National Grid 2008 Annual Report Download - page 222

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 37813
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 16
Description: EXH 2(B).6.1
0/2620.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/620/2*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 37813
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 16 Description: EXH 2(B).6.1
0/2620.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/620/2*
Generatin
g
Station facility into the NYISO. Should the counterparties to arran
g
ements with the Issuer fail to perform, the Issuer
might be forced to enter into alternative hedging arrangements or honour its underlying commitment at then-current market
prices that may exceed the Issuer’s contractual prices. In such event, the Issuer mi
g
ht incur additional losses to the extent of
amounts, if any, already paid to counterparties. This risk is most significant where the Issuer’s subsidiaries have concentrations
of receivables from
g
as and electric utilities and their affiliates, as well as industrial customers and marketers throu
g
hout the
north-east of the United States.
A substantial portion of revenues are derived from agreements with LIPA and no assurances can be made that thes
e
arrangements will not be discontinued at some point in the future.
A substantial portion of the Issuer’s KeySpan affiliate’s revenues in its electric services se
g
ment are derived from a series of
agreements with LIPA pursuant to which the Issuer manages LIPA’s transmission and distribution system and supply the
majority of LIPA’s customers’ electricity needs. These operatin
g
a
g
reements provide LIPA with the ri
g
ht to terminate the
a
g
reements upon the occurrence of certain events of default, which may result from the chan
g
e of control of KeySpan, poor
performance under the performance metrics under an amended and restated Management Services Agreement (the “2006
MSA”) or the Department of Justice’s investi
g
ation into competitive issues in the New York City electric capacity market which
results in a finding triggering an event of default as described below.
On 19 July 2007, LIPA signed an agreement addressing KeySpan’s receipt of a Civil Investigative Demand (“CID”) for the
United States Department of Justice, Antitrust Division (“DOJ”) regarding the DOJ’s investi
g
ation into competitive issues in the
New York City electric capacity market. This a
g
reement amends an existin
g
a
g
reement to add an additional event of default,
such that LIPA will have the contractual right to terminate such agreement if, in connection with the DOJ’s investi
g
ation
referenced in the CID, (a) there is a finding (through either a final, non-appealable jud
g
ment by a court of competent jurisdiction
or final consent decree with the DOJ) that KeySpan or any of its affiliates violated Section 1 or 2 of the Sherman Antitrust Act of
1890 and (b) pursuant to which KeySpan or any of its affiliates is assessed or has a
g
reed to be assessed a monetary or
criminal penalty or sanction or is the subject of injunctive relief.
Ravenswood Generating Station.
The Issuer has announced that it will be movin
g
expeditiously to divest the Ravenswood Generatin
g
Station (a number of
g
enerators totallin
g
approximately 2,450 MW). Divestiture of the Ravenswood Generatin
g
Station within three years (with a
possible one year extension) is a condition of the New York State Public Service Commission (“NYPSC”) order approvin
g
the
acquisition of KeySpan (the “NYPSC Order”). The Issuer cannot predict the timin
g
, terms, or outcome of this divestiture
process or its impact on results. Until Ravenswood Generatin
g
Station is divested, the Issuer remains subject to risk factors
related to the Station, such as:
16
(i) as a condition of the NYPSC Order, by 1 January 2008, 100 per cent. of the ener
g
y from the Ravenswood Generatin
g
Station must be sold via a short term ener
gy
a
g
reement;
(ii) as a condition of the NYPSC Order, the capacity of the Ravenswood Generatin
g
Station must initially be bid at zero,
commencin
g
with the s
p
ot auction the NYISO holds for March 2008 ca
p
acit
y
;
(iii) revisions to the NYISO market rules and Services Tariff;
(iv) the financial performance of the Ravenswood Generatin
g
Station is subject to competition and
g
eneral economic
conditions having an impact on supply and demand as well as other related risks;
(
v
)
risks related to available sources and cost of fuel; and