National Grid 2008 Annual Report Download - page 569

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 6514
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: 50
Description: EXHIBIT 15.1
0/4246.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/246/4*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 6514
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: 50 Description: EXHIBIT 15.1
0/4246.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/246/4*
Table of Contents
58
Gas Distribution continued
National Grid plc
£1,383m £2,845m £514m £188m
Gas Distribution UK
revenue
Gas Distribution US
revenue
Gas Distribution UK
ca
p
ital ex
p
enditure
Gas Distribution US
ca
p
ital ex
p
enditure
Revenue and other operating income in Gas Distribution UK
increased by £192 million in 2007/08 compared with
2006/07. Net formula income was up £165 million due to the
outcome of the one year price control extension. In addition
there was a £59 million timing impact on recoveries. This
was offset by lower non-formula income as a result of the
cessation of transitional service agreements with the
independent distribution networks and lower meter work
activities, which is reflected in the improvement in other
costs.
The allowed formula revenue is no longer linked to delivery
volumes, this decoupling now eliminates the sensitivity to
warm weather and lower underlyin
g
volumes. Furthermore, a
smaller proportion of our income is recovered through the
volume delivery component of our charges.
Cooler temperatures than the prior year increased
consumption by 14 TWh, which was partially offset by the
impact of underlyin
g
volumes bein
g
lower by 2 TWh. The net
year-on-year timing impact against allowed revenues was
£59 million as in 2007/08 there was a net benefit of
£26 million (comprising the recovery of £43 million relatin
g
to
the previous year, partially offset by a £17 million under-
recovery for 2007/08), compared with a net detriment of
£33 million in 2006/07 (comprising a £43 million under-
recovery for 2006/07, partially offset by £10 million recovered
relating to 2005/06).
Operating costs, excluding exceptional items, were £6 million
higher in 2007/08 compared with 2006/07. Depreciation and
amortisation costs were £11 million higher reflecting the
increased capital investment in the distribution network. In
line with 2006/07, there was a £12 million increase in
business rates following the changes in rateable values
introduced from 1 April 2005. From 2007/08 there is an extra
allowance of £12 million for the recovery of non-active
members pensions costs. This was offset by a reduction in
operating costs of £11 million partly driven by the cessation
of the transitional services agreement with the Independent
Distribution Networks and partly efficiency savings.
Exceptional charges of £21 million in 2007/08 related
primarily to the creation of the new shared services
organisation in the UK and global information services
function, together with pension costs associated with these
restructuring programmes. This compared with a £3 million
net gain in 2006/07.
As a consequence of the above, adjusted operating profit
excluding exceptional items was £186 million higher in
2007/08 than 2006/07, an increase of 45%. Including
exceptional items, operating profit was £162 million higher in
2007/08 than 2006/07, an increase of 39%.
2006/07 compared with 2005/06
The principal movements between 2005/06 and 2006/07 can
be summarised as follows:
Revenue and other operating income in Gas Distribution UK
fell by £27 million in 2006/07 compared with 2005/06. Net
formula income was up by £4 million with the benefit of an
average price increase of 8.8% implemented on 1
October 2006 giving rise to a £73 million increase in
revenue, but largely offset by delivery volumes being
significantly lower than the prior year reducing revenue by
£69 million.
The weather in 2006/07 was significantly warmer than
2005/06 lowering consumption by 28 TWh which, combined
with the impact of underlyin
g
volumes bein
g
lower by 16
TWh (caused principally by the continuing effect of high
wholesale
g
as prices), led to an unde
r
-recovery of income of
£43 million in 2006/07. This was partically offset by a
£10 million recovery relating to 2005/06.
Operating costs, excluding exceptional items were
£47 million higher in 2006/07 compared with 2005/06.
Depreciation and amortisation costs were £9 million higher
reflecting the increased capital investment in the distribution
network. As in 2005/06 (see below) there was a £23 million
increase in business rates following the changes in rateable
values introduced from 1 April 2005. The remaining increase
in operating costs of £15 million was mainly driven by
workload includin
g
si
g
nificant investment in maintenance
and other safety-related activities.
Adjusted operating profit was £74 million lower in 2006/07
than 2005/06, a reduction of 15%. An exceptional credit of
£3 million in 2006/07 related to pension elements of
restructuring programmes offsetting costs associated with
the creation of the new shared services organisation in the
UK. Operating profit was £20 million lower in 2006/07 than
2005/06, a reduction of 5%.
Revenue
and other
operating Operating Operating
income costs profit
£m £m £m
2005/06 results 1,226
(
794
)
432
Add back 2005/06 exceptional items – 51 51
2005/06 ad
j
usted results 1,226
(
743
)
483
Price chan
g
es 73
–
73
Weather and volumes (69) – (69)
Timin
g
on recoveries
(
32
)
–
(
32
)
De
p
reciation and amortisation
–
(
9
)
(
9
)
Business rates
–
(
23
)
(
23
)
Other revenues and costs 1 (15) (14)
2006/07 ad
j
usted results 1,199
(
790
)
409
2006/07 exceptional items – 3 3
2006/07 results 1,199
(
787
)
412