 April 2014, that it had not accepted any of the
alternative market segments proposed by Northern Powergrid and,
therefore, was not allowing an unregulated margin to be charged in
any of those segments because it did not have sufficient evidence
that customers' interests would be protected if that price
regulation were removed.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Customer service - continued
Connections to the network - continued
ED1 will see the introduction of an incentive in respect of
customers requiring large connections to the network, which is
known as the Incentive on Connections Engagement ("ICE"), so that
the needs of those customers can be met more effectively. Under
ICE, Northern Powergrid will be required to submit two documents to
Ofgem. One document will be submitted at the start of each
regulatory year and will set out Northern Powergrid's commitments
to improve its large connections services. The second document will
be submitted shortly after the end of that regulatory year and will
report on how Northern Powergrid performed in respect of those
commitments.
Ofgem has been trialling ICE in relation to distributed
generation ("DG") customers only and, in June 2014, Northern
Powergrid submitted its report to Ofgem regarding its performance
in respect of DG customers during the Regulatory Year, which
outlined how Northern Powergrid had engaged with those customers
and provided a number of examples of how Northern Powergrid had
acted on the feedback from that engagement. Those examples included
creating a 'Simplifying Distributed Generation' guide to better
inform DG customers about how DG is connected to the network and
giving guide prices for different options, making the legal and
wayleave processes more efficient, extending the quotation validity
period from 60 to 90 days and providing a decision-support tool on
the web site that allows DG customers to narrow the application
choices based upon questions about their projects.
Northern Powergrid provided its submission looking forward for
the regulatory year ended 31 March 2015 in April 2014, which
included details of the DG service improvement plan. That plan was
finalised following significant consultation with stakeholders and
seeks to deliver an efficient and effective connections service for
DG customers. The plan includes measures for making the application
process easier and quicker, ensuring accurate information is
readily available, exploiting developments in technology and
continuing to invest in communication events and channels.
In that respect, Northern Powergrid continues to seek feedback
from its customers on a regular basis in order to assist with
developing further improvements to its services. The services
provided in future will be tailored to the requirements of
customers in the different market segments so that Northern
Powergrid provides a faster and more flexible service.
Corporate responsibility
Northern Powergrid values its relationship with its customers
and other stakeholders and recognises the importance of maintaining
a secure and safe power supply for its customers and their local
communities. That commitment is underpinned by five customer
promises, which are to put safety first, to respect Northern
Powergrid's customers, their time and property, to do a really good
job, to be there when needed and to care for the local
environment.
Northern Powergrid maintained its 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 addition, Northern Powergrid 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 responded well to the weather-related
incidents, which impacted on its assets during the year. However,
effective investment in the network and the relatively benign
weather experienced in 2014 meant that Northern Powergrid only
invoked its major incident management plan on one occasion in order
to deal with high winds that affected the region in February.
As well as redeploying staff from planned works to help restore
power as quickly as possible when major incidents occur, Northern
Powergrid has a number of customer service vehicles, which are
dispatched to the areas affected. Those vehicles are able to
support the distribution of hot drinks and microwave meals and
generally assist with the welfare of customers in order to
alleviate the impact of the incident. Northern Powergrid also
utilises its 'customer ambassadors' and customer liaison officers,
who are allocated to each of the new operating zones, to address
customers' concerns and resolve their complaints and worked with
the British Red Cross in order to pay particular attention to the
welfare of customers on the priority service register so that those
customers are kept informed of the situation throughout the event
and after the power has been restored.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Customer service - continued
Corporate responsibility - continued
Northern Powergrid engaged with some of its more vulnerable
customers, the people that represent them and other experts to
better understand and inform how it can support those customers.
That engagement included telephone interviews with a thousand
customers on the priority service register, regular interaction
with Northern Powergrid's social issues group and focus groups with
experts facilitated by voluntary sector organisations. As a result,
Northern Powergrid continued to improve the quality of the
information held on the priority service register, promoted the
benefits of being on that register more widely, including via a
radio advertising campaign, and entered into an agreement with the
umbrella organisations for the voluntary, community and charity
sector in the region to tell their members about the priority
service register and the wider support available for vulnerable
customers.
The Group has in place a small donation programme, which is
focused on its key priorities of support for youth, education and
the environment and from which grants were made during the year to
organisations such as charitable trusts and community groups.
Safety remains the Group's first priority and underpins every
aspect of its operations. During the year, Northern Powergrid
continued to participate, alongside other key organisations, in
'Crucial Crew', which is a schools-based safety initiative that
teaches children to recognise and avoid situations that put them in
danger, such as climbing electricity pylons and fishing near power
lines. Northern Powergrid's school safety programme included
Crucial Crew events, school visits, participation in safety days
and the "prison me - no way" campaign and is delivered by two
dedicated safety presenters who promote the safety messages through
an interactive presentation. The programme is also supported
through an interactive website and mobile phone game.
Operational excellence
The Group's core service continues to be providing and
maintaining an efficient distribution network that delivers
electricity effectively. During the year, GBP199.6 million was
invested in the improvement of the distribution network, a similar
amount to the record of GBP200.0 million in the previous year.
Northern Powergrid's continued and substantial investment in its
distribution network saw reliability increase throughout DPCR5.
During that period, an electricity supply was available to Northern
Powergrid's customers for approximately 99.98% of the time and
Northern Powergrid has generally outperformed the targets set by
Ofgem in respect of CI and CML. Northern Powergrid's inspection and
maintenance regimes have ensured that the underlying health of the
network assets has been sustained and none of the leading
indicators used by Northern Powergrid suggest any diminishing
performance in this respect in the future.
Operational activity
Northern Powergrid continued to implement its approved network
investment strategy, which is designed to deliver improvements in
an efficient and cost-effective manner in order to improve the
network's resilience. Northern Powergrid is committed to enhancing
the reliability of the network such that fewer power cuts affect
customers and, when power cuts do happen, they are shorter in
duration.
Northern Powergrid changed its Field Operations structure during
2014 in order to tailor its services and response to the needs of
customers and local communities by delivering improved performance
standards in the restoration of power following power cuts and in
new connection activities for small works. That structure is now
organised into new operating zones around the main conurbation of
Tyne & Wear, the industrialised area around the Tees and the
rural areas of Northumberland, Durham, and North Yorkshire,
including the Dales, the Vale of York and the North Yorkshire
Moors.
The zonal structure is supported by several areas within Field
Operations which remain functional, which are Network Operations,
which provides the day-to-day and real time management of the
network, Programme Delivery, which is responsible for the
inspection, maintenance and replacement of operational assets and
includes larger customer-driven connection and diversion
activities, and Operational Services, which includes supply chain
management and support services.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Operational excellence - continued
Operational activity - continued
As a new guaranteed standard for the restoration of supply
within 12 hours of a power cut occurring came into effect from 1
April 2015, Northern Powergrid's new operational structure will
provide a more localised focus and, therefore, improved response
times in the event of a power cut. Northern Powergrid has also
invested in technology to support its drive to improve response
times and introduced the automated power restoration system
("APRS") into its existing network management system so that, in
the event of a high voltage fault, APRS will analyse the
information presented by intelligent assets installed on the
network and, from that information, determine where the fault is
located and execute switching to restore power to the 'healthy'
network. Northern Powergrid expects that APRS will significantly
improve the service to customers due to the speed with which it can
understand the information presented and then complete the
switching required to restore power. The system aims to isolate the
fault and restore power to the remainder of the network in a safe
manner in under three minutes. Where permanent repairs are
necessary to restore the remaining customers on the faulted and
isolated part of the network, if Northern Powergrid fails to meet
the 12 hour standard, it will make an automatic payment to those
customers whenever it is aware of such a failure, rather than
customers having to make a claim.
Northern Powergrid's priorities during the year included
delivering a significant level of capital expenditure on the
network as in the previous year, a further reduction in the average
level of fault repair work in progress, a robust approach to the
control of operations on the low voltage network and continued
focus on the restoration times associated with both high and low
voltage power cuts, with Northern Powergrid's high voltage
restoration performance averaging some 59.7 minutes (2013: 64.0
minutes), after allowing for severe weather incidents and other
exemptions. During the year, Northern Powergrid substantially
completed the outputs committed within the DPCR5 price control
period, allowing final completion of all outputs in advance of the
price control end date of 31 March 2015.
The major projects undertaken during the year in support of
those targets and as part of Northern Powergrid's investment
strategy included:
- Replacement of 66kV circuit breakers at Coalburns, Fossway, Toronto and North Tees;
- Replacement of primary switchgear at Northallerton and
Spencerbeck and primary system transformers at Harraton, Barrack
Road, Maddison Street and Bowesfield;
- Completion of extensive refurbishment works at Tynemouth Central;
- Reinforcement of the primary network in Sunderland was
substantially completed with the installation of a new 66/11kV
substation which will enable completion of the conversion of the
distribution network from 20kV to 11kV during 2015;
- Reinforcement in the Knaresborough area to connect to the
previously constructed Knaresborough 132kV substation;
- Installation of a 33kV cable interconnection in Harrogate and
of a new 132/66kV transformer and 66kV switchgear at
Potterhouse;
- 44 km of primary system underground cable was replaced,
including removal of 26 km of oil-filled cable and 18 km of gas
insulated cable;
- In excess of 250 overhead line towers and over 100 extra-high
voltage wood pole structures were replaced either as part of a
circuit rebuild or individually based on condition;
- 181km of high voltage overhead line and 105km of low voltage
overhead line was rebuilt and/or refurbished;
- 28 units of high voltage outdoor switchgear, 17 high voltage
distribution substations and 169 units of high voltage indoor
switchgear were replaced; and
- 421 additional remote control points were added to the distribution network.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Operational excellence - continued
Operational activity - continued
In order to deliver its investment strategy, Northern Powergrid
used a mix of its own staff and contractors to undertake its
activities, including affiliated companies in the Northern
Powergrid Group.
Employee commitment
Health and safety
The focus on health and safety continued to be of paramount
importance for the directors, as it is for all employees. There is
a continuous drive for improvement in safety performance through
the setting of challenging goals and the pursuit of a comprehensive
safety and health improvement plan, which reflects the Group's
fundamental objective that none of its staff should go home injured
and all employees should commit to behaving safely all of the time.
The Group makes no compromise in respect of its health and safety
obligations and centres its safety plans and systems on the
principles found in companies with world class safety
performance.
The Group's safety record over a number of years suggests that
it is one of the safest in the electricity distribution and
engineering contracting sectors and it will strive to maintain that
position over the coming years. Having identified issues that may
pose an increased safety risk such as metal theft and the impending
roll-out of smart meters, the Group is implementing various
measures through its safety and health improvement plan that will
build incrementally on the existing strong safety record and ensure
that safety considerations are always a part of the investment
decision-making and appraisal process.
One of the key deliverables in the Northern Powergrid Group's
safety and health improvement plan has been to raise awareness and
improve the concentration skills of the operational engineers and
other employees via face-to-face and online training courses, which
contributed to delivery of the Northern Powergrid Group's best ever
operational incident performance with the number switching issues
being experienced on the high voltage network reducing to 13 in the
year for the Northern Powergrid Group, five of which occurred in
Northern Powergrid's distribution services area and one in IUS. As
part of the safety and health improvement plan, the Northern
Powergrid Group also delivered operational seminars and stand down
briefings and issued regular safety newsflashes to staff in order
to cascade information on safety trends, issues and incidents. The
Group's safety and health improvement plan targets continuous
improvement and delivery of the various initiatives contained in
that plan contributed to Northern Powergrid recording an OSHA rate
for the year of 0.1 (2013: 0.3) and IUS an OSHA rate of zero (2013:
0.5).
The Group uses several key performance indicators to monitor
safety performance, with the goal of achieving performance that is
below the target number. The main key performance indicators are as
follows:
2014 2013
Target Actual Target Actual
Lost time accidents 1 1 1 3
Restricted duty accidents 1 0 1 0
Medical treatment accidents 2 0 2 0
Operational incidents 6 6 4 9
Preventable vehicle
accidents 13 11 13 13
The number of lost time accidents experienced by the Group
reduced to one in the year as opposed to three experienced in 2013
and the Group did not record any medical treatment or restricted
duty cases. In addition, performance in respect of preventable
vehicle accidents was two accidents below the target for 2014 and
showed an improvement compared with 2013. None of those incidents
gave rise to any significant safety-related risks.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Employee commitment - continued
Health and safety - continued
In common with the Berkshire Hathaway Energy group, the Northern
Powergrid Group measures its safety performance in terms of the
OSHA rate, which is a measure used in the United States to capture
safety incidents down to minor levels of medical treatment, such as
a stitch or the use of prescription pain killers. As part of its
plan to reduce the OSHA rate across the group, Berkshire Hathaway
Energy issues daily e-mail updates in respect of performance
against its overall OSHA rate and preventable vehicle accident
targets, which include information on incidents that have
occurred.
Delivery of the various initiatives in the safety and health
improvement plan also contributed to the Northern Powergrid Group
achieving an OSHA rate of 0.26 against a target of 0.4, which
equated to only six recordable incidents and represented the best
ever performance.
As part of the safety and health improvement plan and in order
to reinforce the operational safety values, the Northern Powergrid
Group continued to implement its cross-business operational
assurance audit programme and its senior management field
engagement programme in order to improve two-way communication on
safety and other key business issues. The Northern Powergrid Group
continued to implement a robust road risk management plan, which
involved electronic driving licence checking, delivering road risk
awareness workshops to new employees and using risk reduction tools
such as online driver assessment and training followed by an
on-road refresher training session if required. The driver training
programme provides practical driving training to a targeted
population of drivers and is the primary route to improving driver
skills in the longer term. Recognising that driving is one of most
hazardous activities undertaken on a daily basis, the programme
will be expanded further in 2015 via an interactive, web-based
system designed to assess skills and provide targeted training
based on the assessment.
During the year, Northern Powergrid and IUS were awarded
President's Awards from the Royal Society for the Prevention of
Accidents for achieving 13 and 11 consecutive Gold Awards
respectively in recognition of achievements in 2013 and for
continued or improving standards of health and safety over a
sustained period. Northern Powergrid's health and safety management
systems were subject to the regular bi-annual external
surveillances and, on conclusion of those assessments, the auditor
recommended that Northern Powergrid maintained its OHSAS 18001
accreditation.
The sickness absence rate across the Northern Powergrid Group
for 2014 was 2.32% (2013: 2.22%), which was similar to that
experienced in 2013 and does not give rise to any particular cause
for concern.
Management structure
Operational management of the Northern Powergrid's business and
that of its affiliate, Northern Powergrid (Yorkshire) plc, is
undertaken by a single senior management team, with specific
functional responsibilities. Those functional responsibilities are
in respect of field operations, health, safety and environment,
asset management (including procurement), commercial (including
customer service, new connections to the network and stakeholder
engagement), regulation and strategy, human resources, organisation
development, legal and finance (including property management and
information technology). Certain of those functions also provide
services across the Northern Powergrid Group. IUS has its own,
separate management team and Northern Powergrid Metering Limited
utilises staff employed by other companies in the Northern
Powergrid Group, in respect of whom it bears the relevant
costs.
Employees
The Group continued to apply appropriate control to its
headcount policy and to place significant emphasis on the
importance and application of high standards of management and
performance in support of the Core Principles. The Group ensures
that a level of consistency is adopted in so doing and, in respect
of employee relations, continued to build constructive and
partnered relationships with the trades unions. In that respect,
the Group has or is working towards securing long-term pay
agreements with the various employment groups such that the
relevant terms and conditions are fair and appropriate across the
Northern Powergrid Group.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Employee commitment - continued
Employees - continued
Given the demographics of Northern Powergrid's workforce, the
level of investment being made in the distribution network and
following on from the principle introduced in DPCR5 to fund plans
for workforce renewal in order to encourage investment in a
sustainable workforce, the Northern Powergrid Group has made a
commitment to recruit an average of 100 trainees a year under its
workforce renewal programme over the next eight years. The Northern
Powergrid Group recruited a total of 126 members of staff in 2014
and 60 trainees who were recruited under the workforce renewal
programme in previous years graduated from their training
programmes and commenced work as part of the Northern Powergrid
Group's operations.
The Group is committed to proper business conduct and, in common
with Berkshire Hathaway Energy, 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 members of staff are able
to raise any instances of unethical acts, malpractice or
impropriety. An additional process is also available to all staff
via an international, anonymous help line operated by an
independent company.
In order to support the welfare of its employees, the Northern
Powergrid Group launched an employee assistance programme in
September 2014, which is provided by an independent company that
supports over 350 organisations in the UK. The programme is a
confidential, self-referral counselling and information service to
assist with personal or work-related problems that may be affecting
health, wellbeing or performance and is available 24 hours a day,
365 days a year. The services available include health, wellbeing
and family-care information, financial information and debt
counselling and legal guidance.
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 Group employed 1,277 staff at the end of December 2014
(2013: 1,303).
Environmental respect
The 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 Berkshire Hathaway
Energy. These policies and their subordinate operational control
procedures and systems address compliance with legal and other key
environmental requirements, pollution prevention and continual
improvement and also promote environmental awareness and best
practice amongst the Group's staff and contractors.
The Group 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 surveillance assessment carried out
by Lloyd's Register Quality Assurance in September 2014. The
assessment closed out all existing minor non-conformances
highlighted at the previous full recertification audit so leaving a
balance of zero minor non-conformances to be addressed. The report
also noted that significant improvements had been made to the
environmental management system over the past three years.
Procedures and processes have been reviewed and developed to
improve the effectiveness of the aspects register, legal register
and internal audits. Operational controls at depots were also seen
to have significantly improved over the past three years which
supported the reduced number of minor non-conformances raised at
surveillance visits. There were no major non-conformances noted and
continued certification was recommended and subsequently
confirmed.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Environmental respect - continued
Improvements in support of the Group's environmental policy
objectives continued to focus on replacing selected fluid-filled
cable sections with non-fluid polymeric equivalents, replacing
oil-filled circuit breakers with vacuum and sulphur hexafluoride
gas filled units at outdoor substations to reduce the potential for
oil leakage and using gas tracer technology to locate cable fluid
leaks quicker, where it was practicable to do so. The Group also
provided environmental awareness training for all new personnel and
contractors and periodic refresher training for all staff via an
online system to avoid the need for travelling to central training
locations.
