National Grid 2008 Annual Report Download - page 568

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 32613
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: 49
Description: EXHIBIT 15.1
0/6245.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/245/6*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 32613
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: 49 Description: EXHIBIT 15.1
0/6245.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/245/6*
Table of Contents
Annual Report and Accounts 2007/08
57
Durin
g
2007/08, we made around 45,000 new connections to
our UK networks (2006/07: 40,000, 2005/06: 50,000). The
proportion of planned service interruptions in 2007/08 was
99.175% (2006/07: 98.92%, 2005/06: 93%) compared with a
target of 95%, while the proportion of customer complaints
responded to within five working days was 96.1% (2006/07:
94.7%, 2005/06: 94.7%) compared with a target of 90%.
Our gas operations in the US met all customer service
standards over the past year. We installed around 14,000
new services and added 911 kilometres of new gas main
connections to the network.
During 2007/08 we successfully delivered £702 million of
capital investment and plan to invest a further £4 billion by
2012.
UK capital investment
Gross investment including reinforcement, extension and
replacement of the UK gas distribution network was
£514 million in 2007/08 compared with £490 million in
2006/07 and £444 million in 2005/06. Of these amounts
£353 million in 2007/08 related to the replacement
expenditure (2006/07: £333 million, 2005/06: £295 million)
and £161 million of other capital investment including new
connections, new pipelines and minor capital expenditure
(2006/07: £157 million, 2005/06: £149 million). Expenditure
on software applications included within the above amounts
was £18 million (2006/07: £12 million, 2005/06: £1 million).
Replacement expenditure has increased by 20% since
2005/06 reflecting the substantial increase in planned work
load under the long-term mains replacement programme
agreed with the Health & Safety Executive.
During the third year of our alliance partnerships for Gas
Distribution, we have replaced approximately 1,850
kilometres of iron gas mains with an increasing proportion of
our workload comprising complex replacement of large
diameter mains. Performance under the mains replacement
incentive scheme has been held broadly neutral in 2007/08.
The increase in other capital expenditure in 2007/08
compared with 2006/07 and in 2006/07 compared with
2005/06 was because of a higher level of investment in the
reinforcement of hi
g
h pressure pipelines, such projects bein
g
dependent on forecasts of future demand, as well as higher
expenditure on new connections and the replacement of
commercial vehicles. The level of investment in high
pressure pipelines and reinforcement mains continued
during 2007/08 together with higher information technology
expenditure to replace obsolete equipment in system control,
operational and support activities.
US capital investment
Capital expenditure in the replacement, reinforcement and
extension of our US gas distribution networks was
£188 million in 2007/08, £36 million in 2006/07, and
£25 million in 2005/06.
Capital expenditures related to our Gas Distribution US
segment are primarily for the renewal, replacement, and
expansion of the distribution system.
Capital
investment
Our aim is to deliver around £4 billion of capital
investment by 2012 in line with our price control
allowance.
After excluding the effect of exchange movements of
£2 million in 2007/08 compared with 2006/07, capital
expenditures increased by £154 million. The primary reason
for the increase was the inclusion of £144 million
representing seven months of capital expenditure on the
operations acquired with KeySpan.
After excluding the effect of exchange movements of
£2 million in 2006/07 compared with 2005/06, capital
expenditures increased by £13 million due to increased
spending of £6 million in Rhode Island.
Financial performance
The adjusted operating profit for Gas Distribution was
£987 million in 2007/08 compared with £480 million in
2006/07 and £530 million in 2005/06.
In the UK, we measure our return on investment using a
vanilla return measure as defined in our UK price controls
from 1 April 2008. In the US, we measure our return on
investment using our defined return on equity under the
terms of each rate plan.
Gas Distribution UK achieved a 5.1% vanilla return in
2007/08, broadly in line with the regulatory allowance.
Financial results – Gas Distribution UK
The results for our Gas Distribution UK segment for the
years ended 31 March 2008, 2007 and 2006 were as
follows:
Profits
Our objective is to increase profits each year.
Returns on
investment
Our aim is to meet or exceed the base financial
returns in our price controls in the UK and our rate
plans in the US.
Years ended 31 March
2008 2007 2006
Continuing operations £m £m £m
Revenue 1,383 1,193 1,222
Other o
p
eratin
g
income 8 64
Operating costs excluding exceptional
items and remeasurements
(
796
)
(
790
)
(
743
)
Ad
j
usted o
p
eratin
g
p
rofit 595 409 483
Exceptional items (21) 3 (51)
O
p
eratin
g
p
rofit 574 412 432
2007/08 com
p
ared with 2006/07
The principal movements between 2006/07 and 2007/08 can
be summarised as follows:
Revenue
and other
operating Operating Operating
income costs profit
£m £m £m
2006/07 results 1,199
(
787
)
412
Add back 2006/07 exce
p
tional items
–
(
3
)
(
3
)
2006/07 adjusted results 1,199 (790) 409
Allowed revenues 146
–
146
Timin
g
on recoveries 59
–
59
De
p
reciation and amortisation
–
(
11
)
(
11
)
Pass-through costs – (18) (18)
Other revenue and costs
(
13
)
23 10
2007/08 ad
j
usted results 1,391
(
796
)
595
2007/08 exceptional items – (21) (21)
2007/08 results 1,391
(
817
)
574