National Grid 2008 Annual Report Download - page 523

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 22151
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 11
Description: EXHIBIT 15.1
0/10207.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/207/10*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 22151
Name: NATIONAL GRID
Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: [phone]Site: BOWNE OF NEW YORK
Y59930.SUB, DocName: EX-15.1, Doc: 16, Page: 11 Description: EXHIBIT 15.1
0/10207.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/207/10*
Table of Contents
Annual Report and Accounts 2007/08
19
Electricity transmission and distribution networks, including
the ones we own, are members of the regional transmission
operators or independent system operators that have the
responsibility for balancing electricity supply with demand
and for the reliability of the regional transmission network.
Gas distribution networks, including the ones we own, are
each responsible for balancing gas supply with demand
within their respective distribution area.
There are more than 25 companies and organisations that
own or operate energy delivery infrastructure in the
northeastern US, including National Grid, Consolidated
Edison, NSTAR, Energy East and Northeast Utilities.
Other markets in which we operate
Our other businesses, with the exception of discontinued
operations, primarily operate in ener
g
y related markets in the
UK and the US or are directly connected to our regulated
businesses as described above. This includes our metering
services businesses in the UK, incorporating our legacy
re
g
ulated meterin
g
business which owns approximately 80%
of the domestic gas meters in the UK, and our competitive
metering services business which has about an 8% market
share for new and replacement gas meters.
Regulation
As a result of our position in, and importance to, the
economies we serve, our electricity and gas transmission
and distribution businesses are subject to UK, European
Union and US federal and state laws and regulations. We
have multiple re
g
ulators, each of which exercises power over
how we operate within their respective jurisdictions.
Our businesses are also subject to safety legislation in the
UK and the US, which is enforced by the Health and Safety
Executive (HSE) in the UK and by federal safety bodies and
by state and local authorities in the US. Our UK gas
operations work under a permissioning regime, whereby our
organisation, processes and procedures are documented in
safety cases that are subject to acceptance by the HSE.
Our principal market regulators and associated rate plans
and price controls can be summarised as follows:
We have eight price controls in the UK, comprising two for
our UK electricity transmission operations, two for our gas
transmission operations, and one for each of our four
regional gas distribution networks. These price controls
provide a financial incentive to invest, as we receive a return
on efficiently incurred capital expenditure increasing our
regulatory asset base, and also provide incentives by which
we can
g
ain or lose for our performance in mana
g
in
g
system
operation, in controlling internal costs, pass-through costs
and service quality.
UK
In the UK, energy networks are regulated by the
Office of Gas and Electricity Markets (Ofgem).
Ofgem operates under the direction and
governance of the Gas and Electricity Markets
Authority and has established price control
mechanisms that restrict the amount of revenue
that can be earned b
y
re
g
ulated businesses.
We have four electricity rate plans and nine sets of gas rates
in the US, covering our electricity distribution operations in
upstate New York, Massachusetts, Rhode Island and New
Hampshire and our gas distribution networks in upstate New
York, New York City, Long Island, Massachusetts, New
Hampshire and Rhode Island. Our electricity rate plan in
upstate New York also covers our electricity transmission
network in that state. Our rates for our electricity
transmission network in New England are subject to federal
regulatory approval.
Our rate plans are based on our cost base, together with a
return on capital expenditure. Some rate plans include
earned savings mechanisms that allow us to retain a
proportion of the savings we achieve through improving
efficiency, with the balance benefiting customers. We are
also permitted to recover commodity and other pass-through
costs which we incur, together with the recovery of stranded
costs. Our reliability performance under certain rate plans is
subject to performance targets established by the relevant
regulator, under which we can be assessed monetary
penalties for failing to meet those targets.
The periods of our current price controls and rate plans can
be summarised as follows:
More information about the regulatory environments in which
we operate, and on the nature of our rate plans and price
controls, is provided in the business sections on pages 44 to
72.
In addition, as a public company with shares listed on both
the London and New York Stock Exchanges, we are subject
to regulation by the UK Financial Services Authority and by
the US Securities and Exchange Commission.
US
In the US, public utilities are regulated by the
Federal Energy Regulatory Commission (FERC)
and by utility commissions in each of the states,
including the New York Public Service
Commission, the Massachusetts Department of
Public Utilities, the Rhode Island Public Utilities
Commission and the New Hampshire Public
Utilities Commission. These US regulators set
service standards and determine allowable levels
of return. FERC also regulates public utility
holding companies, including mergers and
ac
q
uisitions of
p
ublic utilities.