These improvements supported Northern Powergrid in delivering
its most successful year in terms of environmental performance.
Only two incidents were reportable to the Environment Agency, which
was significantly ahead of the target of 10, oil spills and leaks
from Northern Powergrid's assets were 1% better than the target of
14,000 litres and SF(6) gas discharges from electrical plant were
41% better than the target of 26 kilogrammes. In addition, Northern
Powergrid recycled more of its waste than before and maintained its
positive performance with regard to street works. Work continued
with many of Northern Powergrid's key stakeholders, including the
Environment Agency, to enhance the advanced environmental
management processes already in place and, in 2015, Northern
Powergrid plans to maintain this progress so that the impact on the
environment in which it works is reduced and the most effective
ways of doing so are utilised.
The Group's commitment to the Environmental RESPECT policy and
its improved overall performance shows that it is committed to
keeping its impact on the environment to a minimum. Northern
Powergrid benefitted from the process of preparing its
well-justified business plan, which involved engaging directly with
the Environment Agency in respect of a number of issues and will
continue with that engagement in order to maintain strong and open
relationships with its various environmental stakeholders,
particularly in respect of the network's visual impact.
Northern Powergrid plans to mobilise significant programmes
during ED1 to replace fluid-filled cables and place overhead lines
underground in national parks, reduce electrical losses and
implement further improvements to the network that take account of
protected structures, features, areas, wildlife and habitat. Bird
life will be protected by placing bird-diverters on power lines
where they are in proximity to nature reserves, wetlands, flight
paths or in locations where rare species of bird are known to live
or breed and also in response to information obtained from incident
trends.
Sustainability
The Group's activities have an important part to play in the
United Kingdom's transition to a low carbon economy, both in its
capacity as a major participant in the United Kingdom energy
industry and in terms of its own carbon footprint. As the country
takes action to make significant reductions in its carbon
emissions, the way electricity is produced and used is expected to
have a significant impact on the electricity network over time.
Northern Powergrid is taking actions to develop innovative
solutions so that its network will be ready to handle the energy
flows its customers need when required. In addition, Northern
Powergrid is working with customers to assist in solving issues
raised by the installation of low-carbon generation and
technologies. Northern Powergrid is also actively involved in
working with the industry and other interested parties to develop
national policies and strategies to assist the low-carbon
transition.
The Northern Powergrid Group measures and publishes details of
its business carbon footprint. Over the first four years of DPCR5,
the Northern Powergrid Group reported a 16% reduction in its
business carbon footprint (which includes work undertaken on the
Northern Powergrid Group's behalf by its contractors but excludes
electrical losses) and it has set a target to reduce its carbon
footprint by a further 10% by the end of ED1. As at the date of
these accounts, the business carbon footprint for the year ended 31
December 2014 is being calculated and verified. In line with
Ofgem's requirements, Northern Powergrid has contributed to the
sustainability agenda through public reporting on its carbon
footprint and its reporting framework is certified under CEMARS
(the Certified Emissions Measurement and Reduction Scheme) for
compliance with ISO 14064.
The number of installations by customers of low-carbon
technologies such as photovoltaic solar panels and heat pumps
continued to increase during the year. The greater range of load
and generation technologies being placed on the network arising
from the decarbonisation of energy means that Northern Powergrid
needs to develop smart solutions that avoid the need for expensive
reinforcement of the network. In that respect, the Northern
Powergrid Group's Customer-Led Network Revolution project, which
reached the formal project completion milestone on 31 December
2014, aimed to learn how novel network technology and changes in
customers' energy usage habits may lead to the speedier and lower
cost connection of low-carbon technologies to the network.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Environmental respect - continued
Sustainability - continued
Approximately 11,000 residential and 2,000 industrial and
commercial and distributed generation customers participated in the
trials conducted by the project with residential participants
including customers with smart meters on time of use tariffs, heat
pumps, solar photovoltaic panels and electric vehicles. Some 17MW
of industrial and commercial scale demand side response was
implemented and a wealth of customer insight and analysis was
gained in internationally ground-breaking research into customers'
energy practices.
The project trialled an active network management system, which
is one of the most sophisticated wide area control schemes in
operation in Europe, a range of novel network technologies were
installed and commissioned and approximately 200 trials of
electrical energy storage, voltage control and real-time thermal
rating were undertaken. Advanced modelling techniques were created
that predicted and validated the physical trials and facilitated
the learning for its application across Great Britain.
Consequently, the Northern Powergrid Group believes that the
project has delivered significant learning and a comprehensive
legacy. It developed practical guidance including the prototype
Network Planning and Design Decision Support tool, as well as
policy recommendations and equipment specifications, made
recommendations to update the United Kingdom electricity industry's
technical network planning standards and delivered insight into
potential future commercial arrangements and learning on the
practicalities of delivering end solutions that are compatible with
customers' needs.
Northern Powergrid's plans for ED1 include further development
of the learning delivered by the project to support the evolution
of a sustainable network, which will include enabling technology,
reinforcement of the network to alleviate the constraints
associated with low carbon technologies and supporting the roll-out
of smart meters. Northern Powergrid believes that its plans will
not only create some immediate benefits for customers during ED1
but also pave the way for much greater benefits after 2023.
Regulatory integrity
The Group manages its business to the highest behavioural
standards and adheres to a policy of strict compliance with all
relevant standards, legislation and regulatory conditions. The
Governance and Risk Management Group ("GRMG") monitored and managed
performance in risk-related and compliance areas and met on three
occasions during the year.
As has been the case for some years, breaches by a DNO of its
licence conditions could lead to financial penalties, which Ofgem
has stated "will have a proportionate impact on shareholder
returns". In order to assure compliance with licence and other
regulatory obligations, Northern Powergrid operates a regulatory
compliance affirmation process, under which ownership of
approximately 1,720 regulatory obligations contained within the
compliance database is currently assigned to around 65 responsible
managers. Those responsible managers are required, on a quarterly
basis, to review compliance with the relevant obligations that have
been assigned to them for certification and report on any
identified non-compliances or perceived risks to the compliance
process, which are then addressed. The Regulation Manager reports
to the board of directors of Northern Powergrid 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 Northern Powergrid under the
losses incentive scheme. Northern Powergrid engaged with Ofgem and
other industry participants between 2010 and 2014 in order to
resolve the complex issues surrounding the losses incentive
arrangements for both the current and previous price control
periods.
Ofgem removed the DPCR5 losses incentive and, on 21 March 2014,
published its decision on the restatement of the 2009/2010 data and
closing out the Distribution Price Control Review 4 ("DPCR4")
losses incentive, together with details of the final sums to be
returned by Northern Powergrid during ED1. One party to the
arrangements subsequently requested leave to appeal Ofgem's
decision but was not granted permission to do so, effectively
bringing the overall process to a conclusion. In accordance with
International Financial Reporting Standards, the Group has not
included any recognition of the close out of DPCR4 losses incentive
in these Accounts.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
CORE PRINCIPLES - continued
Regulatory integrity - continued
Under the new RIIO (revenue = incentives + innovation + outputs)
model for regulation, price controls are set for eight years
(rather than five as has previously been the case), with provision
for a mid-period review of the outputs that network companies are
required to deliver. Ofgem triggered the ED1 review process in the
first quarter of 2012 and published its final determination in
November 2014.
The final determination sets out allowed revenues and rules, by
which Ofgem expects to adjust these revenues in certain
circumstances during ED1. Under Ofgem's proposals, excluding the
effects of incentive schemes and any deferred revenues from DPCR5,
Northern Powergrid's base allowed revenue will decrease by
approximately 18% in the regulatory year to 31 March 2016 before
the addition of inflation, as measured by RPI, in order to derive
the final price change. In the following regulatory year, Northern
Powergrid's base revenues will decrease by a further 1% before the
addition of inflation. In subsequent regulatory years the base
allowed revenues will increase approximately in line with
inflation.
Under the new price control, Ofgem also intends to:
- derive and update the allowed cost of debt by reference to a
long-run trailing average based on external benchmarks of utility
debt costs;
- lengthen the period over which new regulatory assets are
depreciated, from the current 20 years to 45 years, with the change
being phased over eight years;
- adjust revenues during ED1, rather than at the next price
control review, to partially reflect cost variances relative to
cost allowances;
- adjust revenues in relation to some new service standard
incentives, principally relating to the speed of and service
standards for new connections to the network; and
- undertake a mid-period review and adjust revenues in the
latter half of ED1 for any changes in the outputs required of
licensees for certain specified reasons.
Many other aspects of the current price control remain in place
(either in their current or a similar form), including adjustments
to revenues in relation to the number and duration of service
interruptions and customer service standards.
In addition, network tariffs, from which actual revenues are
derived depending on the volumes of electricity distributed by
Northern Powergrid, will be set further in advance than is
currently the case.
Changes have also been made to the legislation that prescribes
the standards of service to be provided by the DNOs in specified
circumstances and payments to be made to end-customers for failure
to meet those standards. The most significant of these changes
reduced from 18 to 12 hours the time that is allowed for
restoration of supplies following an unplanned power cut in normal
weather conditions.
During the year, Northern Powergrid continued its voluntary
involvement with the other DNOs in developing and trialling more
formalised arrangements for assuring the accuracy of the
information returns submitted to Ofgem. This exercise has involved
the development of risk-assessment matrices and the preparation and
submission to Ofgem of a risk-based data-assurance plan, followed
by the submission of a report detailing the assurance work actually
carried out and the findings of that work. The DNOs have been
joined in the trial by transmission and gas distribution licensees
and the new regime will continue to be developed in the light of
experience gained. The finalised arrangements were incorporated
into the licences of all the network operators in April 2015.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties, which
could have an impact on the Group, its financial position and its
operations and may cause actual results to vary materially from
those expected or historically experienced. The principal risks are
outlined as follows:
Financial risk
As a holder of an electricity distribution licence, Northern
Powergrid 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 under
DPCR5 did not constrain profits from year to year but set the
maximum permitted revenue for each regulatory year and was a
control on revenue that operated independently of most of the
electricity distribution licence holder's costs. In ED1 the price
control formula will be adjusted in light of the costs incurred in
respect of every regulatory year. Where Northern Powergrid recovers
more, or less, than this maximum the difference is carried forward,
with interest. For amounts relating to the Regulatory Year, the
carry forward was into the entitlement for the regulatory year
ended 31 March 2015. For amounts relating to the regulatory year
ended 31 March 2015, the carry forward will be into the entitlement
for the regulatory year ended 31 March 2017, with the exception of
certain pre-specified amounts relating to the rebate made to energy
suppliers in 2013 which will be carried forward into the regulatory
year ended 31 March 2016.
Prior to and including DPCR5, it has been the practice of Ofgem
to review and reset the formula at five-year intervals, although
the formula has been, and may be, reviewed at other times at the
discretion of Ofgem. The price control for ED1 has been set for the
eight year period commencing on 1 April 2015 and it is Ofgem's
intention to use eight year price control periods in the future. A
resetting of the formula is now made by GEMA without the consent of
the electricity distribution licence holder but a licensee can
appeal to the CMA against a decision by GEMA to proceed with such a
modification. Certain other interested parties have the same right.
The five-year DPCR5 price control period became effective on 1
April 2010 and set Northern Powergrid's revenues through to 31
March 2015.
During the term of the price control, the rate of inflation as
measured by RPI is taken into account in setting Northern
Powergrid's allowed income in respect of each regulatory year.
Consequently, one of the risks faced by Northern Powergrid is that
its costs may increase by more than RPI. Any changes in costs
incurred will have a direct impact on Northern Powergrid's
financial results, as will changes in performance under incentive
schemes, such as in customer service, which can lead to adjustments
to allowed revenues.
Ofgem recognises that defined benefit pension schemes and,
particularly, the current deficit positions of various schemes,
represent a significant cost to the DNOs and, in its DPCR5 final
proposals, confirmed that DNOs would be allowed to recover the
actuarial value of the deficits attributable to a licensee's
distribution business in existence as at 31 March 2010 via its
regulated revenues (after an adjustment to reflect the residual of
unfunded early retirement deficiency costs as at 31 March 2010).
Ofgem re-affirmed these principles in its ED1 final
determination.
However, given the stable and regulated nature of the DNOs'
businesses, Ofgem took the view that a notional repair period of 15
years from 1 April 2010 was appropriate for the purpose of
assessing the DNOs' allowed revenues in respect of pension costs in
DPCR5.
The other financial risks facing the Group are outlined on page
6 of this Strategic Report.
Operational risk
There are a number of risks to Northern Powergrid's operational
performance in respect of which mitigating actions have been taken.
Appropriate credit cover arrangements are in place with the
electricity suppliers, which would allow recovery of defaulted
payments through the price control mechanism and a robust major
incident management plan is implemented whenever severe weather
impacts on the distribution network's performance. Metal theft
continued to be a significant issue for Northern Powergrid during
the year with the activities of metal thieves causing power cuts on
various occasions, which affected a large number of customers in
aggregate. In response, Northern Powergrid maintained the programme
of risk-assessed and enhanced security measures at its sites and
pursued awareness raising activity at a national and local
level.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Operational risk - continued
Northern Powergrid recognises that there are uncertainties
around the future take-up of low carbon technologies and the
resulting capacity requirements for the network and from the
fitting of smart meters throughout Northern Powergrid's
distribution services area, which is expected to result in a
requirement to address a substantial number of reported defects.
Northern Powergrid believes that it can effectively manage these
issues through its usual risk management practices.
Commercial risk
Managing commercial risk continued to be of key importance and
the Group remained focused on ensuring that its policies for credit
checking, payment terms, payment performance tracking and debt
management were strictly adhered to.
Northern Powergrid's relationship with its main customers is
governed by a distribution connection and use of system agreement
("DCUSA"), which is in place with each of those customers. Those
customers are the electricity suppliers who, under the terms of the
DCUSA, pay charges for the use of the distribution network, in
respect of which it is necessary to ensure that credit cover
arrangements in line with Ofgem's guidance remain in place. The
principal electricity suppliers that use Northern Powergrid's
network are RWE Npower, British Gas, EDF Energy, E.ON, Scottish and
Southern Energy and Scottish Power.
Northern Powergrid operates its business utilising a mix of
direct labour and contracted resource and has a range of contracts
in place with various service providers for delivery of its work
programmes, which are subject to regular market testing and
tendering exercises. Those services include vegetation management,
overhead line inspection and construction, substation construction
and maintenance, underground cable laying services, vehicle leasing
and servicing, tower painting and information technology services.
Northern Powergrid also has an extensive suite of contracts in
place for the procurement of all of the goods and equipment it
requires to deliver its capital expenditure programme and to run
its business, including for varying types of transformers,
switchgear and cables.
Risk Management
The Northern Powergrid Group operates a structured and
disciplined approach to the management of risk as part of its
overall risk management policy and, in DPCR5 and previous price
control periods, accepted and successfully managed substantial cost
and delivery risks by developing a culture of cost and risk
management over that period of time. Risks are 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 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. The risk management programme includes
regular review of the crisis management, disaster recovery and
major incident plans, which are periodically tested, the sharing of
best practice on disaster preparedness and response, penetration
tests against firewall systems and disaster recovery tests of IT
servers and priority processes and a peer review of the Northern
Powergrid Group's risk management systems by Berkshire Hathaway
Energy.
Risk management continues to be a central theme of senior
management priority setting as well as an explicit business process
that helps to 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
Berkshire Hathaway Energy 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
PRINCIPAL RISKS AND UNCERTAINTIES - continued
Risk Management - continued
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.
Internal Control
A rigorous internal control environment exists within the
Northern Powergrid Group based on regular reporting, a series of
operational and financial policy statements, investigations
undertaken by internal audit and a stringent process for ensuring
the implementation of any recommendations. Berkshire Hathaway
Energy requires a quarterly control risk self-assessment to be
undertaken by all senior managers as part of its programme for
compliance with the requirements of the United States
Sarbanes-Oxley Act and, while no significant areas of weakness have
been identified, any recommended improvements are implemented.
In addition, the Northern Powergrid Group employs comprehensive
business planning and financial reporting procedures, regularly
reviews key performance indicators to assess progress towards its
goals and has a strong internal audit function to provide
independent scrutiny of its internal control systems. The Northern
Powergrid Group has risk management procedures in place, including
the standards required by the United States Sarbanes-Oxley Act, and
has centralised treasury operations and established procedures for
the planning, approving and monitoring of major capital
expenditure.
The Northern Powergrid Group is committed to maintaining the
highest ethical standards in the conduct of its business and, in
that respect, implements Berkshire Hathaway Energy's code of
business conduct for employees. The code of conduct sets out and
emphasises the required standards and commitment to ethical
behaviour, provides reporting mechanisms for known or suspected
ethical issues, helps prevent wrongdoing and creates and sustains
an ethical work environment across the Northern Powergrid Group.
All employees are required to complete annual training on the code
of business conduct and then confirm that they understand the
requirements outlined in the code. The training is available online
and employees who do not have access to the online system attend a
briefing with their line manager.
The Northern Powergrid Group is also committed to preventing
corruption in all its forms and continues to have a zero-tolerance
approach to corruption in its business or by those with whom it
does business. The board of Northern Powergrid Holdings Company has
addressed the risks introduced by the Bribery Act 2010 through a
compliance policy, changes to contractual terms, training and other
staff awareness measures. The introduction of annual risk
assessments and enhanced due diligence in respect of new business
transactions has further assisted in ensuring compliance. The
Northern Powergrid Group requires staff, suppliers of services and
business partners to comply with the Bribery Act. Its policies
encourage an employee who has any suspicion of bribery or other
form of corruption within or related to the Northern Powergrid
Group to report the suspicion to a manager or via the
international, anonymous help line mentioned in the employee
section.
