National Grid 2010 Annual Report Download - page 24

22 National Grid Gas plc Annual Report and Accounts 2009/10
Details of material litigation as at 31 March 2010
Metering competition investigation
On 25 February 2008, the Gas and Electricity Markets Authority
(GEMA) announced it had decided we breached Chapter II of
the Competition Act 1998 and Article 82 (now Article 102) of the
Treaty on the Functioning of the European Union and fined us
£41.6 million. We appealed GEMA’s decision to the
Competition Appeal Tribunal (the Tribunal), which upheld the
appeal in part in April 2009 and reduced the fine to £30 million.
We appealed further to the Court of Appeal in respect of certain
aspects of the Tribunal’s judgement. On 23 February 2010, in a
reserved judgement, the Court of Appeal decided that it would
not interfere with the judgement of the Tribunal save that it
further reduced the fine to £15 million. On 22 March 2010, we
applied to the Supreme Court for leave to appeal the Court of
Appeal's judgement.
As at 31 March 2010, we have provided for the fine together
with associated costs and have provided against certain trade
receivables and other balance sheet items. Without prejudice to
our position in relation to appealing the Court of Appeal's
judgement, the £15 million fine was paid to GEMA on 1 April
2010.
Gas distribution mains replacement investigation
In October 2008, we informed Ofgem that mains replacement
activity carried out by the UK Gas Distribution business may
have been misreported. Ofgem’s investigation continues, so
that at present it is too early to determine the likely outcome of
the investigation and any potential consequences as a result of
it, including the quantum of any amounts that may become
payable.
Related party transactions
We provide services to and receive services from related
parties, principally fellow subsidiary companies of National Grid.
In the year ended 31 March 2010, NGG charged £21 million
and received charges of £146 million from related parties (other
than Directors and key managers), compared with £19 million
and £358 million respectively in 2008/09.
Further information relating to related party transactions is
contained within note 25 to the consolidated financial
statements. Details of key management compensation and
amounts paid to Directors are included within notes 3(c) and
3(d) to the consolidated financial statements respectively.
Retirement arrangements
The substantial majority of our employees are members of the
National Grid UK Pension Scheme, which is operated by Lattice
Group plc, an intermediate holding company of NGG. We do
not provide any other post-retirement benefits. The scheme has
both a defined benefit section, which is closed to new entrants,
and a defined contribution section, which is offered to all new
employees.
As there is no contractual arrangement or stated policy for
charging the net defined benefit cost of the scheme to NGG, we
account for the scheme as if it were a defined contribution
scheme and do not recognise any share of the assets and
liabilities of the scheme.
Actuarial position
The last completed full actuarial valuation of the National Grid
UK Pension Scheme was as at 31 March 2007. This concluded
that the pre-tax funding deficit was £442 million in the defined
benefit section on the basis of the funding assumptions.
Employer cash contributions for the ongoing cost of this plan
are currently being made at a rate of 29.4% of pensionable
payroll.
Contributions
In addition to ongoing employer contributions we made
additional deficit contributions to the scheme of £58 million
during 2009/10 as a final payment to clear in full the deficit
revealed by the 2007 valuation.
The next valuation of the scheme is due as at 31 March 2010.
Principal risks and
uncertainties
Risk management
Identifying, evaluating and managing risks is integral to the way
we run our business. National Grid continues to have a well
established enterprise-wide risk management process that
ensures risks are consistently assessed, recorded and reported
in a visible, structured and continuous manner, the outputs of
which are primarily used as a management tool. An output from
this process is information that provides assurance to
management and thus helps safeguard our assets and
reputation. NGG participates in this enterprise wide process.
More information on National Grid’s risk management process
can be found the in the National Grid Annual Report and
Accounts 2009/10.
Risk factors
The 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 NGG.
Changes in law or regulation and decisions by
governmental bodies or regulators could have a material
adverse effect on our results of operations.
Our businesses are subject to regulation by governments and
other authorities. Consequently, changes in law or regulation or
regulatory policy and precedent in the countries in which we
operate could materially adversely affect us. Decisions or
rulings concerning, for example: (i) whether licences, approvals
or agreements to operate or supply are granted or are renewed
or whether there has been any breach of the terms of a licence,
approval, or regulatory requirement; (ii) timely recovery of
incurred expenditure or obligations, the ability to pass through