National Grid 2008 Annual Report Download - page 529

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 14515
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: 15
Description: EXHIBIT 15.1
0/7211.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/211/7*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 14515
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: 15 Description: EXHIBIT 15.1
0/7211.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/211/7*
Table of Contents
Annual Report and Accounts 2007/08
23
State regulatory commissions and other policy makers in the
various jurisdictions are taking different approaches to
achieve this focus, including the establishment of targets for
reductions in electric load growth, utility energy efficiency
programmes, and renewable generation. There is also an
ongoing debate about the potential for revenue decoupling
mechanisms to address disincentives to implementing
energy efficiency programmes.
Changes in price controls, rate plans and
other agreements
UK price controls
In the UK, five year price controls for our electricity and gas
transmission networks in the UK came into operation on 1
April 2007, together with one year system operator price
controls. Our UK gas distribution networks were also subject
to a one year price control review during 2007/08, the
principal impact of which was to increase prices by
approximately 11% and to reduce the seasonality of
revenues.
We have accepted Ofgem’s final proposals for new price
controls with respect to our role as owner and operator of
four of the eight gas distribution networks in Great Britain,
covering the period from 1 April 2008 to 31 March 2013. The
key elements are a 4.3% post-tax real rate of return on our
regulatory asset value, a £2.9 billion baseline five year
capital expenditure allowance and a £1.9 billion five year
operating expenditure allowance. We have also accepted
system operator price controls for our electricity and gas
transmission operations for 2008/09.
US rate plans
In the US, in conjunction with our acquisition of KeySpan, we
agreed rate plans with the New York Public Service
Commission with respect to our
g
as distribution operations in
New York City and Long Island. Under these plans, base
delivery rates for our New York City operations increase by
$5 million (£2.5 million) for calendar year 2008, with further
increases of $5 million (£2.5 million) each year up to 2012.
For our Long Island operations, base delivery rates increase
by $60 million (£30 million) for calendar year 2008, with
increases of $10 million (£5 million) each year up to 2012.
Both rate filings allow for increases in taxes and
environmental remediation costs to be deferred and
recovered in future periods.
We have also filed, or are planning to file, rate plan
applications that would increase gas distribution rates in
upstate New York, Rhode Island and New Hampshire and
decrease electricity distribution rates in New Hampshire. We
have also applied for deferred recovery of incremental
investment in upstate New York.
Other agreements
In conjunction with the acquisition of KeySpan, revised
agreements were entered into with the Long Island Power
Authority (LIPA) for the period until 2013 with respect to our
role as operator of their electricity transmission and
distribution network on Long Island, an option for LIPA to
purchase two generation plants that we own, and the
provision of energy procurement and management services.
During the year we also entered into a joint venture
arrangement with TenneT to construct an electricity
interconnector between the UK and Netherlands and an
agreement with Elia to explore the feasibility of constructing
an electricity interconnector with Belgium.
We have entered contracts with E.ON, Iberdrola and
Centrica for a further 6.7 billion cubic metres of long-term
LNG importation capacity at our Isle of Grain LNG import
terminal in the Thames Estuary, this being Phase III of our
development of this facility. Work commenced during 2007
and a contract has been awarded to CB&I to deliver the
second jetty, an additional 190,000m
3
storage tank and
associated works. National Grid is planning to invest
£310 million in this additional development, which is
expected to bring total planned investment in Grain LNG to
approximately £830 million.
Legal and related matters
Metering competition investigation
On 25 February 2008, Ofgem announced it had decided we
had breached the UK Competition Act 1998 with respect to
the development of term contracts with
g
as suppliers entered
into by our UK metering services business in 2004 and
imposed a fine of £41.6 million, which has been suspended
pending our appeal to the Competition Appeal Tribunal. We
believe that we have never been anti-competitive and that
we will be successful in appealin
g
this decision. We have
therefore not provided for this fine in our financial
statements.
Environmental remediation
In last year’s Annual Report and Accounts we noted that,
together with the Environment Agency, we had sought
j
udicial review to clarify the le
g
al position with re
g
ard to the
remediation of a site in Bawtry, Yorkshire. This former gas
site was not part of the assets that formed part of the gas
privatisation in 1986 and therefore had never been owned by
National Grid. In June 2007, the House of Lords announced
that it was allowing our appeal, and confirmed that National
Grid has no legal liability with respect to the site in Bawtry,
nor for other former UK gas sites which did not form part of
the assets we acquired at the time of privatisation.
KeySpan Department of Justice investigation
In May 2007, KeySpan received a civil investigative demand
from the Antitrust Division of the United States Department
of Justice, requesting the production of documents and
information relating to its investigation of competitive issues
in the New York City electricity capacity market prior to our
acquisition of KeySpan. The civil investigative demand is a
request for information in the course of an investigation and
does not constitute the commencement of le
g
al proceedin
g
s,
and no specific allegations have been made against
KeySpan. In April 2008, we received a second civil
investigation demand in connection with this matter. We
believe that KeySpan’s activity in the capacity market has
been consistent with all applicable laws and regulations and
will continue to cooperate fully with this investi
g
ation.