Northern Powergrid 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.
ON BEHALF OF THE BOARD:
P A Jones
Director
17 April 2015
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
The directors present their report with the financial statements
of the Company and the Group for the year ended 31 December
2014.
DIVIDENDS
During the year, an interim dividend of GBP30.0 million (24p per
ordinary share) was paid (2013: GBP30.0 million). The directors
recommend that no final dividend be paid in respect of the year
(2013: GBPnil).
RESEARCH AND DEVELOPMENT
During the year, Northern Powergrid continued working, on behalf
of the Northern Powergrid Group and in partnership with British
Gas, Durham University, Newcastle University and EA Technology, on
its major project under Ofgem's Low Carbon Networks Fund, known as
the Customer-Led Network Revolution, and the formal project
completion milestone was reached on 31 December 2014. The draft
project findings were issued to Ofgem for consideration ahead of
their wider dissemination during 2015 as part of a three-month
consultation period with the other DNOs in order to explore and
refine the conclusions.
The Customer-Led Network Revolution remains the largest project
supported by Ofgem in the time that the Low Carbon Networks Fund
has been in place and the Group will incur expenditure of GBP31.0
million over the life of the project. Of that expenditure, 90% is
funded by electricity customers in Great Britain. Successful
delivery of the project over the period agreed with Ofgem will
enable recovery of the additional 10% from customers and
potentially qualify for a further discretionary award.
The project assessed 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. Equipment and
operational techniques were trialled to allow the efficient
application of low carbon technologies on the network. The scale of
the project's output was such that Ofgem agreed to extend the
project to four years in order to ensure that the quality of
learning delivered is relevant, timely and provides value-for-money
for all stakeholders. Further details are provided in the
Sustainability section on pages 15 and 16 in the Strategic
Report.
The Group 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. New activities in the
areas of real time asset condition monitoring and in automatic
network management to improve the service provided to generation
customers, were initiated during the year. A major, multi-year
project demonstrating a high voltage fault current limiter was
unable to meet the intended technical requirements and was brought
to a halt, although a great deal of learning was generated and
shared while that project was ongoing. Other work completed during
2014, included the development of enhanced techniques for
estimating network metrics between instrumented measuring points,
which will enhance Northern Powergrid's ability to accommodate
low-carbon technologies on its network.
During the year, the Group invested GBP5.7 million (2013: GBP8.2
million) (Note 6 to the accounts) in its research and development
activities.
FUTURE DEVELOPMENTS
The financial position of the Group, as at 31 December 2014, is
shown in the consolidated statement of financial position on pages
37 and 38.
Northern Powergrid submitted its revised well-justified business
plan for the future of its electricity distribution business to
Ofgem on 17 March 2014 and Ofgem issued its final determination in
respect of that plan in November 2014. Northern Powergrid's plan
sets out the priorities for and the challenges it expects to see
during ED1, including reducing prices in the first year of ED1 and
then maintaining those prices at a relatively consistent level over
the remainder of the period, delivering 20% shorter power cuts and
providing a connections service that is 30% faster, together with a
range of new and improved services. The directors intend that
Northern Powergrid will continue to develop its business by
operating that business with the goal of efficiently investing in
the network and improving the quality of supply and service
provided to customers.
IUS will continue to develop its business in a manner that
concentrates on its core skills of engineering contracting by
delivering a high standard of service to its existing clients and
pursuing opportunities to increase its portfolio of clients across
all regions of the United Kingdom in the sectors within which it
operates. Northern Powergrid Metering Limited will continue to
pursue opportunities in the market for meter asset provision as the
smart meter roll-out programme develops.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
EVENTS SINCE THE YEAR END
On 2 March 2015 Northern Powergrid sought permission from the
CMA to appeal against the licence modifications that give effect to
the ED1 price control. The appeal relates to three specific areas
and, as the CMA granted permission to appeal on 30 March 2015, the
appeal is expected to conclude in the fourth quarter of 2015 in
accordance with the timetable required of the CMA. Further details
are provided in the Review of the Year on page 3 of the Strategic
Report.
DIRECTORS
The directors shown below have held office during the whole of
the period from 1 January 2014 to the date of this report.
G E Abel Chairman
J A Andreasen General Counsel
R Dixon Non-executive Director
T E Fielden Finance Director
J M France Regulation Director
P J Goodman Executive Vice-President and Chief Financial Officer,
Berkshire Hathaway Energy Company
P A Jones President and Chief Executive Officer
FINANCIAL RISK MANAGEMENT
The Group's short-term financial objective is to ensure that it
has access to sufficient liquidity to enable it to meet its
obligations as they fall due and to provide adequately for
contingencies. The long-term objective is to provide a stable and
low cost of financing over time whilst observing approved risk
parameters. The main risks are liquidity and interest rate
risk.
Trading risk
Throughout the year under review, the Group's policy was that no
trading in financial instruments should be undertaken.
Financial derivatives
As at 31 December 2014 and during the year it was the Group's
policy not to hold any derivative financial instruments.
POLITICAL DONATIONS
During the year, no contributions were made to political
organisations (2013: GBPnil).
EMPLOYEES
Employee consultation
The Northern Powergrid Group has a constitutional framework in
place for employee consultation 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 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 increased use of Northern Powergrid's
intranet to improve communication and engagement with the
workforce.
During the year, the President and Chief Executive Officer
continued to provide employees with updates on the Northern
Powergrid Group's financial, organisational, safety and customer
service performance through postings and weekly blogs on the
Northern Powergrid Group's intranet in order to provide updates on
key elements of performance during the preceding week.
Disabled employees
The Northern Powergrid Group is committed to equality at work
and, as such, its policy is to provide all protected groups,
including disabled people, with equality at work in respect of
employment, training, career development and promotion, having
regard to their aptitudes and abilities. Should any member of staff
become disabled during their employment, the Group would work to
retrain and/or redeploy that member of staff, wherever
possible.
VOTE HOLDER AND ISSUER NOTIFICATION
There have been no disclosures to the Company under Disclosure
and Transparency Rule 5 (Vote Holder and Issuer Notification
Rules).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
CORPORATE GOVERNANCE STATEMENT
The Company provides the following statement setting out how it
has applied the main principles in the version of the UK Corporate
Governance Code made available on the Financial Reporting Council's
website in September 2012 (the "Code"). To the extent that it
departs from the Code, the Company explains from which parts of the
Code it departs and the reasons for so doing.
Compliance statement
Set out below and in the review of the year in the Strategic
Report are the areas in which the Group adopts and complies with
the main principles of the Code. The Group has not complied with
certain of the main principles of the Code, including main
principles A2, A3, B2, B6, B7, C3, 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 Group, given that the
framework is agreed with Berkshire Hathaway Energy and includes
regular reporting to and meetings with the Chairman and senior
management of Berkshire Hathaway Energy, the presence of 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 United States Sarbanes-Oxley Act.
The Code is based on the "comply or explain" approach and the
directors are of the opinion that, in the instances noted above
where the Group does not comply with the Code, this approach is
justifiable, given that the Company is a wholly-owned subsidiary of
Berkshire Hathaway Energy and the governance framework in place
throughout the Northern Powergrid Group is agreed with Berkshire
Hathaway Energy.
Section A: Leadership
Main Principle The Role of the Board
A1:
The directors have agreed a schedule of board meetings at which
they review performance, strategy and operational and risk-related
issues. In addition, the President and Chief Executive Officer
participates in weekly performance review meetings with the
Chairman of Berkshire Hathaway Energy and other senior managers of
the Berkshire Hathaway Energy group, including the Executive Vice
President and Chief Financial Officer. At those weekly meetings,
the views of the Chairman of Berkshire Hathaway Energy and the
senior management team regarding the key, current issues facing the
Northern Powergrid Group are discussed.
The Chairman of Berkshire Hathaway Energy also receives weekly,
monthly, quarterly and ad-hoc reports on the Northern Powergrid
Group's performance from the President and Chief Executive Officer.
Berkshire Hathaway Energy's Executive Vice President and Chief
Financial Officer and Executive Vice President, General Counsel and
Corporate Secretary also hold similar weekly review meetings in
respect of Berkshire Hathaway Energy's financial and legal
functions, at which the Northern Powergrid Group's Finance Director
and General Counsel present their respective weekly reports.
The board meets as required to consider relevant issues and met
on six occasions during the year, with the attendance of the
directors being as follows:
G E Abel Chairman 0
1
4
6
6
0
6
J A Andreasen General Counsel
R Dixon Non-Executive Director
T E Fielden Finance Director
J M France Regulation Director
P J Goodman Executive Vice-President and Chief Financial
Officer, Berkshire Hathaway Energy Company
P A Jones President and Chief Executive Officer
Operational management of Northern Powergrid's business (and
that of its affiliate, Northern Powergrid (Yorkshire) plc) is
delegated to a single senior management team, with specific
functional responsibilities. That senior management team meets
monthly with the senior management of the Northern Powergrid Group
to monitor performance and address issues of policy across all
areas of the business and holds weekly conference calls to report
on and consider performance-related issues for that week. Further
details of the management structure of the Northern Powergrid Group
are provided in the Strategic Report.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle The Role of the Board - continued
A1:
The directors have overall responsibility for the internal
control environment, which, within the Northern Powergrid Group, is
based on regular reporting, a series of operational and financial
policy statements, investigations undertaken by internal audit and
a stringent process for ensuring the implementation of any
recommendations. In addition, Berkshire Hathaway Energy requires a
quarterly control risk self-assessment to be undertaken by all
senior managers as part of its programme for compliance with the
requirements of the United States Sarbanes-Oxley Act. The
assessments undertaken during the year did not identify any
significant weaknesses in the process but resulted in the
implementation of various recommended improvements. The key
features of the Group's internal control system and the issues
addressed by the Group during the year can be found in the
Strategic Report.
A schedule of key delegations of authority has been approved by
the board, which delegates authority for decision-making to senior
and other managers in respect of issues such as capital
expenditure, procurement, contractual, human resource and payment
matters and for the conduct of claims and litigation. That schedule
reserves decision-making to the directors above certain financial
limits.
During the year, there were a number of committees in operation,
acting under delegated terms of reference, which oversee the
Northern Powergrid Group and, therefore, Group policy. As part of
their approved terms of reference, certain of those committees
report regularly to the board on their activities.
The committees are as follows:
Health and Safety Management Committee
The board of Northern Powergrid Holdings Company has established
the Northern Powergrid Group Health and Safety Management Committee
with delegated powers to manage the health and safety policy and
performance of the Northern Powergrid Group. Membership of the
committee comprises:
J P Barnett Commercial Director
G M Earl Director of Safety, Health and Environment
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
P A Jones President and Chief Executive Officer
A J Maclennan Managing Director, Integrated Utility Services Limited
The committee meets on a regular basis in order to oversee
implementation of the health and safety policy, review and agree
strategy for the management of health and safety issues, monitor
health and safety performance across the Northern Powergrid Group,
review the effectiveness of the health and safety policy and the
health and safety management system and consider recommendations
for changes in policy due to changes in appropriate legislation,
codes of practice or guidance or due to recommendations arising
from significant incidents.
Treasury Committee
The Treasury Committee oversees and implements the treasury
policies, which are outlined in the Strategic Report and the
Directors' Report, and comprises:
G E Abel Chairman
D Brady Treasurer
T E Fielden Finance Director
P J Goodman Executive Vice President and Chief Financial Officer,
Berkshire Hathaway Energy Company
S Gormally Corporate Accountant and Secretary to the Committee
P A Jones President and Chief Executive Officer
S J Lockwood Group Financial Controller
O Sutherland Investor Reporting Manager
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle The Role of the Board - continued
A1:
Pensions Committee
The Pensions Committee oversees the Northern Powergrid Group's
approach to the pension schemes to which it contributes and
comprises:
N Dawson Pensions Manager
T E Fielden Finance Director
J M France Regulation Director
L Hutchinson Director of Human Resources
S J Lockwood Group Financial Controller
K Mawson Head of Regulatory Finance and Systems
L Tweedie Head of Field Change
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 companies in the Northern Powergrid Group 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 Commercial Director
R Dixon Non-Executive Director
M Drye Director of Asset Management
G Earl Director of Safety, Health and Environment
J Elliott Company Secretary
T E Fielden Finance Director
J M France Regulation Director
N M Gill Field Operations Director
L Hutchinson Director of Human Resources
A J Maclennan Managing Director, Integrated Utility Services Limited
O Sutherland Investor Reporting Manager
During the year, the GRMG undertook a review of how it operates,
which resulted in a proposal that will improve the effectiveness of
the risk management and control activities, better define the risk
environment within the Northern Powergrid Group, rationalise the
reporting procedures to focus attention on key risk movements and
identify accountabilities for each risk sector. The GRMG approved
the proposal at its meeting in November 2014 and the new process
was implemented during Quarter 1 of 2015.
Notwithstanding the proposed changes noted above, the GRMG
continued to monitor the risk management framework 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
CORPORATE GOVERNANCE STATEMENT - continued
Section A: Leadership - continued
Main Principle The Role of the Board - continued
A1:
Further details of the Northern Powergrid Group's approach to
corporate governance and the management of internal controls can be
found in the Strategic Report.
As explained in respect of main principles B2 and D1, the
Company does not have either a remuneration committee or a
nomination committee.
Main Principle Division of Responsibilities
A2:
Mr G E Abel, the Chairman of Berkshire Hathaway Energy, is also
Chairman of the Company. As President and Chief Executive Officer,
Dr Jones is responsible for the operation and management of both
the Company and the Northern Powergrid Group and reports directly
to Mr Abel.
Main Principle The Chairman
A3:
Dr Jones chairs board meetings, is responsible for the operation
and management of both the Group and the Northern Powergrid Group
and divides his time accordingly between his various commitments
within the Northern Powergrid Group. Dr Jones reports directly to
Mr Abel.
Main Principle Non-Executive Directors
A4:
Mr Dixon was the Company's sole independent non-executive
director during the year and acts under agreed terms of
reference.
Section B: Effectiveness
Main Principle The composition of the board
B1:
The board comprises six executive directors and Mr Dixon, an
independent non-executive director, who, collectively, bring a
range of skills and experience to the board. Although the board
does not include a balanced number of executive and non-executive
directors, the board believes that it possesses the skills and
experience necessary to provide effective leadership, stewardship
and control of the Group.
Main Principle Appointments to the board
B2:
The Company does not have a nomination committee. Appointments
to the board are made by Berkshire Hathaway Energy, in conjunction
with the President and Chief Executive Officer.
Main Principle 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 Group due to the robust
reporting arrangements in place and have on-going access to the
Group's operations and its staff.
Main Principle Information and support
B5:
Directors receive monthly reports outlining progress against the
Group'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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
CORPORATE GOVERNANCE STATEMENT - continued
Section B: Effectiveness - continued
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. Berkshire Hathaway Energy has a performance appraisal
and development scheme in place, under which each senior manager of
the Northern Powergrid Group is subject to a formal annual
appraisal of performance against his individual and Berkshire
Hathaway Energy's goals.
Main Principle Re-election
B7:
The directors retire by rotation and offer themselves for
re-election in accordance with the Company's articles of
association.
Section C: Accountability
Main Principle Financial and business reporting
C1:
The board considers that the annual reports and accounts, which
include the Strategic Report and the Report of the Directors, taken
as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group's
performance, business model and strategy.
The directors explain, at pages 2 and 3, the Core Principles
behind the Group's strategy and, at page 29, their responsibility
for preparing the Strategic Report, the Directors' Report and the
financial statements, have reported, at page 29 in the Directors'
Report that the Company and the Group are going concerns and have
included the Report of the Independent Auditor to the Company at
page 34 of these accounts.
Main Principle Risk management and internal control
C2:
Details of the principal risks and uncertainties facing the
Group and its internal control system, together with details of the
issues addressed by the Group during the year, can be found at
pages 18 to 20 of the Strategic Report.
Other key features of the internal control system are:
- Comprehensive business planning and financial reporting
procedures, including the annual preparation of detailed
operational budgets for the year ahead and projections for
subsequent years;
- Regular review of key performance indicators to assess progress towards objectives;
- A range of policies, codes of practice and more detailed
instructions that define the processes to be followed;
- A strong internal audit function, which provides independent
scrutiny of internal control systems and risk management
procedures, including the standards required by the United States
Sarbanes-Oxley Act;
- 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
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
CORPORATE GOVERNANCE STATEMENT - continued
Section C: Accountability - continued
Main Principle Risk management and internal control - continued
C2:
- 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 auditor
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 comprises one member who is independent and
one member who has competence in accounting and receives annual
reports from the GRMG and from the Northern Powergrid Group's Head
of Internal Audit on the work of the Internal Audit Section during
the year and the audit plan for the following year. The Audit
Committee comprises:
R Dixon Non-Executive Director
T E Fielden Finance Director
Details of the fees paid by the Group to Deloitte LLP in
relation to non-audit services during the year are provided in Note
6 to the accounts.
The employees section on page 13 and 14 of the Strategic Report
contains details of the Group'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 the senior management of the Northern
Powergrid Group are subject to the performance appraisal and
development scheme process and consideration by the Chairman of
Berkshire Hathaway Energy and the President and Chief Executive
Officer. As the Company has no equity securities listed on the
London Stock Exchange, it is not required to make directors'
remuneration disclosures, other than those required for private
companies.
Main Principle Procedure
D2:
As noted under main principle D1, the Company does not have a
remuneration committee. Annual remuneration awards for the senior
management of the Northern Powergrid Group are subject to the
performance appraisal and development scheme process and
consideration by the Chairman of Berkshire Hathaway Energy and the
President and Chief Executive Officer. No director is involved in
deciding his own remuneration.
Section E: Relations with shareholders
Main Principle Dialogue with Shareholders
E1:
As a wholly-owned subsidiary of a privately held group of
companies, the board is in continuing dialogue with Berkshire
Hathaway Energy.
