National Grid 2008 Annual Report Download - page 590

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 45238
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: 68
Description: EXHIBIT 15.1
0/4264.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/264/4*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 45238
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: 68 Description: EXHIBIT 15.1
0/4264.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/264/4*
Table of Contents
76
Financial
p
osition and financial mana
g
ement continued
National Grid plc
Regulatory restrictions
As part of our regulatory arrangements, our operations are
subject to a number of restrictions on the way we can
operate. These include regulatory ‘ring-fences’ that require
us to maintain adequate financial resources within certain
parts of our operating businesses and restrict our ability to
transfer funds or levy charges between certain subsidiary
companies.
Treasury policy
Funding and treasury risk management for National Grid is
carried out under policies and guidelines approved by the
Board. The Finance Committee, a committee of the Board
(for further details see page 92), is responsible for regular
review and monitoring of treasury activity and for approval of
specific transactions, the authority for which may be
delegated. There is a Treasury function that raises funding
and manages interest rate and foreign exchange rate risk.
Financin
g
pro
g
rammes exist for each of the main companies
within National Grid. The Finance Committee of the Board
and the finance committee or board of the appropriate
subsidiary undertaking approve all funding programmes.
The Treasury function is not operated as a profit centre. Debt
and treasury positions are managed in a non-speculative
manner, such that all transactions in financial instruments or
products are matched to an underlying current or anticipated
business requirement.
The use of derivative financial instruments is controlled by
policy
g
uidelines set by the Board. Derivatives entered into in
respect of gas and electricity commodities are used in
support of the business’s operational requirements and the
policy regarding their use is explained on page 78.
We had borrowings outstanding at 31 March 2008
amounting to £21,003 million (31 March 2007:
£15,717 million).
We believe that maturing amounts in respect of contractual
obligations as shown in ‘Commitments and Contingencies’ in
note 29 to the consolidated financial statements can be met
from existing cash and investments, operating cash flows
and other financings that we reasonably expect to be able to
secure in the future, together with the use of committed
facilities if required. Our financial position and expected
future operating cash flows are such that we can borrow on
the wholesale capital and money markets and most of our
borrowings are through public bonds and commercial paper.
We place surplus funds on the money markets, usually in the
form of short-term fixed deposits and placements with money
funds that are invested in highly liquid form with approved
hi
g
hly rated banks and counterparties. We believe this policy
continues to provide appropriate liquidity and credit risk
management particularly in light of the current global
economic and credit situation. Details relating to cash, short-
term investments and other financial assets at 31
March 2008 are shown in notes 15 and 20 to the
consolidated financial statements.
As of 31 March 2008, the long-term senior unsecured debt
and short-term debt credit ratings respectively provided by
Moody’s, Standard & Poor’s and Fitch were as follows:
* Corporate credit rating
^
Issuer rating
The long-term credit ratin
g
s of most National Grid companies
were reduced by one notch by Standard & Poor’s and
Moody’s as a direct result of the KeySpan acquisition.
Standard & Poor’s and Fitch have current outlooks of stable
on all National Grid companies. Moody’s have a current
outlook of negative on all National Grid companies.
The main risks arising from our financing activities are set
out below, as are the policies for managing these risks,
which are a
g
reed and reviewed by the Board and the
Finance Committee.
Refinancing risk management
The Board controls refinancing risk mainly by limiting the
amount of financing obligations (both principal and interest)
arising on borrowings in any financial year. This policy
operates by placing a financial limit on the amounts of debt
falling due for refinancing in any given time frame.
During the year, a mixture of short-term and long-term debt
was issued.
Note 21 to the consolidated financial statements sets out the
contractual maturities of our borrowings over the next
5 years, with the total contracted borrowings maturing over
48 years in compliance with our refinancing risk policy.
Interest rate risk management
Our interest rate exposure arising from borrowings and
deposits is managed by the use of fixed-rate and floating-
rate debt, interest rate swaps, swaptions and forward rate
agreements. Our interest rate risk management policy is to
seek to minimise total financing costs (being interest costs
and changes in the market value of debt) subject to
constraints so that, even with large movements in interest
rates, neither the interest cost nor the total financin
g
cost can
exceed pre-set limits. Some of the bonds in issue from
National Grid Electricity Transmission plc and National Grid
Gas plc are index-linked, that is their cost is linked to
changes in the UK Retail Price Index (RPI). We believe that
these bonds provide a good hedge for revenues and our
regulatory asset values that are also RPI linked under our
p
rice control formulae in the UK.
Facility Moody’s S&P Fitch
National Grid plc Baa1/P2 BBB+/A2 BBB+/F2
National Grid Holdings One
p
lc
–
BBB+/A2
–
National Grid Electricity
Transmission plc A3/P2 A-/A2 A/F2
National Grid Gas
p
lc A3/P2 A-
/
A2 A/F2
National Grid Gas Holdings
p
lc A3 BBB+ A
National Grid USA A3/P2 BBB+/A2 –
Niagara Mohawk Power
Cor
p
. A3 BBB+/A2
–
Massachusetts Electric Co. A3/P2 A-
/
A2
–
New England Power Co. A3/P2 A-/A2 –
The Narrangansett Electric
Co. A3
^
A-*/A2
–
Ke
y
S
p
an Cor
p
oration Baa1/P2 A-
/
A2 A-
The Brooklyn Union Gas
Com
p
an
y
–
AA+
KeySpan Gas East
Cor
p
oration A3 A A
Boston Gas Company Baa1 A- –
Colonial Gas Com
p
an
y
A3 A-*
–
National Grid Generation
LLC Baa1 A-*
–