National Grid 2008 Annual Report Download - page 112

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 33113
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.5.1, Doc: 4, Page: 16
Description: EXH 2(B).5.1
0/1495.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/495/1*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 33113
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.5.1, Doc: 4, Page: 16 Description: EXH 2(B).5.1
0/1495.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/495/1*
risk that in-city unforced capacity prices in New York may be less than expected causin
g
loss under existin
g
KeySpan swap
arran
g
ements; and investments in natural
g
as and oil exploration and production may in certain circumstances under SEC rules
require non-cash impairment.
Changes to the regulatory treatment of commodity costs may have an adverse effect on the results of operations
Changes in commodity prices could potentially impact on National Grid’s ener
g
y delivery businesses. Current re
g
ulatory
arran
g
ements in the U.K. and U.S. provide the ability to pass throu
g
h virtually all of the increased costs related to commodity
prices to consumers. However, if re
g
ulators in the U.K. or the U.S. were to restrict this ability, it could have an adverse effect on
National Grid’s operating results.
National Grid’s reputation may be harmed if consumers of energy suffer a disruption to their supply even if this disruption i
s
outside of National Grid’s control
National Grid’s ener
g
y delivery businesses are responsible for transportin
g
available electricity and
g
as. National Grid consults
with and provides information to re
g
ulators,
g
overnments and industry participants about future demand and the availability of
supply. However, where there is insufficient supply, National Grid’s role is to mana
g
e the relevant system safely, which, in
extreme circumstances, may require National Grid to disconnect consumers.
Fluctuations in exchange rates, interest rates and commodity price indices, in particular in the U.S. dollar, could have
a
significant impact on National Grid’s results of operations because National Grid has substantial business interests in the U.S.
and because of the significant proportion of National Grid’s borrowings, derivative financial instruments and commodit
y
contracts that may potentially be affected by such fluctuations.
National Grid currently has si
g
nificant operations in the U.S. and the proportion of its activities located there will substantially
increase followin
g
the completion of the proposed acquisition of KeySpan. These businesses are subject to the risks normally
associated with forei
g
n operations, includin
g
the need to translate U.S. assets and liabilities, and income and expenses into
Sterling, National Grid’s primary reporting currency. National Grid’s results of operations may be similarly impacted because a
si
g
nificant proportion of its borrowin
g
s, derivative financial instruments and commodity contracts are affected by chan
g
es in
exchange rates, interest rates and commodity price indices, in particular, the U.S. dollar to Sterling exchange rate.
The nature and extent of National Grid’s borrowings means that an increase in interest rates could have an adverse impact o
n
its financial position and business results
A significant proportion of National Grid’s borrowin
g
s are subject to variable interest rates that may fluctuate with chan
g
es to
prevailing interest rates. Increases in these interest rates could therefore increase National Grid’s costs and diminish its profits.
National Grid’s financial position may be adversely affected by a number of factors including restrictions in borrowing and deb
t
arrangements, changes to credit ratings and effective tax rates
National Grid is subject to certain covenants and restrictions in relation to its listed debt securities and its bank lendin
g
facilities.
National Grid is also subject to restrictions on financin
g
that have been imposed by re
g
ulators. These restrictions may hinder
National Grid in servicin
g
the financial requirements of its current businesses or the financin
g
of newly acquired or developin
g
businesses. National Grid’s debt is rated by credit ratin
g
a
g
encies and chan
g
es to these ratin
g
s may affect both its borrowin
g
capacity and the cost of those borrowings. The effective rate of tax National Grid pays
16