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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Strategic
Report, the Report of the Directors and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. Under company law the directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group
and the Company and of the profit or loss of the Group and 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 and the Group's financial position and
financial performance; and
- Make an assessment of the Company's and the Group'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 Group's and the
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and 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 Group and the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities. The directors are responsible for the maintenance
and integrity of the corporate and financial information included
on the Group's website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
GOING CONCERN
A review of the Group's business activities during the year,
together with details regarding its future development, performance
and position, its objectives, policies and processes for managing
its capital, its financial risk management objectives and details
of its exposures to trading risk, credit risk and liquidity risk
are set out in the Strategic Report, the Report of the Directors
and the appropriate notes to the accounts.
When considering continuing to adopt the going concern basis in
preparing the annual report and accounts, the directors have taken
into account a number of factors, including the following:
- The Group's main subsidiary, Northern Powergrid, 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 Group is profitable with strong underlying cash flows; and
- The Group is financed by long-term borrowings with an average
maturity of 14 years and has access to borrowing facilities
provided by Lloyds Bank plc, Royal Bank of Scotland plc and Abbey
National Treasury Services plc.
Consequently, after making enquiries, the directors have a
reasonable expectation that the Company and the Group have 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 DECEMBER 2014
STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITOR
Each of the directors, who is a director of the Company as at
the date of this report, confirms that:
a) so far as he is aware, there is no relevant audit information
of which the Company's auditor is 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 auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of S418 of the Companies Act
2006.
AUDITOR
A resolution to re-appoint Deloitte LLP as the Company's auditor
and authorise the directors to determine their remuneration will be
proposed at the Annual General Meeting.
ON BEHALF OF THE BOARD:
P A Jones
Director
17 April 2015
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
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 22 in the Report of the
Directors confirms that, to the best of their knowledge:
a) The 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 of the Company
and the undertakings included in the consolidation taken as
a whole; and
b) The Management Report (which is comprised of the Strategic Report
and the Report of the Directors) includes a fair review of the
development and performance of the business and the position
of the Company and the undertakings included in the consolidation
as a whole, together with a description of the principal risks
and uncertainties they face.
This responsibility statement was approved by the Board of
Directors on 17 April 2015 and signed on its behalf by:
ON BEHALF OF THE BOARD:
P A Jones
Director
17 April 2015
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
DIRECTORS' BIOGRAPHIES
GREGORY E ABEL
Appointed in January 1997, Mr Abel, 52, is chairman, president
and CEO of Berkshire Hathaway Energy, based in Des Moines, Iowa.
Through its energy-related businesses, Berkshire Hathaway Energy
provides electric and natural gas service to more than 11.5 million
customers worldwide. These businesses are Pacific Power, Rocky
Mountain Power and PacifiCorp Energy, comprising PacifiCorp;
MidAmerican Energy Company; NV Energy, Inc.; Northern Powergrid
Holdings Company; BHE Pipeline Group; BHE U.S. Transmission;
AltaLink, L.P.; BHE Renewables; and HomeServices of America, Inc.,
which is the second-largest residential real estate brokerage firm
in the U.S. Mr Abel serves as chairman, CEO and director of
Berkshire Hathaway Energy and PacifiCorp; as chairman and director
of NV Energy, Northern Powergrid Holdings Company and Northern
Natural Gas, and as a director of AltaLink and HomeServices Mr Abel
serves on the board and executive committee of the Edison Electric
Institute and the Greater Des Moines Partnership. He also serves on
the H.J. Heinz Company board of directors and the AEGIS Insurance
Services, Inc. board of directors; the Nuclear Electric Insurance
Limited board of directors; the Kum & Go, L.C. board of
directors; the executive board of the Mid-Iowa Council Boy Scouts
of America; the American Football Coaches Foundation board of
directors; and is a past member of the Drake University board of
trustees.
JON A ANDREASEN
Appointed in March 2010, Mr Andreasen, 51, has been Vice
President & General Counsel for the Northern Powergrid Group
since 2005. In addition to this appointment, he provides legal
counsel to Berkshire Hathaway Energy and its other subsidiaries. He
is a 1989 graduate of the University of Iowa College of Law and has
worked in the electricity utility business since 1989. From
2000-2002 he worked in Newcastle-upon-Tyne for the Northern
Powergrid Group and is currently based in Urbandale, Iowa, USA.
RONALD DIXON
Appointed in October 1997, Mr Dixon, 77, worked for North
Eastern Electricity Board and Northern Electric plc throughout his
career, being appointed Secretary in 1987. He was appointed
Managing Director of the Power Division in 1990, responsible for
electricity supply and distribution, and Commercial Director in
1991. He retired from the board on 31 July 1997 and was
re-appointed in the capacity of a non-executive director on 22
October 1997. Mr Dixon is also a non-executive director of Northern
Powergrid Holdings Company, Northern Powergrid (Northeast) Limited
and Northern Powergrid (Yorkshire) plc.
JOHN M FRANCE
Appointed in January 2000, Dr France, 57, is Regulation Director
for the Northern Powergrid Group. After leaving university he
joined the British Gas Corporation where he held a number of posts
before becoming a member of the team that handled the privatisation
of British Gas in 1986. He joined Northern Electric plc as its
Regulation Manager in 1989 and has been involved with all the
distribution (and supply) price control reviews that have affected
the Company since privatisation. He was a member of the team that
negotiated the acquisition of the distribution business of
Yorkshire Electricity Group plc and the sale of the Northern
Electric plc supply businesses in 2001.
THOMAS E FIELDEN
Appointed in October 2009, Mr Fielden joined the Northern
Powergrid Group in July 2009 and became Finance Director on 12
October 2009. Mr Fielden, 44, is a chartered accountant, having
started his career at Coopers & Lybrand and has held a variety
of finance appointments in BT, working in BT Group and BT Global
Services, before joining Great North East Railway (GNER) as
Financial Controller in 2005. He became Finance Director of GNER in
2006, transferring to National Express East Coast in 2007.
PATRICK J GOODMAN
Mr Goodman, 48, is executive vice president and chief financial
officer of Berkshire Hathaway Energy. Goodman is responsible for
managing all aspects of the company's financial operations. Goodman
serves as a director of PacifiCorp, Northern Powergrid, Kern River
Gas Transmission Company and Northern Natural Gas Company. Mr
Goodman supports the evaluation, negotiation and closing of the
company's domestic and international financings, acquisitions and
project developments. Additionally, he manages all accounting,
financial reporting, tax, budgeting, long-range financial planning
and internal audit functions for the company. Mr Goodman has been
the chief financial officer since 1999 and has served in various
financial positions, including chief accounting officer since
joining the company in 1995. Mr Goodman has more than 20 years of
experience in public accounting and management and is a certified
public accountant. He received his accounting degree from the
University of Nebraska at Omaha.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
DIRECTORS' BIOGRAPHIES - continued
PHILIP A JONES
Appointed in April 2007, Dr Jones, 46, is President and Chief
Executive Officer of the Northern Powergrid Group, the UK platform
in the global portfolio of Berkshire Hathaway Energy. Prior to his
appointment as President and Chief Executive Officer, he was
Strategy & Investment Director and, as such, was responsible
for technical, economic and regulatory strategy within the
organisation. Dr Jones is a chartered electrical engineer and has
been working in the UK power distribution sector since completing
his PhD in Electronic & Electrical Engineering in 1993. He has
held a range of technical and managerial roles, mostly in the
engineering field. He is also actively involved in a range of other
industry bodies. He has been a director of the Institute of Asset
Management and of the Energy Networks Association, the trade
association that represents the power transmission and distribution
companies.
REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF NORTHERN
ELECTRIC PLC
We have audited the financial statements of Northern Electric
plc ("the Company") for the year ended 31 December 2014, which
comprise the Consolidated Statement of Profit or Loss, the
Consolidated Statement of Profit or Loss and Other Comprehensive
Income, the Consolidated and Company Statements of Financial
Position, the Consolidated and Company Statements of Changes in
Equity, the Consolidated and Company Statements of Cash Flows and
related notes 1 to 29. 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 Auditor and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities set out on page twenty nine, 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 circumstances of the Company and the Group and
have been consistently applied and adequately disclosed, the
reasonableness of significant accounting estimates made by the
directors and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the Strategic Report and the Report of the Directors
to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If
we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the Company's and
the Group's affairs as at 31 December 2014 and of the Group's
profit for the year then ended;
- have been properly prepared in accordance with the
requirements of the Companies Act 2006 and in accordance with IFRSs
as adopted by the European Union;
- in respect of the Company have been properly prepared in
accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act
2006;
- in respect of the Group Financial Statements, have been
properly prepared in accordance with Article 4 of the IAS
Regulations.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Group Strategic
Report and the Report of the Directors for the financial year for
which the financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
- adequate accounting records have not been kept by the Company, or
- returns adequate for our audit have not been received from branches not visited by us; or
- the financial statements of the Company or the Group are not
in agreement with the accounting records and returns; or
- certain disclosures of directors' remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
Christopher Powell FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Newcastle upon Tyne
Date: 23 April 2015
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 3 409,503 350,919
Cost of sales (63,424) (42,162)
GROSS PROFIT 346,079 308,757
Operating expenses (135,370) (127,930)
OPERATING PROFIT 210,709 180,827
Other gains 752 444
Finance costs 5 (34,865) (35,895)
Finance income 5 1,660 1,963
PROFIT BEFORE INCOME TAX 6 178,256 147,339
Income tax 7 (38,015) (14,971)
PROFIT FOR THE YEAR 140,241 132,368
Profit attributable to:
Owners of the parent 140,241 132,368
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
GBP'000 GBP'000
PROFIT FOR THE YEAR 140,241 132,368
OTHER COMPREHENSIVE INCOME
Item that will not be reclassified to profit or loss:
Re-measurement of net pension obligation 25,100 (8,700)
Income tax relating to item of other comprehensive
income (4,444) (4,275)
OTHER COMPREHENSIVE INCOME
FOR THE YEAR, NET OF INCOME
TAX 20,656 (12,975)
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 160,897 119,393
Total comprehensive income attributable to:
Owners of the parent 160,897 119,393
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2014
2014 2013
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 11 23,821 14,762
Property, plant and equipment 12 1,946,871 1,790,233
Investments 13 3,441 3,392
Pension asset 24 52,900 -
Trade and other receivables 15 7,494 6,081
2,034,527 1,814,468
CURRENT ASSETS
Inventories 14 12,304 10,399
Trade and other receivables 15 72,029 50,192
Cash and cash equivalents 16 85,586 105,897
169,919 166,488
TOTAL ASSETS 2,204,446 1,980,956
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 17 72,173 72,173
Share premium 18 158,748 158,748
Other reserves 18 6,185 6,185
Retained earnings 18 649,788 518,891
TOTAL EQUITY 886,894 755,997
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION - continued
31 DECEMBER 2014
2014 2013
Notes GBP'000 GBP'000
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables 19 500,762 484,500
Borrowings
Interest bearing loans and
borrowings 20 466,960 466,759
Pension liability 24 - 10,600
Deferred tax 23 107,930 93,164
Provisions 22 1,967 2,063
1,077,619 1,057,086
CURRENT LIABILITIES
Trade and other payables 19 146,783 119,743
Borrowings
Interest bearing loans and
borrowings 20 85,204 44,536
Tax payable 6,314 2,017
Provisions 22 1,632 1,577
239,933 167,873
TOTAL LIABILITIES 1,317,552 1,224,959
TOTAL EQUITY AND LIABILITIES 2,204,446 1,980,956
The financial statements were approved by the Board of Directors
on 17 April 2015 and were signed on its behalf by:
P A Jones
Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2014
2014 2013
Notes GBP'000 GBP'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 12 1,728 1,788
Investments 13 328,070 328,070
329,798 329,858
CURRENT ASSETS
Trade and other receivables 15 308 338
Tax receivable 3,763 7,067
Cash and cash equivalents 16 29,806 33,187
33,877 40,592
TOTAL ASSETS 363,675 370,450
EQUITY
SHAREHOLDERS' EQUITY
Called up share capital 17 72,173 72,173
Share premium 18 158,748 158,748
Other reserves 18 6,185 6,185
Retained earnings 18 113,523 119,293
TOTAL EQUITY 350,629 356,399
LIABILITIES
NON-CURRENT LIABILITIES
Borrowings
Interest bearing loans and
borrowings 20 1,117 1,117
Deferred tax 23 5,210 6,140
Provisions 22 1,689 1,725
8,016 8,982
CURRENT LIABILITIES
Trade and other payables 19 2,750 2,796
Borrowings
Interest bearing loans and
borrowings 20 2,273 2,273
Provisions 22 7 -
5,030 5,069
TOTAL LIABILITIES 13,046 14,051
TOTAL EQUITY AND LIABILITIES 363,675 370,450
The financial statements were approved by the Board of Directors
on 17 April 2015 and were signed on its behalf by:
P A Jones
Director
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Called up
share Retained Share Other Total
capital earnings premium reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2013 72,173 429,498 158,748 6,185
666,604
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 119,393 - - 119,393
Balance at 31 December 2013 72,173 518,891 158,748 6,185
755,997
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 160,897 - - 160,897
Balance at 31 December 2014 72,173 649,788 158,748 6,185
886,894
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Called up
share Retained Share Other Total
capital earnings premium reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2013 72,173 124,872 158,748 6,185
361,978
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 24,421 - - 24,421
Balance at 31 December 2013 72,173 119,293 158,748 6,185
356,399
Changes in equity
Dividends - (30,000) - - (30,000)
Total comprehensive income - 24,230 - - 24,230
Balance at 31 December 2014 72,173 113,523 158,748 6,185
350,629
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 28 215,949 198,035
Finance costs paid (38,268) (38,005)
Interest received 1,171 1,017
Tax paid (23,396) (30,162)
Net cash from operating activities 155,456 130,885
Cash flows from investing activities
Purchase of intangible fixed assets (11,070) (8,776)
Purchase of tangible fixed assets (216,760) (199,392)
Sale of tangible fixed assets 752 444
Customer contributions 40,203 32,670
Dividends received 440 492
Net cash used in investing activities (186,435) (174,562)
Cash flows from financing activities
Movement in external loans 38,594 30,341
Movement in loans from Group 2,074 (838)
Equity dividends paid (30,000) (30,000)
Net cash from/(used in) financing activities 10,668 (497)
Decrease in cash and cash equivalents (20,311) (44,174)
Cash and cash equivalents
at beginning of year 105,897 150,071
Cash and cash equivalents
at end of year 85,586 105,897
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from/(used in) operations 28 1,499 (2,511)
Finance costs paid (9,011) (9,401)
Interest received 413 660
Dividends received 30,407 30,405
Tax received/(paid) 3,303 (2,234)
Net cash from operating activities 26,611 16,919
Cash flows from investing activities
Purchase of tangible fixed assets - (3)
Sale of tangible fixed assets 8 -
Net cash from/(used in) investing activities 8 (3)
Cash flows from financing activities
Equity dividends paid (30,000) (30,000)
Net cash used in financing activities (30,000) (30,000)
Decrease in cash and cash equivalents (3,381) (13,084)
Cash and cash equivalents
at beginning of year 33,187 46,271
Cash and cash equivalents
at end of year 29,806 33,187
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
1. GENERAL INFORMATION
Northern Electric plc (the "Company") is a company incorporated
in England and Wales and is part of the Northern Powergrid Holdings
Company group of companies (the "Northern Powergrid Group"). The
address of the registered office is Lloyds Court, 78 Grey Street,
Newcastle-upon-Tyne, NE1 6AF.
The nature of the Group's business model, strategic objectives,
operations and activities are set out in the Strategic Report.
2. ACCOUNTING POLICIES
Accounting convention and basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). These
financial statements have also been prepared in accordance with
IFRSs as adopted by the European Union, and with those parts of the
Companies Act 2006 (the "Act") that are applicable to companies
reporting under IFRS. The Company's financial statements have also
been prepared in accordance with IFRS, as applied in accordance
with the provisions of the Act. The directors have taken advantage
of the exemption offered by Section 408 of the Act not to present a
separate statement of profit or loss for the Company.
The financial statements have been prepared under the historical
cost convention. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and
services. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an
asset or a liability, the Group takes into account the
characteristics of the asset or liability if market participants
would take those characteristics into account when pricing the
asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in these consolidated
financial statements is determined on such a basis, except for
leasing transactions which are in the scope of IAS 17, and
measurements that have some similarities to fair value but are not
fair value, such as net realisable value in IAS 2 or value in use
in IAS 36.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities that the Company can access
at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
The principal accounting policies are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
and its subsidiaries made up to 31 December each year. Control is
achieved where the Company has power over the investee, is exposed,
or has rights, to variable returns from its involvement with the
investee, and has the ability to use its power to affects its
returns.
Investments in associates and joint ventures
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but is not
control or joint control over those policies. A joint venture is a
joint arrangement whereby the parties that have joint control of
the arrangement have the rights to the net assets of the joint
arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about
the relevant activities require unanimous consent of the parties
sharing control.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
2. ACCOUNTING POLICIES - continued
Investments in associates and joint ventures - continued
The results and assets and liabilities of associates or joint
ventures are incorporated in these consolidated financial
statements using the equity method of accounting except when
classified as held for sale. Investments in associates or joint
venture entities are initially recognised at cost and adjusted
thereafter to recognise the Group's share of profit or loss and
other comprehensive income of the associate or joint venture. When
the Group's share of losses of an associate or a joint venture
exceeds the Group's interest in that associate or joint venture,
the Group discontinues recognising its share of future losses.
An investment in an associate or a joint venture is accounted
for using the equity method from the date on which the investee
becomes an associate or a joint venture. On acquisition of the
investment in an associate or a joint venture, any excess of the
cost of the investment over the Group's share of the net fair value
of the identifiable assets and liabilities of the investee is
recognised as goodwill, which is included within the carrying
amount of the investment. Any excess of the Group's share of the
net fair value of the identifiable assets and liabilities over the
cost of the investment, after reassessment, is recognised
immediately in profit or loss in the period in which the investment
is acquired.
