National Grid 2008 Annual Report Download - page 557

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 40548
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: 39
Description: EXHIBIT 15.1
0/7235.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/235/7*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 40548
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: 39 Description: EXHIBIT 15.1
0/7235.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/235/7*
Table of Contents
Annual Report and Accounts 2007/08
47
The transmission network reliability incentive scheme is
based on the reliability of the electricity transmission network
in England and Wales. For 2007/08, there was the potential
to earn additional revenue of up to 1% if loss of supply was
less than 237 MWh. For loss of supply in excess of 263
MWh, up to a collar of 619 MWh, we could potentially have
lost up to 1.5% of revenue. For 2008/09, an identical
incentive scheme is in place.
The SF
6
incentive, a reward-only scheme, is based on
reducing SF
6
gas emissions. The 2007/08 target was for SF
6
losses to be below 3%, with a sliding target over the
regulatory period, with the 2011/12 target of 2%.
Both our UK electricity and gas system operation activities
are subject to financial incentive schemes to promote
efficiency. If we operate our networks more efficiently than
Ofgem’s forecasts, we can increase our revenues, with
penalties for reductions in performance.
For electricity transmission, we also have a balancing
services incentive scheme that covers the external costs
incurred in balancing the system. For 2008/09, we have
accepted an incentive scheme with a cost target between
£529 million and £544 million, such that we retain 25% (up to
a cap of £15 million) of any savings below £529 million, and
we lose 25% (down to a collar of £15 million) of any costs in
excess of £544 million.
For gas transmission, we have a number of incentive
schemes covering activities such as cost of investment for
additional capacity to facilitate new connections to the
system, managing constraints, the provision of market
information, the cost of purchasing shrinkage gas (gas used
in operating the system) and other gas system operation
costs.
Transmission US
Revenue for our transmission business in New England and
New York is collected from transmission customers,
including from our Electricity Distribution & Generation
business, pursuant to tariffs approved by state utility
commissions and by the Federal Energy Regulatory
Commission.
In New York, our rates allow for capital expenditure on our
transmission network based on historic levels, which are
significantly lower than required to maintain a safe and
reliable network. Over the past few years, we have
overspent rate plan levels by a factor of around two. We are
permitted to petition for additional revenues with respect to
capital expenditure, which we have done with respect to the
2008 calendar year. We anticipate that we will also petition
for deferred recovery of qualifyin
g
incremental investment for
calendar years 2009 to 2011.
In New En
g
land, the tariff allows for recovery of, and a return
on, capital expenditures as new investment enters service,
bringing immediate revenue benefits.
In New York, Massachusetts and Rhode Island, we are
subject to penalties if the reliability of our electricity
distribution and transmission networks fails to meet specific
targets related to customer impacts.
The New York rate plan is orientated around efficient
operations. To the extent that we perform necessary
activities and spend less than the forecast operating costs
set in the rate plan, it equates to increased income for us.
Part of the rate plan deals with forecast energy delivery. To
the extent that more energy is delivered, we increase
revenue. Conversely, if we deliver less than forecast, our
revenue
g
oes down. In New En
g
land, efficient operations are
also key. However, the rate structure is such that network
availability, energy delivery and operational expenditure are
all pass-through items.
Current and future developments
In addition to the current and future developments described
on pa
g
es 22 and 23, the followin
g
developments are relevant
to the Transmission business.
UK price controls
The previous price control arrangements for our electricity
and gas transmission networks in the UK ceased on 31
March 2007 and the current price control period covers the
period from 1 April 2007 to 31 March 2012.
Following our acceptance in principle of the proposals, we
have worked closely with Ofgem to agree the necessary
licence amendments to enact the final proposals.
We also accepted Ofgem’s final proposals for the system
operator schemes that applied to 2007/08 for both gas
transportation and electricity transmission and their
proposals for the one year period from 1 April 2008.
Other UK developments
Following the price control allowances of approximately
£350 million for transmission reinforcement works to
accommodate the growing impact of renewable energy from
Scotland, works are underway. In particular, the upgrade of
the two double circuits connectin
g
Scotland and En
g
land and
associated works will be undertaken over the price control
period. At this time, network access is being sought by
approximately 10 GW of renewable generation projects in
Scotland consisting of over 100 projects, each with
connection agreements with National Grid. For England and
Wales, connection offers have been made to an additional 7
GW of renewable generation.
The 316 kilometre pipeline connecting the new LNG
importation terminals at Milford Haven has been completed
on time and in advance of the terminals. The pipeline has
been delivered to a very challenging timetable. It was
formally opened by UK Energy Minister Malcolm Wickes in
November 2007.
The pipeline will initially have to operate at 70 bar pressure
rather than its design pressure of 94 bar because, following
a public inquiry, planning permission has been refused for a
pressure reduction installation at the end of the pipeline at
Tirley in Gloucestershire. The effect of this is to reduce the
pipeline’s capacity by approximately 25% and a force
majeure notice for this shortfall has been issued under our
contracts with
g
as shippers. Work is pro
g
ressin
g
towards the
submission of revised planning applications in autumn 2008.