National Grid 2008 Annual Report Download - page 611

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 49064
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: 87
Description: EXHIBIT 15.1
0/4283.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/283/4*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 49064
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: 87 Description: EXHIBIT 15.1
0/4283.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/283/4*
Table of Contents
Annual Report and Accounts 2007/08
95
Risk management in National Grid has become embedded
over time and our experience of this has enabled us to
identify a number of key success criteria linked to both the
risk mana
g
ement framework and process that, if in place, will
help ensure the process continues to remain embedded.
Understanding this in the context of a Company that has
chan
g
ed considerably in size and
g
eo
g
raphic covera
g
e since
2000 has been invaluable in helpin
g
to inte
g
rate different risk
management processes seamlessly and effectively. For
example, with regard to KeySpan we had already started to
align process expectations prior to completion of the
acquisition and because of this foresight are now making
positive strides towards process consistency across our US
and UK lines of business.
Within existing businesses, the risk management process
continues to be based on both bottom-up and top-down
assessments of operational, financial and other business or
project risks. From the bottom up, business units and
Corporate Centre functions prepare and maintain risk
registers that capture their key risks and the actions being
taken to manage them. The key element in the top-down
assessment of our enterprise-wide risk profile is the
involvement of the Executive Directors and other senior
management at critical stages in the review process. Their
review, challenge, and debate of the outputs of the bottom-
up assessment against their top-down perceptions produce
an overall evaluation of the risks that are faced by National
Grid. Graphics that set out the Company’s risk profile and
any significant changes to this between reporting periods
have been designed to aid debate by the Executive, Risk &
Responsibility and Audit Committees twice a year. The Audit
Committee also reviews the risk management process at
least once a year and reports on this to the Board.
During the year, we have benefited from this process
through continued coordination with the Internal Audit
function, Sarbanes-Oxley teams, and the Insurance team.
The external benchmarking exercise has continued with a
deliberate focus on ener
g
y utilities in similar lines of business
to measure the effectiveness of our own approach and
exchange ideas on best practice. We have completed the
restructuring of risk and compliance services to deliver the
support required by our global lines of business and to
ensure approaches are consistent across the US and UK
and continue to provide value to business operations,
including major projects.
Our risk management process has identified the risk factors
set out opposite.
Compliance management
Our enterprise-wide compliance management process is
established and continues to raise visibility over key
obligations. The process provides assurance to the
Executive Directors and senior management on the
effectiveness of control frameworks to manage key internal
and external obligations, and also highlights instances of
significant non-compliance with those obligations. External
obligations are driven primarily by key legal and regulatory
requirements whereas internal obligations focus more on
compliance with National Grid’s own corporate policies and
procedures. A network of compliance coordinators and
champions exists within the businesses and Corporate
Centre functions to enable the top-down/bottom-up
alignment of Executive Directors’ obligations to be
established and reported.
Furthermore, experts for each key obligation interface with
relevant business contacts to ensure the quality of
information reported upwards is validated. The compliance
mana
g
ement process is consistent with, and complementary
to, our risk management process and essentially provides,
amon
g
other thin
g
s, a more detailed breakdown of the risk of
non-compliance with laws, regulations or standards of
service as well as corporate policies and procedures.
Twice a year the Executive, Risk & Responsibility and Audit
Committees receive a report setting out the key obligations
across National Grid and any significant non-compliance with
those obligations, together with compliance opinions and
action plans to improve controls where necessary. As with
the risk management process, the Audit Committee also
reviews the compliance management process at least once
a year and reports on this to the Board. The compliance
mana
g
ement process also contributes toward the entity level
testing that is performed under the Sarbanes-Oxley Act, as
well as some of our other internal assurance activities.
Opportunities to benchmark our process with other similar
organisations remain limited but positive internal feedback
indicates it remains fit for purpose for National Grid and
reflects best practice.
Risk factors
Our risk management process has identified the following
risk factors that could have a material adverse effect on our
business, financial condition, results of operations and
reputation, as well as the value and liquidity of our securities.
Not all of these factors are within our control. In addition,
other factors besides those listed below may have an
adverse effect on National Grid. Any investment decision
regarding our securities and any forward-looking statements
made by us should be considered in the light of these risk
factors and the cautionary statement set out on page 192.
Changes in law or regulation could have an adverse effect
on our results of operations.
Many of our businesses are utilities or networks that are
subject to regulation by governments and other authorities.
Consequently, changes in law or regulation in the countries
or states in which we operate could adversely affect us.
Regulatory decisions concerning, for example, whether
licences or approvals to operate are
g
ranted or are renewed,
whether there has been any breach of the terms of a licence
or approval, recovery of incurred expenditure, the level of
permitted revenues and dividend distributions for our
businesses and proposed business development activities
could have an adverse impact on our results of operations,
cash flows, the financial condition of our businesses and the
ability to develop those businesses in the future. For further
information, see the Operating and Financial Review and, in
particular, the ‘External market and regulatory environment’
and ‘Current and future development’ sections and the
business description sections for each of our lines of
business.