A joint operation is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the
arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about
the relevant activities require unanimous consent of the parties
sharing control.
Fixed asset investments are stated at cost less provision or
amounts written off for impairment in value.
Application of new and revised IFRSs
In the current year, the Group has not been impacted by any
amendments to IFRSs issued by the International Accounting
Standards Board ("IASB") that are mandatorily effective for an
accounting period that begins on or after 1 January 2014.
New and revised standards in issue but not yet effective
The Group has not applied the following new and revised IFRSs
that have been issued but are not yet effective for the year ended
31 December 2014:
- IFRS 9 - Financial Instruments A revised version of IFRS 9, Financial
(1 January 2018). Instruments, was issued in July 2014
mainly to include: a) impairment requirements
for financial assets; and b) limited
amendments to the classification and
measurement requirements by introducing
a 'fair value through other comprehensive
income' ("FVTOCI") measurement category
for certain simple debt instruments.
The directors anticipate that the application
of IFRS 9 in the future is unlikely to
have an impact on amounts reported in
respect of the Group's financial assets
and financial liabilities.
- IFRS 15 - Revenue from In May 2014, IFRS 15, Revenue from Contracts
Contracts with Customers with Customers, was issued which establishes
(1 January 2017). a single comprehensive model for entities
to use in accounting for revenue arising
from contracts with customers. IFRS 15
will supersede the current revenue recognition
guidance including IAS 11 Construction
Contracts, IAS 18 Revenue and the related
Interpretations. The core principle of
IFRS 15 is that an entity should recognise
revenue to depict the transfer of promised
goods or services to customers in an
amount that reflects the consideration
to which the entity expects to be entitled
in exchange for those goods or services.
Under IFRS 15, an entity recognises revenue
when (or as) a performance obligation
is satisfied. Far more prescriptive guidance
has been added in IFRS 15 to deal with
specific scenarios. Furthermore, extensive
disclosures are required by IFRS 15.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
2. ACCOUNTING POLICIES - continued
New and revised standards in issue but not yet effective -
continued
- IFRS 15 - Revenue from The directors anticipate that the application
Contracts with Customers of IFRS 15 in the future may have a material
(1 January 2017) - continued. impact on the amounts reported and disclosures
made in the Group's financial statements.
However it is not practicable to provide
a reasonable estimate of the effect until
the Group undertakes a detailed review.
- Amendments to IAS 16 and The amendments to IAS 16 and IAS 38,
IAS 38 - Clarification Clarification of Acceptable Methods of
of Acceptable Methods Depreciation and Amortisation, prohibit
of Depreciation and Amortisation entities from using a revenue-based depreciation
(1 January 2016). method for items of property, plant and
equipment. The amendments to IAS 38 introduce
a rebuttable presumption that revenue
is not an appropriate basis for the amortisation
of an intangible asset. Currently the
Group uses the straight-line method for
depreciation and amortisation of property,
plant and equipment, and intangible assets.
The directors believe that the straight-line
method is the most appropriate method
to reflect the consumption of economic
benefits inherent in the respective assets
and accordingly, the directors do not
anticipate that the application of these
amendments will have a material impact
on the Group's financial statements.
- Amendments to IAS 19 - The amendments to IAS 19, Defined Benefit
Defined Benefit Plans: Plans: Employee Contributions, clarify
Employee Contributions how an entity should account for contributions
(1 July 2014). made by employees or third parties to
defined benefit plans based on whether
those contributions are dependent on
the number of years of service provided
by the employee. The directors do not
anticipate that the application of these
amendments to IAS 19 will have a significant
impact on the Group's financial statements.
- Annual Improvements to The Annual Improvements to IFRSs 2010-2012
IFRSs 2010-2012 Cycle Cycle and IFRSs 2011-2013 Cycle include
(1 July 2014) and Annual a number of amendments to various IFRSs.
Improvements to IFRSs The directors do not anticipate that
2011-2013 Cycle (1 July the application of these amendments will
2014). have a significant impact on the Group's
financial statements.
Note: IFRS 14, Regulatory Deferral Accounts, is not applicable
to the Group as the Group is not a first-time adopter of IFRSs.
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those
involving estimations, that the directors have made in the process
of applying the Group's accounting policies and that have the most
significant effect on amounts recognised in the consolidated
financial statements:
- Revenue recognition; and
- Discount rate used to determine the carrying amount of the
Group's defined benefit obligation.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future and
other key sources of estimation uncertainty at the end of the
reporting period that may have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year:
- Useful economic lives for property, plant and equipment;
- The split of operating and capital expenditure and the allocation
of overheads to property, plant and equipment;
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
2. ACCOUNTING POLICIES - continued
Key sources of estimation uncertainty - continued
- Assumptions used when evaluation long-term pension plans;
- Assumptions used when evaluating construction contracts; and
- Fair valuation measurements and valuation processes.
Revenue
Revenue is only recognised when the risks and rewards of
ownership have been transferred to a third party. No revenue is
recognised where there are significant uncertainties regarding the
consideration to be received or the costs associated with the
transaction.
Revenue is measured at the fair value of consideration received
or receivable.
Revenue represents charges for the use of the Group'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
Group'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 Group's policy is to credit the
customer contribution to revenue on a straight-line basis, in line
with the useful life of the distribution system assets.
Income from credit sale charges is apportioned in the statement
of profit or loss over the period of the sales agreements.
Interest income from a financial asset is recognised when it is
probable that the economic benefits will flow to the Group and the
amount of income can be measured reliably. Interest income is
accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying
amount on initial recognition.
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established.
Construction contracts
Where the outcome of a construction contract can be estimated
reliably, revenue and costs are recognised by reference to the
stage of completion of the contract activity at the end of the
reporting period, based on the proportion of contract costs
incurred for work performed to date relative to the estimated total
contract costs, except where this would not be representative of
the stage of completion. Variations in contract work, claims and
incentive payments are included to the extent that they have been
agreed with the customer.
Where the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognised to the extent of the costs
incurred where it is probable they will be recoverable. Contract
costs are recognised as expenses in the period in which they are
incurred. When it is probable that total contract costs will exceed
total contract revenue, the expected loss is recognised as an
expense immediately.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
2. ACCOUNTING POLICIES - continued
Construction contracts - continued
When contract costs incurred to date plus recognised profits
less recognised losses exceed progress billings, the surplus is
shown as amounts due from customers for contract work. For
contracts where progress billings exceed contract costs incurred to
date plus recognised profits less recognised losses, the surplus is
shown as the amounts due to customers for contract work. Amounts
received before the related work is performed are included in the
consolidated statement of financial position, as a liability, as
advances received. Amounts billed for work performed but not yet
paid by the customer are included in the consolidated statement of
financial position under trade and other receivables.
Software development costs
Costs in respect of major developments are carried at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is recognised on a straight-line basis over the
estimated useful life of the software of up to 10 years. The
estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost less accumulated
depreciation and accumulated impairment losses. Cost includes the
purchase price of the asset and any costs, including internal
employee and other costs, directly attributable to bringing the
asset to the location and condition necessary for it to be capable
of operating in the manner intended by management.
Depreciation is recognised so as to write off the cost of assets
less their residual values over their useful lives, using the
straight-line method:
Distribution system assets 45 years
Distributed generation expenditure included in distribution 15 years
system assets
Information technology equipment included in distribution up to 10 years
system assets
Metering equipment up to 10 years
Non-operational assets:
Buildings - freehold up to 60 years
lower of lease
Buildings - leasehold period or 60
years
Fixtures and equipment up to 10 years
Software development costs up to 10 years
Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting period, with the
effect of any material changes in estimate accounted for on a
prospective basis. Due to the significance of the Group's
investment in property, plant and equipment, variations in
estimates could impact operating results both positively and
negatively although, historically, few changes have been
required.
Assets in the course of construction are carried at cost, less
any recognised impairment loss. Costs include professional fees,
and, for qualifying assets, borrowing costs capitalised in
accordance with the Group's accounting policy. Such assets are
classified to the appropriate categories of property, plant and
equipment when completed and ready for intended use. Depreciation
on these assets, on the same basis as other assets, commences when
the assets are commissioned.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
2. ACCOUNTING POLICIES - continued
Financial instruments
Financial assets and financial liabilities are recognised on the
statement of financial position when the Group becomes a party to
the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate,
on initial recognition.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Net realisable value represents the estimated selling price
for inventories less all estimated costs of completion and costs
necessary to make the sale. Raw materials and goods for resale are
valued at purchase cost on an average price basis. 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.
Assets held for sale comprise of vehicles which have been sold
to the Group at the end of the lease agreement and are stated at
the lower of the value attributed to the vehicle under the terms of
the agreement or net realisable value. Net realisable value is
based on estimated selling price less further costs expected to be
incurred to completion and disposal. Within the statement of profit
or loss, any profits or losses arising from the sale of assets held
for sale are recognised in costs of sales.
Taxation
The income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from 'profit before tax' as reported
in the consolidated statement of profit or loss because of items of
income or expense that are taxable or deductible in other years and
items that are never taxable or deductible. The Group's current tax
is calculated using tax rates that have been enacted or
substantively enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the
carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of assets and liabilities in a
transaction that affects neither the taxable profit nor the
accounting profit. In addition, deferred tax liabilities are not
recognised if the temporary difference arises from the initial
recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the Group
is able to control the reversal of the temporary difference and it
is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and
interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting period and reduced to the extent that that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the
current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
2. ACCOUNTING POLICIES - continued
Research costs
Expenditure on research activities is written off to the
statement of profit or loss in the year in which it is
incurred.
Other than the software development licenses, the Group and the
Company do not carry out any other development activity that would
give rise to an intangible asset.
Foreign currencies
Transactions in foreign currencies are recognised at the rate of
exchange prevailing at the date of the transaction. At the end of
each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date.
Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing at that
date when the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign currency are
not retranslated.
Leases
Leases are classified as finance leases wherever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases.
Operating lease rentals are charged to the statement of profit
or loss or in property, plant and equipment on a straight-line
basis over the lease term.
Pensions
The Group contributes to the Northern Powergrid Group of the
Electricity Supply Pension Scheme (the "Northern Powergrid Group of
the ESPS"), a defined benefit scheme.
The cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at
the end of each annual reporting period. Re-measurement, comprising
actuarial gains and losses, the effect of the changes to the asset
ceiling and the return on plan assets (excluding interest), is
reflected immediately in the statement of financial position with a
charge or credit recognised in other comprehensive income in the
period in which they occur. Re-measurement recognised in other
comprehensive income is reflected immediately in retained earnings
and will not be reclassified to profit or loss. Past service cost
is recognised in profit or loss in the period of a plan amendment.
Net interest is calculated by applying a discount rate at the
beginning of the period to the net defined liability or asset.
Defined benefit costs are categorised as service cost, net interest
expense or income and re-measurement.
The retirement benefit obligation recognised in the consolidated
statement of financial position represents the actual deficit or
surplus in the Group's defined benefit plans. Any surplus resulting
from this calculation is limited to the present value of any
economic benefits available in the form of refunds from the plans
or reductions in future contributions to the plans.
The Group also participates in a defined contribution scheme.
Contributions payable to the defined contribution scheme are
charged to the statement of profit or loss in the year or
capitalised as appropriate when employees have rendered service
entitling them to the contributions.
A liability is recognised for benefits accruing to employees in
respect of wages and salaries, annual leave and sick leave in the
period the related service is rendered at the undiscounted amount
of the benefits expected to be paid in exchange for that service.
Liabilities recognised in respect of short-term employee benefits
are measure at the undiscounted amount of the benefits expected to
be paid in exchange for the related service. Liabilities recognised
in respect of other long-term employee benefits are measured at the
present value of the estimated future cash outflows expected to be
made by the Group in respect of services provided by employees up
to the reporting date.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
2. ACCOUNTING POLICIES - continued
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. The amount recognised as a provision is the best
estimate of the consideration required to settle the present
obligation at the end of the reporting period, taking into account
the risks and uncertainties surrounding the obligation. When a
provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of
those cash flows (when the effect of the time value of money is
material). When some or all of the economic benefits required to
settle a provision are expected to be recovered from a third party,
a receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Financial assets
Financial assets, including trade and other receivables and cash
and cash equivalents, are classified as loans and receivables.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans and receivables are measured at amortised cost using
the effective interest method, less any impairment.
The effective interest method is a method of calculating the
amortised cost of an instrument and of allocating income over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts through the
expected life of the instrument to the net carrying amount on
initial recognition.
Interest income is recognised by applying the effective interest
rate, except for short-term receivables when the effect of
discounting is immaterial.
Cash and cash equivalents (which are presented as a single class
of assets on the face of the statement of financial position)
comprise cash at bank and other short-term highly liquid
investments with a maturity of three months or less, which are
subject to an insignificant risk of changes in value.
Financial assets are assessed for indicators of impairment at
the end of each reporting period. Financial assets are considered
to be impaired where there is objective evidence that, as a result
of one or more events that occurred after the initial recognition
of the financial asset, the estimated future cash flows of the
investment have been affected.
For certain categories of financial assets, such as trade
receivables, assets are assessed for impairment on a collective
basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables
could include the Group's past experience of collecting payments,
an increase in the number of delayed payments in the portfolio past
the average credit period of 30 days, as well as observable changes
in national or local economic conditions that correlate with
default on receivables.
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is
reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously
written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the
statement of profit or loss.
Going Concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the financial statements. Further
detail is contained within the Going Concern Statement in the
Report of the Directors.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
3. SEGMENTAL REPORTING
The tables below represent the internal information provided to
the President and Chief Executive Officer of the Northern Powergrid
Group for the purposes of resource allocation and segmental
performance appraisal.
The Group operates in three principal areas of activity, those
of the distribution of electricity, engineering contracting and
smart meter rental in the United Kingdom.
Group revenue, Group profit before tax and Group net assets are
analysed below:
Consolidation
adjustments
Distribution Contracting Other Total
2014 2014 2014 2014 2014
GBPm GBPm GBPm GBPm GBPm
REVENUE
External sales 359.0 42.6 7.9 - 409.5
Inter-segment
sales 0.6 0.6 4.9 (6.1) -
Total revenue 359.6 43.2 12.8 (6.1) 409.5
SEGMENT RESULTS
Operating profit 171.4 - 2.1 37.2 210.7
Other gains 0.7
Finance costs (34.9)
Finance income 1.7
Profit before
tax 178.2
OTHER INFORMATION
Capital additions 216.3 0.1 15.9 (2.2) 230.1
Depreciation
and amortisation 65.6 - 0.4 (1.6) 64.4
Amortisation
of deferred
revenue (19.8) - - - (19.8)
STATEMENT OF
FINANCIAL POSITION
Segment assets 2,076.0 19.7 35.9 (16.2) 2,115.4
Unallocated
corporate assets 89.0
Total assets 2,204.4
Segment liabilities (615.3) (6.7) (8.0) (21.5) (651.5)
Unallocated
corporate liabilities (666.1)
Total liabilities (1,317.6)
Net assets/(liabilities) 1,460.7 13.0 27.9 (37.7)
by segment 1,463.9
Unallocated
net corporate
liabilities (577.1)
Total net assets 886.8
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
3. SEGMENTAL REPORTING - continued
Consolidation
Distribution Contracting Other adjustments Total
2013 2014 2013 2013 2013
GBPm GBPm GBPm GBPm GBPm
REVENUE
External sales 310.3 34.3 6.3 - 350.9
Inter-segment
sales 0.6 0.1 6.3 (7.0) -
Total revenue 310.9 34.4 12.6 (7.0) 350.9
SEGMENT RESULTS
Operating profit 140.6 1.0 1.7 37.5 180.8
Other gains 0.4
Finance costs (35.9)
Finance income 2.0
Profit before
tax 147.3
OTHER INFORMATION
Capital additions 210.2 0.1 - 0.6 210.9
Depreciation
and amortisation 62.6 0.1 - (1.5) 61.2
Amortisation
of deferred
revenue (18.2) - - - (18.2)
STATEMENT OF
FINANCIAL POSITION
Segment assets 1,903.0 11.6 15.9 (58.9) 1,871.6
Unallocated
corporate assets 109.4
Total assets 1,981.0
Segment liabilities (597.6) (7.7) (4.4) (8.8) (618.5)
Unallocated
corporate liabilities (606.5)
Total liabilities (1,225.0)
Net assets/(liabilities) 1,305.4 11.5 (67.7)
by segment 3.9 1,253.1
Unallocated
net corporate
liabilities (497.1)
Total net assets 756.0
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
3. SEGMENTAL REPORTING - continued
"Other" comprises smart meter rental and business support
units.
Sales and purchases between the different segments are made at
commercial prices.
Unallocated corporate assets and liabilities include cash and
cash equivalents (2014: GBP85.6 million. 2013: GBP105.9 million),
borrowings (2014: GBP552.2 million, 2013: GBP511.3 million) and
taxation (2014: GBP114.2 million, 2013: GBP95.2 million).
External sales to RWE Npower plc in 2014 of GBP92.9 million
(2013: GBP86.6 million) are included within the Distribution
segment.
Sales and purchases between the different segments are made at
commercial prices.
Consolidation Adjustments include the recognition of the
GBP52.9m retirement benefit asset (2013: GBP10.6 million
liability).
4. EMPLOYEES AND DIRECTORS
2014 2013
GBP'000 GBP'000
Salaries 60,949 54,097
Social security costs 6,157 6,154
Defined benefit pension costs (2,986) (2,600)
Defined contribution pension costs 1,761 953
65,881 58,604
Less charged as capital expenditure (37,422) (37,089)
28,459 21,515
The majority of the Group's employees are members of the
Northern Powergrid Group of the ESPS, details of which are given in
the Employee Benefit Obligations note (note 24).
