National Grid 2008 Annual Report Download - page 684

BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 1169
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: 157
Description: EXHIBIT 15.1
0/5353.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/353/5*
BOWNE INTEGRATED TYPESETTING SYSTEM
CRC: 1169
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: 157 Description: EXHIBIT 15.1
0/5353.00.00.00Y59930BNY
[E/O] EDGAR 2 *Y59930/353/5*
Table of Contents
Annual Report and Accounts 2007/08
165
34. Commodity risk
We purchase electricity and
g
as in order to supply our customers in the US and also to meet our own ener
g
y requirements. We
purchased gas and oil for our discontinued Ravenswood generation station prior to 31 December 2007 when we entered a
tolling agreement with a third party. We also engage in the sale of gas that is produced primarily by our West Virginia gas
fields. In the US substantially all of our costs of purchasing electricity and gas for supply to customers are typically recoverable
at an amount equal to cost. The timing of recovery of these costs can vary between financial periods leading to an under- or
over-recovery within any particular financial period. The most significant gas purchases for our own use relate to the operation
of our
g
as transmission and
g
as distribution networks, mainly in the UK, while we also purchase fuel for our vehicle fleets in the
UK and the US.
We enter into forward contracts for the purchase of commodities; some of these do not meet the normal purchase, sale or
usage exemption for accounting purposes and hence are reported as derivatives. We also enter into derivative instruments
including index-linked swaps and futures contracts linked to commodity prices. These derivatives are used to reduce market
price volatility and are carried at fair value in the balance sheet. Mark-to-market changes in these contracts are reflected
throu
g
h earnin
g
s with the exception of electricity and
g
as futures contracts, and
g
as sales swaps which are desi
g
nated as cash
flow hedges.
Our Energy Procurement Risk Management Policy and Delegations of Authority govern our US commodity trading activities for
energy transactions. The purpose of the policy is to ensure that our US operating companies participate in the physical and
financial markets only for those commodities that we or our customers have a physical market requirement, and will transact
only within predefined risk parameters approved by the Energy Procurement Risk Management Committee.
The fair value of our commodity contracts by type can be analysed as follows:
For each class of commodity contract, our exposure, based on the notional quantities is as follows:
2008 2007*
Assets Liabilities Total Total
£m £m £m £m
Commodity purchase contracts accounted for as derivative contracts
Forward
p
urchases of electricit
y
–
(
47
)
(
47
)
(
132
)
Forward
p
urchases of
g
as 116
(
39
)
77
–
Forward
p
urchases of electricit
y
ca
p
acit
y
1
(
12
)
(
11
)
–
Derivative financial instruments linked to commodit
y
p
rices
Electricit
y
swa
p
s
–
(
26
)
(
26
)
(
136
)
NYMEX
g
as and electricit
y
futures 19
–
19
–
136
(
124
)
12
(
268
)
The maturity of commodity contracts measured at fair value can be analysed as follows:
2008 2007*
Assets Liabilities Total Total
£m £m £m £m
In one
y
ear or less 78
(
36
)
42
(
138
)
Current 78
(
36
)
42
(
138
)
In more than one
y
ear, but not more than two
y
ears 40
(
36
)
4
(
42
)
In more than two
y
ears, but not more than three
y
ears 14
(
12
)
2
(
11
)
In more than three years, but not more than four years 4 (18) (14) (12)
In more than four
y
ears, but not more than five
y
ears
–
(
12
)
(
12
)
(
12
)
In more than five
y
ears
–
(
10
)
(
10
)
(
53
)
Non-current 58 (88) (30) (130)
Total 136
(
124
)
12
(
268
)
*In 2007 all commodity contracts were liabilities
2008 2007
Forward purchases of electricity (i) Nil Nil
Forward
p
urchases of
g
as
(
ii
)
197m Dth n/a
Forward
p
urchases of electricit
y
ca
p
acit
y
23 GWh n/a
Electricit
y
swa
p
s 5,466 GWh 6,845 GWh
NYMEX electricity futures 581 GWh n/a
NYMEX
g
as futures 19m Dth n/a
(i) Forward electricity purchases have terms up to 12 years but do not have specified notional quantities as these are defined by a percentage of unit output. The future obligations of these
contracts are £316m (2007: £389m).
(ii) Forward gas purchases have terms up to seven years. The future obligations of these contracts are £873m (2007: n/a).