The average monthly number of employees during the year was:
2014 2013
No. No.
Distribution 1,081 1,020
Engineering contracting 167 170
Other 41 44
1,289 1,234
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
4. EMPLOYEES AND DIRECTORS - continued
DIRECTORS' REMUNERATION
2014 2013
Highest Paid: GBP'000 GBP'000
Short-term employee benefits 194 208
Post-employment benefits 24 23
Other long-term benefits 303 272
521 503
Total:
Short-term employee benefits 396 398
Post-employment benefits 40 39
Other long-term benefits 449 485
885 922
Directors who are a member of the defined
benefit scheme 33
Accrued pension benefit relating to highest --
paid director
OTHER KEY PERSONNEL REMUNERATION
2014 2013
Total: GBP'000 GBP'000
Short-term employee benefits 340 294
Post-employment benefits 94 87
Other long-term benefits 229 271
663 652
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 and the Group.
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 Group.
5. NET FINANCE COSTS
2014 2013
GBP'000 GBP'000
Finance income:
Interest in joint venture 456 472
Dividends received 33 87
Deposit account interest 250 -
Interest receivable on loans
to Group undertakings 921 1,404
1,660 1,963
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
5. NET FINANCE COSTS - continued
2014 2013
GBP'000 GBP'000
Finance costs:
Bank interest 911 -
Interest payable on other loans 22,365 22,633
Interest payable on loans
from Group undertakings 6,371 7,041
Capitalised interest (3,783) (2,780)
Preference dividends payable 9,001 9,001
34,865 35,895
Net finance costs 33,205 33,932
6. PROFIT BEFORE INCOME TAX
The profit before income tax is stated after
charging/(crediting):
2014 2013
GBP'000 GBP'000
Depreciation - owned assets 62,435 59,753
Profit on disposal of fixed assets (752) (444)
Software development costs amortisation 2,011 1,402
Research costs 5,683 8,158
Amortisation of deferred revenue (19,757) (18,218)
Impairment of trade and other receivables 266 281
Analysis of auditor's remuneration is as follows:
2014 2013
GBP'000 GBP'000
Fees payable to the Company's auditor for
the audit of the Company's annual accounts 32 25
Fees payable to the Company's auditor for
the audit of the Company's subsidiaries pursuant
to legislation 153 167
Total audit fees 185 192
Other services 47 159
Total auditor's remuneration 232 351
2014 2013
GBP'000 GBP'000
Fees payable to the Company's auditor and
its associates in respect of the audit of
associated pension schemes 6 6
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
7. INCOME TAX
Analysis of tax expense
2014 2013
GBP'000 GBP'000
Current tax 35,949 33,006
Deferred tax 2,066 (18,035)
Total tax expense in consolidated statement
of profit or loss 38,015 14,971
Factors affecting the tax expense
The tax assessed for the year is lower than the standard rate of
corporation tax in the UK. The difference is explained below:
2014 2013
GBP'000 GBP'000
Profit on ordinary activities before income
tax 178,256 147,339
Profit on ordinary activities
multiplied by the standard rate of corporation tax
in the UK of 21.50% (2013 - 23.25%) 38,325 34,256
Effects of:
Dividends on non-equity preference shares 1,935 2,093
Tax effect of result of joint venture (98) (110)
Over provision for prior years (1,707) (1,499)
Changes in legislation - (21,566)
Group capital losses received at a discount (556) -
Pension contributions recognised in Other
Comprehensive Income ("OCI") 576 2,238
Other (460) (441)
Tax expense 38,015 14,971
2014 2013
Tax expense comprises: GBP'000 GBP'000
Current tax expense:
Corporation tax charge for the year 37,656 34,305
Over provision for prior years (1,707) (1,499)
Total current tax charge 35,949 33,006
Deferred tax:
Deferred tax expenses relating to the origination
and reversal of temporary differences 2,066 3,531
Effect of changes in tax rates - (21,566)
Total deferred tax charge 2,066 (18,035)
Tax on profit before tax 38,015 14,971
The Finance Act 2013 included a provision that the standard rate
of corporation tax in the United Kingdom was to reduce from 23% to
21% from April 2014 and to 20% from April 2015. Accordingly, 20%
has been applied when calculating deferred tax assets and
liabilities throughout the Northern Powergrid Group as at 31
December 2014.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
8. PROFIT OF PARENT COMPANY
As permitted by Section 408 of the Companies Act 2006, the
statement of profit or loss of the Company is not presented as part
of these financial statements. The Company's profit for the
financial year was GBP24.2 million (2013: GBP24.4 million).
9. DIVIDENDS
2014 2013
GBP'000 GBP'000
Interim dividend at 24p per share (2013:
24p) 30,000 30,000
10. OPERATING EXPENSES
Operating expenses comprise:
2014 2013
GBP'000 GBP'000
Distribution costs 93,435 90,324
Administrative expenses 41,935 37,606
135,370 127,930
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
11. INTANGIBLE ASSETS
Group
Software
development
costs
GBP'000
COST
At 1 January 2014 43,957
Additions 11,070
At 31 December 2014 55,027
AMORTISATION
At 1 January 2014 29,195
Amortisation for year 2,011
At 31 December 2014 31,206
NET BOOK VALUE
At 31 December 2014 23,821
Software
development
costs
GBP'000
COST
At 1 January 2013 35,181
Additions 8,776
At 31 December 2013 43,957
AMORTISATION
At 1 January 2013 27,793
Amortisation for year 1,402
At 31 December 2013 29,195
NET BOOK VALUE
At 31 December 2013 14,762
The Company had no intangible assets at 31 December 2014 (2013:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
12. PROPERTY, PLANT AND EQUIPMENT
Group
Non
operational Fixtures
land and Distribution and Metering
buildings system fittings equipment Totals
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2014 6,550 2,496,307 57,382 63,936 2,624,175
Additions - 199,561 3,113 16,407 219,081
Disposals (16) (9,518) (115) (119) (9,768)
At 31 December
2014 6,534 2,686,350 60,380 80,224 2,833,488
DEPRECIATION
At 1 January 2014 5,662 717,762 53,087 57,431 833,942
Charge for year 203 59,195 1,666 1,371 62,435
Eliminated on disposal (8) (9,518) (115) (119) (9,760)
At 31 December
2014 5,857 767,439 54,638 58,683 886,617
NET BOOK VALUE
At 31 December
2014 677 1,919,229 5,742 21,223 1,946,871
Non
operational Fixtures
land and Distribution and Metering
buildings system fittings equipment Totals
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2013 6,404 2,304,785 56,170 63,347 2,430,706
Additions 146 199,971 1,220 835 202,172
Disposals - (8,449) (8) (246) (8,703)
At 31 December
2013 6,550 2,496,307 57,382 63,936 2,624,175
DEPRECIATION
At 1 January 2013 4,680 672,111 51,747 54,354 782,892
Charge for year 982 54,100 1,348 3,323 59,753
Eliminated on disposal - (8,449) (8) (246) (8,703)
At 31 December
2013 5,662 717,762 53,087 57,431 833,942
NET BOOK VALUE
At 31 December
2013 888 1,778,791 4,295 6,259 1,790,233
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
12. PROPERTY, PLANT AND EQUIPMENT - continued
Group
Assets in the course of construction included above:
Distribution Fixtures
system and fittings Total
GBP'000 GBP'000 GBP'000
At 1 January 2014 185,722 - 185,722
Additions 202,235 1,643 203,878
Available for use (201,345) (1,643) (202,988)
At 31 December 2014 186,612 - 186,612
The Group has entered into contractual commitments in relation
to the future acquisition of property, plant and equipment of
GBP31.9 million (2013: GBP36.0 million).
The net book value of the Group's non-operational land and
buildings comprises:
2014 2013
GBP'000 GBP'000
Freehold 209 420
Long leasehold 368 368
Short leasehold 100 100
677 888
Company
Non
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2014 296 1,259 3,634 5,189
Disposals (16) - - (16)
At 31 December 2014 280 1,259 3,634 5,173
DEPRECIATION
At 1 January 2014 21 - 3,380 3,401
Charge for year 9-43 52
Eliminated on disposal (8) - - (8)
At 31 December 2014 22 - 3,423 3,445
NET BOOK VALUE
At 31 December 2014 258 1,259 211 1,728
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
12. PROPERTY, PLANT AND EQUIPMENT - continued
Company
Non
operational Fixtures
land and Distribution and
buildings system fittings Totals
GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2013 296 1,259 3,631 5,186
Additions - - 3 3
At 31 December 2013 296 1,259 3,634 5,189
DEPRECIATION
At 1 January 2013 9 - 3,340 3,349
Charge for year 12 - 40 52
At 31 December 2013 21 - 3,380 3,401
NET BOOK VALUE
At 31 December 2013 275 1,259 254 1,788
All of the Company's non-operational land and buildings are
freehold.
13. INVESTMENTS
Group Share of
joint venture's Shares in
net assets other undertakings
Total
GBP'000 GBP'000 GBP'000
At 31 December 2013 3,371 21 3,392
Movement 49 - 49
At 31 December 2014 3,420 21 3,441
Company Share of
joint venture's Shares in
net assets other undertakings
Total
GBP'000 GBP'000 GBP'000
At 31 December 2013 and 31 December
2014 327,099 971 328,070
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
13. INVESTMENTS - continued
Details of the principal investments of the Group at 31 December
2014 are listed below:
Proportion
of voting
Name of company Holding of rights and Nature of business
shares shares held
Principal subsidiary undertakings
Held by Company:
Engineering contracting
Integrated Utility Services 3,103,000 100% services
Limited at GBP1
Northern Electric & Gas 84,785,000 100% Non-trading company
Limited at GBP1
Property holding
Northern Electric Properties 32,207,100 100% and management
Limited at GBP1 company
Northern Powergrid Metering 1 at GBP1 100% Meter rental
Limited company
Distribution
Northern Powergrid (Northeast) 200,000,100 100% of electricity
Limited at GBP1
Northern Transport Finance 7,000,000 100% Car finance company
Limited at GBP1
Held by the Company's subsidiaries:
Northern Electric Finance 50,000 at 100% Finance company
plc GBP1
Joint venture held by the Company:
Vehicle Lease and Service 950,000 at 50% Transport services
Limited GBP1
All the above companies are registered in England and Wales.
Interest in Joint venture
Summarised financial information in respect of the Group's joint
venture is set out below:
2014 2013
GBP'000 GBP'000
Long-term assets 16,753 17,735
Current assets 15,460 15,425
Long-term liabilities (15,228) (16,093)
Current liabilities (10,145) (10,325)
Net assets 6,840 6,742
Group's share of joint venture's net
assets 3,420 3,371
Revenue 17,156 15,680
Profit for the year 912 944
Group's share of joint venture's profit
for the year 456 472
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
14. INVENTORIES
Group
2014 2013
GBP'000 GBP'000
Stocks 11,592 9,697
Work-in-progress 151 91
Assets held for sale 561 611
12,304 10,399
The Company had no inventories at 31 December 2014 (2013 -
GBPnil).
15. TRADE AND OTHER RECEIVABLES
Group Company
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Distribution use of system
receivables 45,562 30,181 --
Construction contract customers 5,218 6,557 --
Amounts due from customers for contract work 12,654 4,364 -
-
Amounts receivable in respect
of finance leases 4,168 3,683 - -
Other receivables - 71 - 61
Amounts receivable for sale
of goods and services 2,366 955 81 81
Social security and other taxes - - -
Prepayments and accrued income 2,061 4,381 227 196
72,029 50,192 308 338
Non-current:
Amounts receivable in respect
of finance leases 7,494 6,081 - -
Aggregate amounts 79,523 56,273 308 338
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 end of the
reporting period. The fair valuation of the assets is based on
Level 1 inputs. The maximum exposure of risk to the Group is the
book value of these receivables less any provisions for
impairment.
Distribution use of system receivables
The customers served by the Group's distribution network are
supplied predominantly by a small number of electricity supply
businesses with RWE NPower plc accounting for approximately 25% of
distribution revenues in 2014 (2013: 27%). 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 GBP130,000 as at 31
December 2014 (2013: GBP36,000).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
15. TRADE AND OTHER RECEIVABLES - continued
Distribution use of system receivables - continued
Ofgem has indicated that, provided Northern Powergrid
(Northeast) Limited 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 Group'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 (2013: GBPnil).
Construction contract customers
The average credit period on construction contracts is 30 days.
Interest is not generally charged on construction contracts paid
after the due date. The Group has provided fully for all
receivables over one year for UK Contracting debts and all
receivables over six months for Multi-Utility debts. Trade
receivables between 30 days and these pre-determined provision
dates are provided for based on estimated irrecoverable amounts,
determined by reference to past default experience.
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBP2,764,000 (2013:
GBP2,261,000), which are past due at the reporting date for which
the Group has provided for an irrecoverable amount of GBP162,000
(2013: GBP155,000) based on experience. The Group does not hold
collateral over these balances. The average age of these
receivables is 55 days (2013: 70 days).
Included in the Group's construction contracts balance are
debtors with a carrying amount of GBPnil (2013: GBPnil) which are
past due at the reporting date for which the Group has not provided
as there has not been a significant change in credit quality and
the amounts are still considered recoverable. The Group does not
hold any collateral over these balances.
Amounts due from customers for contract work
Contracts in progress at the reporting date:
2014 2013
GBP'000 GBP'000
Contract costs incurred plus recognised
profits less recognised losses to date 55,046 37,934
Less: progress billings (42,392) (33,570)
Amount due from customers 12,654 4,364
At 31 December 2014, retentions held by customers for contract
work amounted to GBP0.8 million (2013: GBP0.4 million).
Advances received from customers for contract work amounted to
GBPnil (2013: GBPnil).
The Company had no construction contracts at 31 December 2014
(2013: GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
15. TRADE AND OTHER RECEIVABLES - continued
Finance lease receivables
Minimum lease payments Present value
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
Amounts receivable
under finance leases:
Within one year 4,552 4,218 4,168 3,683
In the second to fifth
years inclusive 8,582 6,520 7,494 6,081
13,134 10,738 11,662 9,764
Less: unearned finance
income (1,472) (974) - -
11,662 9,764 11,662 9,764
Northern Transport Finance Limited ("NTFL"), a wholly-owned
subsidiary, enters into credit finance arrangements for motor
vehicles with employees in the Northern Powergrid Group. All
agreements are denominated in sterling. The term of the finance
agreements is predominantly three years.
The interest rate inherent in the agreements is fixed at the
contract date for all of the term of the agreement. The average
effective interest rate contracted is approximately 6.5% (2013:
6.5%) per annum. None of these debts are past due and there are no
indicators of impairment.
Northern Powergrid Metering Limited, a wholly-owned subsidiary,
enters into credit finance arrangements for smart meters with
electricity supply companies. All agreements are denominated in
sterling. The term of the finance agreements is predominantly ten
years.
The directors consider the carrying value of finance lease
receivables approximates their fair value. The maximum risk
exposure is the book value of these receivables, less the residual
value of the leased assets.
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 customer contributions in relation to the
distribution system assets 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 Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP740,000
(2013: GBP740,000) which are past due at the reporting date and for
which the Group has provided an irrecoverable amount of GBP339,000
(2013: GBP506,000) based on past experience. The Group does not
hold any collateral over these balances. The average age of these
receivables is 451 days (2013: 688 days).
Included in the Group's amounts receivable for goods and
services balance are debtors with a carrying amount of GBP449,000
(2013: GBP548,000). These amounts are past due at the reporting
date and the Group 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 Group does not hold any collateral over these balances. The
average age of these receivables is 75 days (2013: 65 days).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
15. TRADE AND OTHER RECEIVABLES - continued
Ageing of past due but not impaired receivables:
2014 2013
GBP'000 GBP'000
30-60 days 282 396
60-120 days 86 95
120-210 days 81 57
Total 449 548
Movement in the allowance for doubtful debts
2014 2013
GBP'000 GBP'000
At 1 January 661 497
Amounts utilised/written off in the year (426) (117)
Amounts recognised in statement of profit
or loss 266 281
At 31 December 501 661
In determining the recoverability of the trade and other
receivables, the Group 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 GBP160,000 (2013: GBP287,000 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
2014 2013
Group: GBP'000 GBP'000
Cash and bank balances 85,586 105,897
Loans and receivables at amortised cost 77,462 51,892
Total financial assets 163,048 157,789
Non-current assets 1,974,133 1,808,387
Inventories 12,304 10,399
Prepayments and accrued income 2,061 4,381
Pension asset 52,900 -
Total non-financial assets 2,041,398 1,823,167
Total assets 2,204,446 1,980,956
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
15. TRADE AND OTHER RECEIVABLES - continued
2014 2013
Company: GBP'000 GBP'000
Cash and bank balances 29,806 33,187
Loans and receivables at amortised cost 81 61
Total financial assets 29,887 33,248
Non-current assets 329,798 329,858
Prepayments and accrued income 227 196
Social security and other taxes - 81
Income tax receivables 3,763 7,067
Total non-financial assets 333,788 337,202
Total assets 363,675 370,450
16. CASH AND CASH EQUIVALENTS
Group Company
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed by Group
undertakings 85,586 105,897 29,806 33,187
85,586 105,897 29,806 33,187
Cash and cash equivalents have a maturity of less than three
months, are readily convertible to cash and are subject to an
insignificant risk of changes in value. The carrying amount of
these assets approximates their fair value.
Amounts owed by Group undertakings represent surplus cash
remitted to Yorkshire Electricity Group plc ("YEG"), a fellow
company in the Northern Powergrid Group, and invested to generate a
market rate of return for the Group. This is repayable on demand by
YEG.
17. CALLED UP SHARE CAPITAL
2014 2013
No. No.
Ordinary shares at 56 12/23p each
Allotted, called up and fully paid 127,689,809 127,689,809
2014 2013
GBP'000 GBP'000
Ordinary shares at 56 12/13p each
Allotted, called up and fully paid 72,173 72,173
The Company has one class of ordinary shares which carries no
right to fixed income.
Details of the cumulative non-equity preference shares are
contained in the borrowings note.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
18. RESERVES
Group
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2014 518,891 158,748 6,185 683,824
Profit for the year 140,241 --140,241
Dividends (30,000) - - (30,000)
Movements on pension reserve 20,656 - - 20,656
At 31 December 2014 649,788 158,748 6,185 814,721
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 429,498 158,748 6,185 594,431
Profit for the year 132,368 --132,368
Dividends (30,000) - - (30,000)
Movements on pension reserve (12,975) - - (12,975)
At 31 December 2013 518,891 158,748 6,185 683,824
Company
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2014 119,293 158,748 6,185 284,226
Profit for the year 24,230 --24,230
Dividends (30,000) - - (30,000)
At 31 December 2014 113,523 158,748 6,185 278,456
Retained Share Other
earnings premium reserves Totals
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 124,872 158,748 6,185 289,805
Profit for the year 24,421 --24,421
Dividends (30,000) - - (30,000)
At 31 December 2013 119,293 158,748 6,185 284,226
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
19. TRADE AND OTHER PAYABLES
Group Company
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
Current:
Payments on account 37,137 34,378 - -
Trade payables 5,542 6,486 427 871
Amounts owed to related
parties 706 631 - -
Social security and other
taxes 3,835 614 688 641
Other creditors 8,327 10,579 980 598
Deferred revenue 21,770 22,701 - -
Accrued expenses 69,466 44,354 655 686
146,783 119,743 2,750 2,796
Group Company
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
Non-current:
Deferred revenue 500,762 484,500 - -
500,762 484,500 - -
Aggregate amounts 647,542 604,243 2,750 2,796
The directors consider that the carrying amount of other
financial liabilities approximates their fair value, calculated by
discounting future cash flows at market rate at the end of the
reporting period. The valuation of liabilities set out above is
based on Level 1 inputs. Trade creditors and accruals principally
comprise amounts outstanding for trade purchases and ongoing costs.
Invoices are paid at the end of the month following the date of the
invoice. The Group 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 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 or the Group can be required to pay. The tables include
both interest and principal cash flows.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
19. TRADE AND OTHER PAYABLES - continued
Group
Less than 3 months
3 months to 1 year 1 to 5 years 5+ years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2014:
Non-interest bearing 87,876 - - - 87,876
Variable interest
rate liability 72,083 - - - 72,083
Fixed interest
rate liability 5,031 22,463 188,348 628,781 844,623
164,990 22,463 188,348 628,781 1,004,582
2013:
Non-interest bearing 62,664 - - - 62,664
Variable interest
rate liability 31,020 - - - 31,020
Fixed interest
rate liability 5,031 22,463 149,975 694,649 872,118
98,715 22,463 149,975 694,649 965,802
Company
Less than 3 months
3 months to 1 year 1 to 5 years 5+ years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2014:
Non-interest bearing 2,797 - - - 2,797
Fixed interest
rate liability - 9,000 36,000 115,532 160,532
2,797 9,000 36,000 115,532 163,329
2013:
Non-interest bearing 2,797 - - - 2,797
Fixed interest
rate liability - 9,000 36,000 115,532 160,532
2,797 9,000 36,000 115,532 163,329
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
19. TRADE AND OTHER PAYABLES - continued
Categories of financial liabilities
2014 2013
Group: GBP'000 GBP'000
Loans and payables at amortised cost 566,739 528,991
Total financial liabilities 566,739 528,991
Payments received on account 37,137 34,378
Income tax liabilities 114,244 95,181
Other taxes and social security 3,835 614
Accruals 69,466 44,354
Deferred revenue 522,532 507,201
Pension liability - 10,600
Provisions 3,599 3,640
Total non-financial liabilities 750,813 695,968
Total liabilities 1,317,552 1,224,959
2014 2013
Company: GBP'000 GBP'000
Loans and payables at amortised cost 4,797 4,859
Total financial liabilities 4,797 4,859
Income tax liabilities 5,210 6,140
Other taxes and social security 688 64)
Accruals 655 686
Provisions 1,696 1,725
Total non-financial liabilities 8,249 9,192
Total liabilities 13,046 14,051
Deferred Revenue
2014 2013
GBP'000 GBP'000
At 1 January 507,201 492,354
Additions 35,088 33,065
Amortisation (19,757) (18,218)
At 31 December 522,532 507,201
Deferred revenue represents contributions from customers made in
advance towards distribution system assets. This income is released
to the statement of profit or loss over 45 years on a straight line
basis (except for distributed generation which is released over 15
years on a straight line basis), in line with the useful economic
life of the distribution system assets.
The Company had no deferred revenue at 31 December 2014 (2013:
GBPnil).
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
20. BORROWINGS
The directors' consideration of liquidity, interest rate and
foreign currency risk is described in the Strategic Report.
Group
Book Value Fair Value
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
Loans 446,236 407,441 523,151 457,831
Cumulative preference shares 3,368 3,368 160,811 160,532
Amounts owed to Group undertakings 102,560 100,486 134,663 117,143
552,164 511,295 818,625 735,506
The borrowings are repayable as follows:
On demand or within one
year 85,204 44,536 85,204 44,536
After five years 466,960 466,759 733,421 690,970
552,164 511,295 818,625 735,506
Analysis of borrowings:
Short-term loan 69,144 30,550 69,144 30,550
Inter-company short-term
loan 2,544 470 2,544 470
Bond 2020 - 8.875% 100,923 100,805 135,364 132,556
Bond 2035 - 5.125% 152,814 152,746 183,922 163,000
Cumulative preference shares 3,368 3,368 160,811 160,532
European Investment Bank
2018 - 4.065%* 41,405 41,400 44,312 43,901
European Investment Bank
2019 - 4.241%* 41,467 41,462 45,342 44,286
European Investment Bank
2020 - 4.386%* 40,483 40,478 45,067 43,538
Yorkshire Electricity Group
plc 2037 - 5.9% 100,016 100,016 132,119 116,673
552,164 511,295 818,625 735,506
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
20. BORROWINGS - continued
Company
GBP'000 GBP'000 GBP'000 GBP'000
The borrowings are repayable
as follows:
On demand or within one
year 2,273 2,273 2,273 2,273
After five years 1,117 1,117 158,560 158,281
3,390 3,390 160,833 160,554
Analysis of borrowings:
Inter-company short-term
loan 22 22 22 22
Cumulative preference
shares 3,368 3,368 160,811 160,532
3,390 3,390 160,833 160,554
Of the total financial liabilities of GBP449.6 million relates
to external borrowings and preference shares whose fair value is
determined with reference to quoted market prices. The directors'
estimates of the fair value of 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
valuation of liabilities set out above is based on Level 1
inputs.
* The borrowings from the European Investment Bank were drawn
down in twelve tranches, repayable in 2018, 2019 and 2020. The
interest rates shown are average rates for those repayment dates.
The spread of interest rates is as follows:
2018: 3.901% - 4.283%
2019: 4.077% - 4.455%
2020: 4.227% - 4.586%
Interest on short-term loans and on inter-company short-term
loans is charged at a floating rate of interest LIBOR plus 1.25%,
thus exposing the Group to cash flow interest rate risk. A 1%
movement in interest rates would not subject the Group to any
material change in interest costs. All other loans are at fixed
interest rates and expose the Group to fair value interest rate
risk.
The Company had authorised 115,000,000 non-equity cumulative
preference shares of 1p each as at 31 December 2014 and 2013. As at
31 December 2014 and 2013 111,662,378 were allotted, called up and
fully paid.
The terms of the cumulative preference shares:
i) entitle holders, in priority to holders of all other classes
of shares, to a fixed cumulative preferential dividend of
8.061p (net) per share per annum payable half-yearly in equal
amounts on 31 March and 30 September;
ii) on a return of capital on a winding up, or otherwise, will
carry the right to repayment of capital together with a premium
of 99p per share and a sum equal to any arrears or accruals
of dividend. This right is in priority to the rights of ordinary
shareholders;
iii) carry the right to attend a general meeting of the Company
and vote if, at the date of the notice convening the meeting,
payment of the dividend to which they are entitled is six
months or more in arrears, or if a resolution is to be considered
at the meeting for winding-up the Company or abrogating, varying
or modifying any of the special rights attaching to them;
and
iv) are redeemable in the event of the revocation by the Secretary
of State of the Company's Public Electricity Supply Licence
at the value given in (ii) above.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
20. BORROWINGS - continued
During the year ended 31 December 2001, under the terms of the
Company's transfer scheme, as approved by the Secretary of State in
accordance with the provisions of the Utilities Act 2000, the
Company's Public Electricity Supply Licence was converted into an
Electricity Distribution Licence and an Electricity Supply
Licence.
At 31 December 2014, the Group had available GBP28 million
(2013: GBP67 million) of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
No material market risks in relation to currency or interest
rates are faced by the Group. As at 31 December 2014, 100% (2013:
100%) of the Group's long-term borrowings were at fixed rates and
the average maturity for these borrowings was 14 years (2013: 15
years).
21. LEASING AGREEMENTS
Group
Non-cancellable
operating leases
2014 2013
GBP'000 GBP'000
Within one year 5,930 5,438
Between one and five years 15,746 16,594
In more than five years 2,097 5,964
23,773 27,996
2014 2013
GBP'000 GBP'000
Minimum lease payments under operating leases
recognised in the year 5,172 4,930
Company
2014 2013
GBP'000 GBP'000
Within one year 172 172
Between one and five years 390 561
562 733
2014 2013
GBP'000 GBP'000
Minimum lease payments under operating leases
recognised in the year 2,195 2,201
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
22. PROVISIONS
Group Company
2014 2013 2014 2013
GBP'000 GBP'000 GBP'000 GBP'000
Other provisions 3,599 3,640 1,696 1,725
Analysed as follows:
Current 1,632 1,577 7 -
Non-current 1,967 2,063 1,689 1,725
3,599 3,640 1,696 1,725
Claims Other Total
GBP'000 GBP'000 GBP'000
At 1 January 2014 988 2,652 3,640
Utilised/paid in the year (613) (593) (1,206)
Charged to statement of profit or
loss 664 501 1,165
At 31 December 2014 1,039 2,560 3,599
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.
Also included in 'other' is a provision to cover the actuarial
assessment of the costs of unfunded pension arrangements in respect
of former employees. Further details can be found in the Employee
Benefit Obligations note.
23. DEFERRED TAX
Accelerated Rollover/ Retirement Other Total
tax depreciation holdover benefit
relief (obligations/
assets)
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2014 88,312 7,491 (2,460) (179) 93,164
Charge/(credit) to the
statement of profit or
loss 15,780 (865) (12,756) (93) 2,066
Charge to other comprehensive
income - - 12,700 - 12,700
At 31 December 2014 104,092 6,626 (2,516) (272) 107,930
================= ========= ============== ======= ========
Accelerated Rollover/ Retirement Other Total
tax depreciation holdover benefit
relief (obligations/
assets)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 99,993 8,545 (9,547) (112) 98,879
Charge/(credit) to the
statement of profit or
loss (11,681) (1,054) (5,233) (67) (18,035)
Charge to other comprehensive
income - - 12,320 - 12,320
At 31 December 2013 88,312 7,491 (2,460) (179) 93,164
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
23. DEFERRED TAX - continued
Accelerated Rollover/ Retirement Total
tax depreciation holdover relief benefit (obligations/
assets)
Company GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2014 (38) 6,520 (342) 6,140
Charge/(credit) to statement
of profit or loss (7) (926) 3 (930)
At 31 December 2014 (45) 5,594 (339) 5,210
Accelerated Rollover/ Retirement Total
tax depreciation holdover benefit (obligations/
relief assets)
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2013 (22) 7,471 (398) 7,051
Charge/(credit) to statement
of profit or loss (16) (951) 56 (911)
At 31 December 2013 (38) 6,520 (342) 6,140
Other comprises provisions and employee expenses deductible for
tax on a paid basis.
24. EMPLOYEE BENEFIT OBLIGATIONS
Introduction
The Company contributes to two pension schemes, which it
operates on behalf of the participating companies within the
Northern Powergrid Group. Those pension schemes are:
- The Northern Powergrid Group of the ESPS (the "DB Scheme");
and
- The Northern Powergrid Pension Scheme.
The Northern Powergrid Pension Scheme was introduced for new
employees of the Northern Powergrid Group from July 1997 and is a
money purchase arrangement accounted for as a defined contribution
scheme.
The DB Scheme is a defined benefit scheme for directors and
employees, which provides pension and other related retirement
benefits based on final pensionable pay. The DB Scheme closed to
staff commencing employment with the Northern Powergrid Group on or
after 23 July 1997. Members who joined before this date, including
some Protected Persons under The Electricity (Protected Persons)
(England and Wales) Pension Regulations 1990, continue to build up
future pension benefits.
Under the DB Scheme, employees are typically entitled to annual
pensions on retirement at age 63 of one-eightieth of final
pensionable salary for each year of service plus an additional
tax-free cash lump sum at retirement of three times pension.
Benefits are also payable on death and following other events such
as withdrawing from active service.
No other post-retirement benefits are provided to members of the
DB Scheme.
Role of Trustees
The DB Scheme is administered by a board of Trustees which is
legally separate from the Company. The assets of the DB Scheme are
held in a separate trustee-administered fund. The board of Trustees
is made up of Trustees appointed by the Company, as the Principal
Employer of the DB Scheme, Trustees elected by the membership and
an independent trustee. The Trustees are required by law to act in
the interests of all relevant beneficiaries and are responsible in
particular for the asset investment strategy plus the day-to-day
administration of the benefits payable. They also are responsible
for jointly agreeing with the Principal Employer the level of
contributions due to the DB Scheme.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
Funding requirements
UK legislation requires that pension schemes are funded
prudently (i.e. to a level in excess of the current expected cost
of providing benefits). The last actuarial valuation of the DB
scheme was carried out by the Trustees' actuarial advisors, Aon
Hewitt, as at 31 March 2013. Such valuations are required by law to
take place at intervals of no more than three years. Following each
valuation, the Trustees and the Northern Powergrid Group must agree
the contributions required (if any) to ensure the DB Scheme is
fully funded over time on the basis of suitable, prudent
assumptions. Contributions agreed in this manner constitute a
minimum funding requirement. The next funding valuation is due no
later than 31 March 2016 at which the funding position will be
reviewed.
Agreement was reached during October 2014 with the Trustees to
repair the funding deficit of GBP286.4m as at 31 March 2013 over
the 11 year period to 31 March 2025, subject to the actuarial
assumptions adopted for the triennial valuation as at 31 March 2013
being borne out in practice. The agreement includes cash payments
of GBP34.9m per annum over the period to 31 March 2015, made on a
monthly basis, followed by an agreed profile of payments to be made
over the remaining ten years of the recovery plan, as set out
below:
1 April 2015 to 31 March GBP28.6m
2016 p.a.
1 April 2016 to 31 March GBP18.4m
2025 p.a.
All contributions set out above are in 2014/15 prices and will
be increased each year in line with increases in RPI over the
period until they fall due.
The contributions payable by the Northern Powergrid Group to the
DB Scheme in respect of future benefits, which are accruing, are
37.0% of pensionable pay. These contributions were determined as
part of the 31 March 2013 actuarial valuation and are payable in
addition to the deficit repair contributions mentioned above. These
rates will remain in place until such a time as a new schedule of
contributions is agreed between the Trustees and the Company as
part of the 31 March 2016 or earlier valuation.
Under the rules of the DB Scheme, any future surplus in the DB
Scheme may, following consultation with the Group Trustees, be
allocated for the benefit of the members of the DB Scheme and/or
the Principal and Participating Employers.
Pensions' Regulation
The UK pensions market is regulated by the Pensions Regulator
whose key statutory objectives in relation to UK defined benefit
plans are to:
- protect the benefits of members;
- promote and to improve understanding of good administration;
- reduce the risk of situations arising which may lead to compensation
being payable from the Pension Protection Fund ("PPF"); and
- minimise any adverse impact on the sustainable growth of an
employer.
The Pensions Regulator has various powers including the power
to:
- wind up a scheme where winding up is necessary to protect
members' interests;
- appoint or remove a trustee;
- impose a schedule of company contributions or the calculation
of the technical provisions where trustees and company fail
to agree on appropriate contributions; and
- impose contributions where there has been a detrimental action
against the scheme.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
Profile of the DB Scheme
The Defined Benefit Obligation ("DBO") includes benefits for
current employees, former employees and current pensioners. The
overall duration of the DB Scheme's obligation was assessed to be
about 17 years based on the results of the 31 March 2013 funding
valuation. This is the weighted-average time over which benefit
payments are expected to be made.
Broadly, about 40% of the liabilities are attributable to
current employees (duration about 23 years), 10% to former
employees (duration about 24 years) and 50% to current pensioners
(duration about 12 years).
Risks associated with the DB Scheme
The DB Scheme exposes the Northern Powergrid Group to a number
of risks, the most significant of which are:
Risk Description Mitigation
Volatile The DBO is calculated using The allocation to return-seeking
asset a discount rate set with assets is monitored to ensure
returns reference to corporate bond it remains appropriate given
yields. If assets underperform the DB Scheme's long-term
this discount rate, this objectives. The Trustees regularly
will create an element of review the strategy from return-seeking
deficit. The DB Scheme aims assets and have diversified
to hold a significant proportion some return-seeking assets
(48%) of its assets in return-seeking from equities into Reinsurance
assets (such as equities) and Listed Infrastructure
which, although expected to reduce overall risk. To
to outperform corporate bonds avoid concentration risk,
in the long-term, create the allocation to UK equity
volatility and risk in the is restricted to 35% of the
short-term. total equity allocation.
Changes A decrease in corporate bond The DB Scheme also holds a
in bond yields will increase the substantial proportion of
yields value placed on the DBO for its assets (52%) as bonds,
accounting purposes, although which provide a hedge against
this will be partially offset falling bond yields (falling
by an increase in the value yields which increase the
of the DB Scheme's bond holdings. DBO will also increase the
value of the bond assets).
There are some differences
in the credit quality of bonds
held by the DB Scheme and
the bonds analysed to decide
the DBO discount rate, such
that there remains some risk
should yields on different
quality bond/swap assets diverge.
Inflation A significant proportion The DB Scheme holds around
risk of the DBO is indexed in 30% in UK government index-linked
line with price inflation bonds which provide a hedge
(specifically in line with against higher than expected
RPI) and higher inflation inflation increases of the
will lead to higher liabilities DBO (rising inflation will
increase both the DBO and
the value of the index-linked
bond portfolio).
Currency To increase diversification, The DB Scheme hedges a proportion
risk the DB Scheme invests in of the overseas investments
overseas assets. This leads currency risk for those overseas
to a risk that foreign currency currencies that can be hedged
movements negatively impact efficiently. The DB Scheme's
the value of assets in Sterling currency hedging ratio is
terms. currently 50% in respect of
overseas developed market
currencies.
Life expectancy The majority of the DB Scheme's The DB Scheme regularly reviews
obligations are to provide actual experience of its membership
benefits for the pensionable against the actuarial assumptions
lifetime of the member, so underlying the future benefit
increases in life expectancy projections and carries out
will result in an increase detailed analysis when setting
in the liabilities. an appropriate scheme specific
mortality assumption.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
The Company and Trustees have agreed a long-term strategy for
reducing investment risk as and when appropriate. This includes an
element of asset-liability matching, which aims to reduce the
volatility of the funding level of the DB Scheme by investing in
certain assets, which perform in line with the liabilities of the
DB Scheme.
Other risks
There are a number of other risks associated with the DB Scheme
including operational risks (such as paying out the wrong
benefits), legislative risks (such as the government increasing the
burden on pension schemes through new legislation) and other
demographic risks (such as a higher proportion members dying than
assumed with a dependant eligible to receive a survivor's pension
from the DB Scheme).
A particular legislative risk exists in relation to the
equalisation of the Guaranteed Minimum Pension ("GMP"), a
quasi-state benefit accrued by many UK plans over the period 1978
to 1997 as a result of a UK government programme allowing pension
plans to "contract out" of the State Second Pension. The UK
Government has announced its intention to ensure that these
benefits, which currently pay out at different levels for men and
women, are gender-equalised in accordance with sex-discrimination
legislation. This would increase the DBO but it is not possible to
fully quantify the impact of this change at this stage. However, it
could lead to an increase in the order of 2% to the DBO for a
typical scheme.
Reporting at 31 December 2014
For the purposes of this disclosure, the current and future
pension costs of the Northern Powergrid Group have been assessed by
Aon Hewitt, a qualified independent actuary, using the assumptions
set out below, which the actuary has confirmed represent a
reasonable best estimate of those costs. This review has been based
on the same membership and other data as at 31 March 2013. The
board of Northern Powergrid Holdings Company has accepted the
advice of the actuary and formally approved the use of these
assumptions for the purpose of calculating the pension cost of the
Northern Powergrid Group.
The results of the latest funding valuation at 31 March 2013
have been adjusted to 31 December 2014. Those adjustments take
account of experience over the period since 31 March 2013, changes
in market conditions, and differences in the financial and
demographic assumptions. The present value of the DBO and the
related current service cost were measured using the Projected Unit
Credit Method.
For schemes closed to new members, such as the DB Scheme, the
current service cost calculated under the Projected Unit Credit
Method is expected to increase as the members of the scheme
approach retirement.
The principal assumptions used to calculate the liabilities
under IAS 19 are set out below:
Main financial assumptions 2014 2013
% p.a. % p.a.
RPI Inflation 2.80 3.15
Rate of long-term increase in salaries 2.80 3.15
Pension increases 2.70 3.05
Discount rate for scheme liabilities 3.60 4.40
The financial assumptions reflect the nature and term of the DB
Scheme's liabilities.
Main demographic assumptions 2014 2013
Life expectancy for a male currently aged
60 27.1 27.1
Life expectancy for a female currently
aged 60 28.9 28.8
Life expectancy at 60 for a male currently
aged 45 28.7 28.8
Life expectancy at 60 for a female currently
aged 45 30.6 30.6
Proportion of pension exchanged for additional
cash at retirement 10% 10%
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
The mortality assumptions are based on recent actual mortality
experience of DB Scheme members and allow for expected future
improvements in mortality rates.
The DB Scheme's funds are invested in the following assets:
Asset allocation 2014 2013
GBPm GBPm
Developed market equity 306.2 290.7
Emerging market equity 12.6 12.1
Property 130.3 112.2
Reinsurance 64.5 61.8
Listed infrastructure 84.7 66.8
Investment grade corporate bonds 343.1 331.2
Other debt 57.4 37.2
Fixed interest gilts 28.5 21.6
Index-linked gilts 452.7 358.7
Cash 36.1 18.4
Total 1,516.1 1,310.7
The fair values of the above equity and debt instruments are
determined based on quoted market prices in active markets whereas
the fair values of properties are not based on quoted prices in
active markets.
As at 31 December 2014, the fair value of the DB Scheme's
assets, which related to self-investment, amounted to GBPNil (2013:
GBPNil).
The amounts recognised on the statement of financial position
are set out below:
Reconciliation of funded status to statement 2014 2013
of financial position
GBPm GBPm
Fair value of scheme assets 1,516.1 1,310.7
Present value of funded defined benefit
obligations (1,463.2) (1,321.3)
Asset/(liability) recognised on the statement
of financial position 52.9 (10.6)
When determining the adjustment in respect of the minimum
funding requirement, it has been assumed that the Group would be
entitled to a refund from the plant of any surplus arising in the
plan in future. This reflects the provisions of the plan
documentation.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
The amounts recognised in comprehensive income are set out
below:
2014 2013
GBPm GBPm
Operating cost
Service costs:
Current service cost 14.5 13.9
Administration expenses 1.5 1.5
Financing cost
Interest on net defined benefit liability/(asset) (0.3) 0.8
Pension expense recognised in profit and
loss 15.7 16.2
Re-measurements in OCI:
Return on plan assets in excess of that
recognised in net interest (149.6) (36.4)
Actuarial losses due to changes in financial
assumptions 110.4 57.6
Actuarial gains due to changes in demographic
assumptions (19.2) (23.2)
Actuarial losses due to liability experience 33.3 10.7
Total amount recognised in OCI (25.1) 8.7
Total amount recognised in profit and loss
and OCI (9.4) 24.9
Changes to the present value of the DBO 2014 2013
during the year
GBPm GBPm
Opening DBO 1,321.3 1,259.3
Current service cost 14.5 13.9
Interest expense on defined benefit obligation 57.3 54.6
Contributions by DB Scheme participants 1.5 1.6
Actuarial gains on DB Scheme liabilities
arising from changes in demographic assumptions (19.2) (23.2)
Actuarial losses on DB Scheme liabilities
arising from changes in financial assumptions 110.4 57.6
Actuarial losses on DB Scheme liabilities
arising from experience 33.3 10.7
Net benefits paid out (55.9) (53.2)
Closing DBO 1,463.2 1,321.3
Changes in the fair value of DB Scheme 2014 2013
assets during the year
GBPm GBPm
Opening fair value of DB Scheme assets 1,310.7 1,222.8
Interest income on DB Scheme assets 57.6 53.8
Re-measurement gains on DB Scheme assets 149.6 36.4
Contributions by the employer 54.1 50.8
Contributions by DB Scheme participants 1.5 1.6
Net benefits paid out (55.9) (53.2)
Administration costs incurred (1.5 ) (1.5)
Closing fair value of DB Scheme assets 1,516.1 1,310.7
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
24. EMPLOYEE BENEFIT OBLIGATIONS - continued
Actual return on DB Scheme assets 2014 2013
GBPm GBPm
Interest income on DB Scheme assets 57.6 53.8
Re-measurement gain on DB Scheme assets 149.6 36.4
Actual return on DB Scheme assets 207.2 90.2
Analysis of amounts recognised in SoCI 2014 2013
GBPm GBPm
Total re-measurement gains/(losses) 25.1 (8.7)
Sensitivity to key assumptions
The key assumptions used for IAS 19 are discount rate, inflation
and mortality. If different assumptions were used, it could have a
material effect on the results of the Group. The sensitivity of the
results to these assumptions is as follows.
Changes Revised
in DBO DBO
GBPm GBPm
Current Figures 1,463.2
Following a 10 bps decrease in the discount
rate 26.1 1,489.3
Following a 10 bps increase in the discount
rate (25.7) 1,437.5
Following a 10 bps increase in the inflation
assumption 24.3 1,487.5
Following a 10 bps decrease in the inflation
assumption (24.0) 1,439.2
Following a 1 year increase in life expectancy 48.3 1,511.5
Following a 1 year decrease in life expectancy (48.8) 1,414.4
The sensitivity information shown above has been prepared using
the same method as adopted when adjusting the results of the latest
funding valuation to the statement of financial position date. This
is the same approach as has been adopted in previous periods.
A provision to cover the actuarial assessment of the costs of
unfunded pension arrangements in respect of former employees has
been made by the Group and the Company as follows:
GBPm
1 January 2014 1.7
Utilised/paid in the year (0.1)
Transferred from statement of profit or loss 0.1
31 December 2014 1.7
25. DIRECTORS' TRANSACTIONS
During the year, 2 directors (2013: 2) and 5 key personnel
(2013: 6) utilised the services provided by NTFL. The amounts
included in finance lease receivables owed by these directors and
key personnel total GBP43,000 (2013: GBP30,000) in respect of
non-current and GBP80,000 (2013: GBP15,000) in respect of current
receivables.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
26. RELATED PARTY DISCLOSURES
Group
Details of transactions between the Group and other related
parties are disclosed below.
The Group entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
balances outstanding at the year-end were as follows:
Finance/
investment
Amounts income/
Purchases owed from (costs) Borrowings
Sales from from/(to) to/(from)
to
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2014
Integrated Utility
Services Limited
(registered in
Eire) 6 (2,722) 289 - -
Northern Powergrid
Gas Limited 96 - - - -
Northern Powergrid
Limited - - - (6,222) -
Northern Powergrid
Insurance Services
Limited - (476) - - -
Northern Powergrid
(Yorkshire) plc 21,792 (9,934) - - -
Vehicle Lease
and Service Limited 245 (3,703) 417 456 -
Yorkshire Electricity
Group plc - - - (5,450) (102,560)
22,139 (16,835) 706 (11,216) (102,560)
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
26. RELATED PARTY DISCLOSURES - continued
Finance/
investment
Amounts income/
Purchases owed from/(to) (costs) Borrowings
Sales from from/(to) to/(from)
to
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2013
Integrated Utility
Services Limited
(registered in
Eire) - (1,428) 232 - -
Northern Powergrid
Gas Limited 46 - - - -
Northern Powergrid
Limited - - - (6,222) -
Northern Powergrid
Insurance Services
Limited - (428) - - -
Northern Powergrid
(Yorkshire) plc 17,723 (7,697) - - -
Vehicle Lease
and Service Limited 169 (4,155) 399 472
Yorkshire Electricity
Group plc - - - (5,637) (100,486)
17,938 (13,708) 631 (11,387) (100,486)
Sales and purchases from related parties were made at commercial
prices.
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have
been made for doubtful debts in respect of amounts owed by related
parties.
Company
Details of transactions between the Company and other related
parties are disclosed below.
The Company entered into transactions, in the ordinary course of
business, with affiliated companies. Transactions entered into and
balances outstanding at the year-end were as follows:
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
26. RELATED PARTY DISCLOSURES - continued
Finance/
investment
Amounts income/
Purchases owed from/(to) (costs) Borrowings
Sales from from/(to) to/(from)
to
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2014
Integrated Utility
Services Limited 63 (520) - - -
Northern Powergrid
Gas Limited 96 - - - -
Northern Powergrid
Limited - - - (6,222) -
Northern Powergrid
(Northeast) Limited 7,300 (145) - 30,000 -
Northern Powergrid
(Yorkshire) plc 4,663 - - - -
Northern Transport
Finance Limited 28 - - - -
Vehicle Lease
and Service Limited 207 - - 407 -
Yorkshire Electricity
Group plc - - - 267 29,806
12,357 (665) - 24,452 29,806
Finance/
investment
income/
Purchases Amounts (costs) Borrowings
Sales to from owed from/(to) from/(to) to/(from)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Related Party
2013
Integrated Utility
Services Limited 423 - - - -
Northern Powergrid
Gas Limited 46 - - - -
Northern Limited - - - (6,222) -
Northern Powergrid
(Northeast) Limited 6,476 (162) - 30,000 -
Northern Powergrid
(Yorkshire) plc 3,891 - - - -
Northern Transport
Finance Limited 22 - - - -
Vehicle Lease
and Service Limited 169 - - 405 -
Yorkshire Electricity
Group plc - - - 660 33,187
11,027 (162) - 24,843 33,187
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
26. RELATED PARTY DISCLOSURES - continued
Sales and purchases from related parties were made at commercial
prices.
Interest on loans from Northern Powergrid Group companies is
charged at a commercial rate.
The amounts outstanding are unsecured and will be settled in
cash. No guarantees have been given or received. No provisions have
been made for doubtful debts in respect of amounts owed by related
parties.
27. RECONCILIATION OF PROFIT BEFORE INCOME TAX TO CASH GENERATED FROM
OPERATIONS
Group
2014 2013
GBP'000 GBP'000
Profit before income tax 178,256 147,339
Depreciation charges 64,446 61,155
Profit on disposal of fixed assets (752) (444)
Amortisation of deferred revenue (19,757) (18,218)
Retirement benefit obligations (38,400) (34,600)
(Decrease)/increase in provisions (41) 60
Finance costs 34,865 35,895
Finance income (1,660) (1,963)
216,957 189,224
(Increase)/decrease in inventories (1,905) 610
(Increase)/decrease in trade and other receivables (23,477)
14,913
Increase/(decrease) in trade and other payables 24,374
(6,712)
Cash generated from operations 215,949 198,035
Company
2014 2013
GBP'000 GBP'000
Profit before income tax 23,301 23,195
Depreciation charges 52 52
Decrease in provisions (29) (18)
Finance costs 9,012 9,015
Finance income (30,820) (30,679)
1,516 1,565
Decrease in trade and other receivables 30 228
Decrease in trade and other payables (47) (4,304)
Cash generated from/(used in) operations 1,499 (2,511)
28. OTHER RESERVES
At the Company's Annual General Meeting in August 1994, the
shareholders gave approval to on-market purchases of up to 10% of
its shares and this was given effect on 21 September 1994 when
12,370,400 shares were purchased. This transaction resulted in the
creation of a capital redemption reserve of GBP6.2m. Under section
831(4) of the Companies Act 2006 this reserve is treated as an
un-distributable reserve.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEAR ENDED 31 DECEMBER 2014
29. ULTIMATE CONTROLLING PARTY
The immediate parent undertaking of Northern Electric plc Group
is Northern Powergrid Limited. The ultimate controlling party and
ultimate parent undertaking of Northern Powergrid Limited 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 Electric plc Group and the group accounts of
Northern Powergrid Holdings Company, the largest 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.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of
Northern Electric plc will be held at Lloyds Court, 78 Grey Street,
Newcastle upon Tyne, NE1 6AF on 17 June 2015 at 10.00 am for the
following purposes:
The following resolutions will be proposed as ordinary
resolutions.
Resolution 1
To receive and consider the strategic, directors' and auditor's
reports and the Group accounts for the year ended 31 December
2014.
Resolution 2
To declare that no final dividend be paid for the year ended 31
December 2014.
Resolution 3
To re-elect Mr J A Andreasen as a director.
Resolution 4
To re-elect Mr R Dixon as a director.
Resolution 5
To re-elect Mr P J Goodman as a director.
Resolution 6
To re-appoint Deloitte LLP as auditor until the conclusion of
the next general meeting at which accounts are laid and to
authorise the directors to determine their remuneration.
By order of the board Registered office:
John Elliott Lloyds Court, 78 Grey
Street,
Secretary Newcastle upon Tyne,
NE1 6AF
17 April 2015 Registered in England
No 2366942
Note:
1. All the issued ordinary shares in the Company are held by or
on behalf of Northern Powergrid Limited.
2. Holders of preference shares have the right to receive notice
of, attend and speak at the Annual General Meeting but are only
entitled to vote if, at the date of the notice of the meeting,
payment of the dividend to which they are entitled is six months or
more in arrears or if a resolution is to be considered at the
meeting for the winding up of the Company or abrogating, varying or
modifying any of the special rights attaching to the preference
shares. As none of these circumstances apply to this Annual General
Meeting, preference shareholders should note that they do not have
the right to vote on any of the business to be considered.
3. Members are entitled to appoint a proxy to exercise all or
any of their rights on their behalf at the meeting. A shareholder
may appoint more than one proxy in relation to the Annual General
Meeting provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by the
shareholder. A proxy need not be a shareholder of the Company.
4. Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a "Nominated Person") may, under an agreement
between him/her and the shareholder by whom he/she was nominated,
have a right to be appointed (or to have someone else appointed) as
a proxy for the Annual General Meeting. If a nominated person does
not have such a right or does not wish to exercise it, he/she may
have a right under such an agreement to give instructions to the
member as to the exercise of voting rights.
NORTHERN ELECTRIC PLC (REGISTERED NUMBER: 02366942)
NOTICE OF ANNUAL GENERAL MEETING - continued
5. Any corporation which is a member can appoint one or more
corporate representatives who may exercise on its behalf all of its
powers as a member provided that they do not do so in relation to
the same shares.
6. The current price of the Company's preference shares can be
obtained from the web site of the London Stock Exchange at
www.londonstockexchange.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEISUAFISELL
Nthn.elec.prf (LSE:NTEA)
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